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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 [Fee Required] for the fiscal year ended December
31, 1996, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
____ to ____
Commission file number 0-13865
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 Number)
441 North 5th Street, Suite 102
Philadelphia, Pennsylvania 19123
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 625-0700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter periods that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of March 21, 1997 was $93,313,956.
As of March 21, 1997, 21,337,654 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Definitive Proxy Statement for its 1997 Annual Meeting to be filed
within 120 days of the Company's fiscal year ended December 31, 1996 is
incorporated by reference in Part III.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
ICC Technologies, Inc. (the "Company") through its joint venture
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 technology 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 believes that the Partnership's climate control systems create
a more comfortable environment, more effectively control humidity, improve
indoor air quality, reduce energy consumption, reduce operating costs, address
certain environmental concerns and provide customers a choice from a variety of
energy sources such as natural gas, steam, waste heat or electricity.
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 market 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 and extending through December
31, 2000. See "Business - The Partnership".
MARKET OVERVIEW
The Company estimates that the worldwide annual market for residential and
commercial air conditioning systems was approximately $30 billion in 1996 and is
expected to grow to approximately $39 billion by the year 2000. The
Asian-Pacific Market is identified as the fastest growing region for residential
and commercial air conditioning systems. The Partnership has specifically
targeted certain applications within the commercial air conditioning market in
North America and Asia-Pacific. The Company estimates that the worldwide
commercial air conditioning market is expected to grow to approximately $13
billion by the year 2000, and the Company expects the Partnership's
desiccant-based systems to compete in a broader segment of this market as
awareness and acceptance of the Partnership's systems grow and their initial
cost declines.
The Company estimates that the Asian-Pacific commercial air conditioning
market was approximately $4 billion in 1996 and is expected to increase to
approximately $6 billion by the year 2000. Many of the Asian-Pacific countries
are located in 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 Company estimates that the North American commercial air conditioning
market was approximately $3 billion in 1996 and is expected to increase to
approximately $4 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
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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,the American Society of
Heating, Refrigeration and Air Conditioning Engineers ("ASHRAE") issued
standards to increase the amount of fresh air brought into buildings by as much
as 200 to 300% as compared to prior ventilation standards. These standards have
been incorporated into many state and local building codes throughout the United
States for new construction. New revised standards are under consideration to
limit space relative humidity to less than sixty percent. See "Business --
Government Regulations."
International accords which address various energy and environmental
concerns are also having an impact on air conditioning markets throughout the
world. Under the 1987 Montreal Protocol, as amended, approximately 130 signatory
countries have agreed to halt all production of ozone-destroying CFCs commencing
in 1996. As a result, the Company believes there is an increased demand for new
equipment to replace CFC-based air conditioning equipment. See "Business --
Government Regulations."
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 reduce indoor temperature and humidity by cooling air. In
conventional air conditioning humidity control is principally a by-product of
the cooling process when moisture condenses on the cooling coil. In conditions
where significant humidity reduction is desired, conventional air conditioning
systems must often cool indoor air below desired levels, thereby consuming
additional energy. Desiccant systems, however, remove humidity independently of
cooling without overcooling the air, thereby generally consuming less energy
than conventional air conditioning.
Desiccant technology has 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 heat exchange 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 utilize two wheel-shaped rotors with honeycomb
passages. The honeycomb substrate material used to make the rotors is
manufactured through a licensed proprietary process for manufacturing
lightweight structural honeycomb core. 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 (air
from the building), 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, and thereby raises the temperature in proportion to the reduction in
humidity. 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), 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). Depending upon climatic conditions, the
temperature of the
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process air is generally reduced to a temperature approximately 10% lower than
outside air temperature. The heat exchange rotor is cooled by an evaporative
cooler on the other side of the unit. The moderate temperature, dry air can be
cooled further by partially rehumidifying the air through an evaporative cooler,
which does not use any refrigerants, or a smaller cooling coil than would be
required by a conventional air conditioning system. The process air is then
delivered to the building by the normal system of fans and ducts.
The Company believes that the Partnership's systems provide the following
features and benefits:
- More Effective Control of Humidity -- The Partnership's systems are
more effective at controlling humidity than conventional,
refrigerant-based air conditioning systems which control humidity
primarily as a by-product of the cooling process when moisture
condenses on the cooling coil. As a result, in conditions where
significant humidity reduction is desired, conventional air
conditioning systems must often cool air below desired temperature
levels. Drier air is generally more comfortable for a building's
occupants and is more efficient to cool. Humidity control is also
important in a variety of commercial applications, such as
supermarkets, and in certain manufacturing processes.
- Improved Indoor Air Quality -- Ventilation standards recommended by
ASHRAE and incorporated into many state and local building codes
throughout the country for new building construction now require
that as much as 200 - 300% more fresh air be circulated into
buildings compared to prior ventilation standards to reduce indoor
air pollutants associated with "Sick Building Syndrome." The
Partnership's climate control systems are designed to process the
humidity introduced by increased ventilation and, accordingly,
enable a building to meet or exceed these standards. In addition,
lower humidity levels reduce airborne bacteria, mold, mildew and
fungi, another major source of indoor air quality problems.
- Energy Efficient and Cost Effective -- Less humid air requires less
energy to cool than more humid air. By dehumidifying air before
cooling, the Partnership's systems, even with a post-cooling option,
consume less energy and are more cost effective to operate than
conventional air conditioning systems alone. 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 and thereby result in
downsizing of total air conditioning requirements.
- Versatile and Reliable -- The Partnership's systems are available in
natural gas, electric, steam or waste heat models and in several
sizes which process from 2,000 to 13,000 cubic feet of air per
minute. The ability to choose from a variety of energy sources
allows customers to select the most cost-effective energy source in
their area at the time of purchase. The systems are also expected to
require less maintenance than conventional equipment because of
simplicity of design and fewer moving parts.
- Environmentally Safer -- Conventional air conditioning systems
utilize refrigerants, such as CFCs, HCFCs and HFCs, which damage
stratospheric ozone or contribute to global warming. Because the
Partnership's systems dehumidify the air before it is cooled by a
post-cooling option in the system or in conjunction with a
conventional air conditioning system, the cooling coil and
compressor included generally are smaller, than would otherwise be
required in a conventional air conditioning system, thereby
utilizing less refrigerant.
- Year-round Performance -- The Partnership's 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 systems can supply heat.
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 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 price of its systems declines,
the Partnership will market its climate control systems as a replacement for
conventional air conditioning systems in a broader segment of commercial
applications. The Partnership is also attempting to develop a residential unit
with one of its international joint venture partners but currently does not have
a residential unit to offer for sale. The Partnership is pursuing the following
strategies:
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- Establish Strategic Relationships with Domestic and International
Manufacturers and Distributors of Air Conditioning Equipment -- The
Partnership has developed strategic relationships with various major
corporations in Asia-Pacific and is in discussions with a number of
domestic and international manufacturers and distributors of air
conditioning equipment. During 1996 the Partnership signed a joint
market development agreement with Carrier's Asia-Pacific Operations
(APO). The agreement, which covers most of the Asia-Pacific market,
extends through March 1998 and is intended to allow Carrier APO to
make a comprehensive assessment of the marketability of the
Partnership's desiccant-based air conditioning and climate control
systems. The Partnership has a licensing agreement with Chung-Hsin,
Taiwan's largest air conditioning manufacturer The Partnership plans
to enter into additional licenses or joint venture arrangements. The
Partnership has marketing relationships 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 Ltd. ("AB Air") in Israel to
develop the market in Israel. AB Air is building systems in Israel
using the Partnership's proprietary rotors. The Partnership believes
that the reputation and resources of its licensees and joint venture
partners will accelerate market acceptance and awareness for its
products.
- Reduction of Manufacturing Costs -- The Partnership reduced the cost
of its systems in the latter half 1996 and expects to further reduce
manufacturing and material costs through production innovations,
efficiencies and materials improvement and substitutes.
- 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 of its products, increasing production and distribution
capabilities and offering its customers a more complete solution to
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.
- 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 and energy
consumption are important health issues or a significant cost of
business. The primary 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.
- --------------------------------------------------------------------------------
Schools Reduces bacteria and fungus in the building and its
heating, ventilation and air conditioning ("HVAC")
system.
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Theaters Improves comfort and indoor air quality.
- --------------------------------------------------------------------------------
Restaurants Provides building pressurization to compensate for
concentration of kitchen exhaust and reduces
cooking odors and improves comfort.
- --------------------------------------------------------------------------------
Health Care Reduces bacteria and fungus in the building
and its HVAC system. Allows for warmer temperatures
at lower humidity for greater comfort of patients,
doctors and other health care workers.
- --------------------------------------------------------------------------------
Hotels Reduces mold and mildew and improves comfort.
- --------------------------------------------------------------------------------
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>
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PRODUCTS
The Partnership currently manufactures and sells two types of
desiccant-based climate control systems, the "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
Engelhard's ETS(TM). The Partnership's systems are currently being marketed as
energy efficient supplements to enhance the performance of, or partially
replace, existing conventional air conditioning systems. The Desert Cool(TM)
systems typically operate on natural gas, but are also available in steam or
waste heat operated models, and also have gas heating capabilities. Consistent
with general industry practices, the Partnership warrants its systems for one
year from the date of installation and warrants its desiccant and heat exchange
rotors for an additional four years. No significant warranty claims have been
experienced by the Partnership or the Company to date.
The Desert Cool(TM) system is designed to cool commercial applications
with the flexibility of utilizing any combination of circulated or fresh air.
The Desert Cool(TM) can displace 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. The Desert Cool(TM) systems also includes the
larger systems which were formerly offered as DESI/AIR(R) systems.
The Desert Breeze(TM) system, the first all-electric desiccant-based
climate control system prototype was introduced in 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) product line is being
further expanded and will now be actively marketed in 1997 whereby it is
anticipated it will be able to displace up to 70 tons of conventional cooling.
Desert Breeze(TM) is designed to cool commercial applications with the
flexibility of utilizing either circulated or fresh air. Unlike the
Partnership's natural gas systems, the electric units combine desiccant
technology with conventional coils and compressors which provide heat to
regenerate the desiccant rotors and partially cool the process air. An
additional conventional coil may be added to provide further post-cooling as in
the natural gas units. The system can use smaller compressors with HCFC
refrigerant than conventional air conditioning equipment, reducing the amount of
refrigerant required and power usage and peak kilowatt demand. The system is
also currently designed to allow for use of HFC refrigerant.
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. To date, the
Partnership has marketed its systems primarily as a supplement to, or partial
replacement of, conventional air conditioning systems. 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 either directly or through independent manufacturers
representatives who purchase units at a discount or receive a commission. 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 six sales
people and approximately 50 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. The Partnership
plans to increase its sales staff and upgrade its manufacturers' representative
network.
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 the independent testing results have validated the
performance of ETS(TM) in the Partnership's natural gas systems. The Department
of Energy is currently funding the testing of the Partnership's rotors for
validation of performance. 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 various utilities currently participating,
provides financial incentives and sponsors training programs for engineers and
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building owners. 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 various 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
trial demonstration the results of which have validated the performance of the
Partnership's electric systems.
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. The
Partnership has manufactured and sold units assembled in the Partnership's
Philadelphia manufacturing facility to customers in Japan, South Korea, Taiwan
and Thailand through its licensing and distribution agreements or relationships
described below. 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.
During 1996 the Partnership signed a joint market development agreement
with Carrier's Asia-Pacific Operations (" Carrier APO"). The agreement, which
covers a significant portion of the Asia-Pacific air conditioning market,
extends through March 1998 and is intended to allow Carrier APO to make a
comprehensive assessment of the marketability of the Partnership's
desiccant-based air conditioning and climate control systems. The license
portion of the agreement grants Carrier APO exclusive rights to sell the
Partnership's proprietary desiccant systems and equipment intially in 21 Asian
markets, under the Carrier brand name. The agreement also grants Carrier APO
exclusive assembly rights in South Korea, Australia and Malaysia. The Carrier
plants will assemble the Partnership's proprietary kits, which includes rotor
and cassette components, supplied from the Partnership's facilities. The Company
believes that the successful field testing demonstration evaluated by Carrier in
1996 helped lead to the joint market development agreement with APO. Initially,
sales and marketing efforts will target five countries: China, South Korea,
Thailand, Australia and Malaysia. Carrier APO has assigned a dedicated team to
direct the sales and management aspects of this program. Although it is
anticipated that this agreement will develop into long-term orders for the
Partnership, there can be no assurances that this will result in future orders.
The Partnership did not sell any units in 1996 to Carrier APO under the joint
market development agreement.
Carrier APO will have non-exclusive right to assemble the Partnership's
systems in Japan. Engelhard/ICC will continue to distribute units in Japan
through its marketing partner Nichimen Engine Sales Co., a division of the
approximately $60 billion Nichimen Corporation.
In 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 in mainland China. In consideration for such license,
Chung-Hsin paid 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 utilizing the Partnership's technology which are manufactured
and sold by Chung-Hsin. 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. No units were sold to Chung-Hsin in
1996.
Nichimen, a Japanese trading company with approximately $60 billion in
annual sales, has been appointed a non-exclusive distributor of the
Partnership's systems in Japan. Nichimen has established relationships with
Osaka Gas, Tokyo Gas, Toho Gas, Yamaha Engine (heat pump manufacturer) and has
established a national distribution network for the Partnership's systems. No
assurance can be given as to whether any significant number of natural gas
systems will be sold through Osaka Gas. Tokyo Gas is the largest and Osaka Gas
is the second largest seller of natural gas in Japan and as part of their
marketing programs promote and sell natural gas operated equipment to promote
the use of natural gas.
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The Partnership has a marketing relationship with Samsung to sell its
systems for its locations primarily in South Korea and other international
locations. There are no assurances that Samsung will continue to purchase
systems from the Partnership.
The Partnership's joint development program with AB Air in Israel for the
development of a residential desiccant-based, all electric unit has not resulted
in the development of such unit. Joint development activities on the residential
unit with AB Air are currently not active. The Company had funded $89,000 in
1996 to AB Air in connection with the joint development program. Additional
funding by the Company to AB Air is not anticipated.
Backlog. As of March 21, 1997, the Partnership's backlog of purchase
orders for climate control equipment was approximately $3,000,000.
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 its leased manufacturing facility in
Philadelphia, Pennsylvania. The Partnership plans to expand its Philadelphia
area assembly manufacturing capacity and through a consolidation of its current
operations at a larger facility in the suburbs of Philadelphia to support
anticipated growth. See "Business -- Properties."
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. In addition, the
acquisition gave the Partnership more control of a critical technology and
manufacturing process for its current products. The Partnership acquired a
perpetual, exclusive technology license for the proprietary process to
manufacture such small cell, honeycomb substrate for use in air cooling,
conditioning and dehumidification applications, and certain other fluid
applications. 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 honeycomb substrate material for the aerospace industry. As
a result of the combination of the composite businesses of Ciba-Geigy and Hexcel
Corporation the combined businesses operate now under the name Hexcel. All
rights and obligations under the requirements contract were assigned to Hexcel.
The Partnership is required to make available to Hexcel in each year of the
contract certain percentages of the Miami facility's production capacity,
ranging from 75% in 1996 to 30% in 2000. The contract is subject to early
termination by Hexcel 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 desiccant and heat
exchange rotors for such licensees.
SUPPLIES AND MATERIALS
Except as described below, 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 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.
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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 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. Irwin L. Gross, Chairman and President is the Company's
representative. 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 commencing in 1998 and extending through and including 2001,
based on a price equal to 95% of the fair market value of the Partnership as of
the preceding December 31, 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
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 the Partnership increases to more than
70%, Engelhard will be entitled to designate an additional member to the
Management Committee and thereby 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 their 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
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<PAGE> 10
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) Hexcel'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 eight United States patents covering certain of its desiccant
technology. 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.
The Company was granted one 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. The Partnership was granted
seven U.S. patents expiring between 2013 and 2015, protecting the Partnership's
intellectual property. The patents granted relate to the Partnership's desiccant
climate control systems which the Partnership believes provides it with
meaningful exclusivity rights. Similar patents have also been applied for by the
Partnership in selected Asia-Pacific rim countries.
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 or the Company, upon
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, the Partnership acquired an exclusive, perpetual technology license to
use Hexcel's (successor to Ciba-Geigy) proprietary process in air cooling,
conditioning and dehumidifying applications, which is currently necessary to
manufacture the small cell, honeycomb substrate material used in manufacturing
the Partnership's proprietary desiccant and heat exchange rotors. See "Business
- -- Manufacturing."
The Partnership has filed trademark applications for "Desert Cool(TM)" and
"Desert Breeze(TM)" in the United States and overseas for heating, ventilation
and air conditioning systems.
ENGINEERING, RESEARCH AND DEVELOPMENT
The Partnership's engineering, research and development activities focus
on designing systems for specific applications as well as improving the
performance and efficiency and lowering the costs of its climate control
systems.
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 systems: more effectively control humidity; improve
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<PAGE> 11
indoor air quality; reduce energy consumption; offer energy versatility; and
reduce the amount of refrigerants required. 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 138 full-time persons as of December 31,
1996, none of whom are represented by unions. The Partnership furloughed
approximately 40 manufactacturing employees at the end of December 1996;
however, approximately half of the manufacturing employees furloughed have been
recalled to date.
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 of products containing CFCs. Under the
Montreal Protocol on Substances that Deplete the Ozone Layer, as amended in 1992
(the 'Montreal Protocol'), the approximately 130 signatory countries have agreed
to cease all production and consumption of CFCs, some of which are utilized in
air conditioning and refrigeration equipment. 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 are among the 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, the production of HCFCs for use in new equipment is
currently scheduled to be phased out as of the year 2020 and the production of
HCFCs for the servicing of existing equipment is currently scheduled to be
phased out as of 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. Under the Rio Accord, approximately
180 signatory 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 not controlled by the Montreal Protocol. No given level or specific
date for the control of greenhouse gas emissions have been 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 now requires the recycling and recovery of all
refrigerants used in residential and commercial air conditioning and
refrigeration systems. As a result, there are increasing costs involved in the
manufacturing, handling and servicing of refrigerant-based equipment. In the
Partnership's systems, the cooling coils and compressors included as a
post-cooling option in non-electric models are smaller, and in electric models
generally are smaller, than would otherwise be required in a conventional air
conditioning system, and therefore require less refrigerants.
The indoor air quality standards in the United States, as set forth by
ASHRAE Standard 62-1989 Ventilation for Acceptable Indoor Air Quality, now
require that up to 200-300% more fresh air be introduced into buildings
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<PAGE> 12
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.' According to a recent study by the National Conference of
States on Building Codes and Standards, Inc. (the 'NCSBCS Study'), there are 30
states which have incorporated the ASHRAE 62-1989 ventilation standards in one
form or another as mandatory building code requirements into their respective
building codes (including energy and mechanical codes) for new construction of
certain and, in some cases, all types of buildings. Of such states, 18 states
require mandatory compliance with ASHRAE 62-1989 by all local jurisdictions and
an additional seven states require all local jurisdictions which elect to adopt
a building code to comply, at a minimum, with ASHRAE 62-1989. According to the
NCSBCS Study, there are ten other states which, while not adopting ASHRAE
62-1989 into their building codes, have referenced ASHRAE 62-1989 as a
recognized industry standard. Of the remaining 10 states, five states have
adopted building codes with ventilation requirements similar to those of ASHRAE
62-1989 and several major cities in the remaining five states either reference
ASHRAE 62-1989 as an industry standard or set similar ventilation requirements
according to the NCSBCS Study. In addition, the Company believes that due to
liability concerns and customer demands, it is an increasingly standard
engineering practice throughout the country to incorporate the ASHRAE
ventilation standards in new commercial building construction even when not
required by applicable building codes, and the Company believes that the
Partnership's business prospects are enhanced because the Partnership's climate
control systems currently enable buildings to meet or exceed such standards.
A new revised standard under consideration, ASHRAE 62-1989R, would limit
space relative humidity to 60% or less, the Company believes that the
Partnership's climate control systems currently enable buildings to meet or
exceed such standards.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
Except for historical matters contained herein, the matters discussed in
this Form 10-K are forward-looking and are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Readers are
cautioned that these forward-looking statements reflect numerous assumptions and
involve risks and uncertainties which may affect the Company's or the
Partnership's business, financial position and prospects and cause actual
results to differ materially from these forward-looking statements. The
assumptions and risks include sufficient funds to finance working capital and
other financing requirements of the Company and the Partnership, market
acceptance of the Partnership's products, dependence on proprietary technology,
competition in the air conditioning industry and others set forth in the
Company's filings with the Securities and Exchange Commission.
ITEM 2. PROPERTIES
The principal executive offices of both the Company and the Partnership
are currently 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 currently assembles its systems at a 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. In April 1997, the Company and Partnership will relocate its principal
executive offices and related manufacturing facility in Philadelphia to a
138,000 square foot facility located in Hatboro, Pennsylvania. The Hatboro
facility will enable the Partnership to consolidate all Philadelphia operations
in one building versus four separate buildings in various locations.
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 had leased a 24,000 square foot
storage facility and parking lot adjacent to the manufacturing facility.
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ITEM 3. LEGAL PROCEEDINGS
In February 1997, the Company filed a Complaint in the Court of Common
Pleas, Philadelphia County (February Term, 1997, No. 496), asserting a claim
against Engelhard's acquisition of Telaire Systems, Inc. Aside from the
preceding claim, the Company is not engaged in any material lawsuits.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
ICC's Common Stock trades on the Nasdaq National Market under the symbol
ICGN. Prior to Feruary 15, 1996 the Company's Stock was listed on the Nasdaq
Small Cap Market. Based on reports provided by Nasdaq, the range of high and low
bids for ICC's Common Stock for the two most recent fiscal years are as follows:
<TABLE>
<CAPTION>
1996
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
------- ------- ------- -------
<S> <C> <C> <C> <C>
High Bid: $7.75 $9.25 $10.00 $12.38
Low Bid: $4.88 $5.25 $ 5.38 $ 6.38
1995
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
------- ------- ------- -------
High Bid: $15.38 $18.38 $15.50 $13.63
Low Bid: $10.25 $13.88 $11.50 $ 7.81
</TABLE>
The above quotations reported by Nasdaq represent prices between dealers
and do not include retail mark-ups, mark-downs or commissions. Such quotations
may not represent actual transactions. On March 21, 1997, the last reported sale
price for the Common Stock was $5.38 per share.
As of March 21,1997, ICC had approximately 1,300 recordholders of Common
Stock. This number was derived from the Company's stockholder records, and does
not include beneficial owners of the Common Stock whose shares are held in the
names of various dealers, clearing agencies, banks, brokers, and other
fiduciaries. The Company believes that the number of beneficial owners of its
Common Stock exceeds 12,000. Holders of Common Stock are entitled to share
ratably in dividends, if and when declared by the Board of Directors. Other than
an in-kind warrant dividend declared by the Board of Directors in June 1990, the
Company has never paid a dividend on its 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.
In connection with the completion of the Company's 2,500,000 share
secondary offering in February 1996, the Company declared and paid the accrued
dividends on the Preferred Stock which amounted to approximately $1,044,000.
Subsequent to the completion of the secondary offering, all outstanding shares
of Preferred Stock were either redeemed in cash or converted into Common Stock.
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<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Company for the years ended
December 31, 1996, 1995, 1994, 1993 and 1992 have been derived from financial
statements that have been audited by the Company's Independent Accountants,
whose reports thereon include an explanatory paragraph regarding substantial
doubt about the Company's ability to continue as a going concern. There were no
cash dividends paid to holders of Common Stock in any of these years. The data
should be read in conjunction with the Company's financial statements and the
notes thereto included elsewhere in this Form 10-K.
(ALL AMOUNTS EXPRESSED IN DOLLARS EXCEPT WEIGHTED AVERAGE SHARES OUTSTANDING)
<TABLE>
<CAPTION>
Year Ended December 31:
----------------------------------------------------------------------------
INCOME STATEMENT DATA: 1996(1) 1995(1) 1994(1) 1993 1992
------- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues(2) $ 688,411 $ 362,153 $ 162,285 $ 1,216,032 $ 962,185
Expenses(3) 7,843,020 6,685,526 4,553,367 5,273,884 3,529,058
----------- ----------- ----------- ----------- -----------
Net Loss (7,154,609) (6,323,373) (4,391,082) (4,057,852) (2,566,873)
Cumulative Preferred Stock
Dividend Requirement (49,655) (301,413) (227,750) (261,500) (241,938)
----------- ----------- ----------- ----------- -----------
Net Loss Applicable to
Common Stockholders $(7,204,264) $(6,624,786) $(4,618,832) $(4,319,352) $(2,808,811)
=========== =========== =========== =========== ===========
Loss per Common Share $ (.35) $ (.47) $ (.41) $ (.51) $ (.47)
Weighted Average
Shares Outstanding 20,322,952 14,072,867 11,390,981 8,550,852 5,978,505
</TABLE>
<TABLE>
<CAPTION>
December 31:
-----------------------------------------------------------------------------
BALANCE SHEET DATA: 1996(1) 1995(1) 1994(1) 1993 1992
------- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Total Assets $12,250,865 $4,796,426 $2,397,522 $2,564,302 $ 997,632
Working Capital (Deficit) 9,661,805 1,827,797 1,072,485 1,206,700 (416,301)
Long-term Obligations 0 0 150,000 650,000 300,000
Total Liabilities 2,179,467 3,262,614 426,782 1,520,631 1,458,648
Stockholders' Equity (Deficit) 10,071,398 1,533,812 1,970,740 1,043,671 (461,016)
</TABLE>
(1) -On February 7, 1994, the Company transferred its desiccant climate
control business in exchange for a 50% interest in the Partnership. The
data should be read in conjunction with the Partnership's financial
statements and the notes thereto included elsewhere in this Form 10-K.
(2) -Revenues consist of interest income and other income. For periods prior
to the formation of the Partnership on February 7, 1994 revenues include
sale of equipment.
(3) -Expenses consists of equity interest in net loss of Engelhard/ICC,
general and administrative expense and interest expense. For periods prior
to the formation of the Partnership on February 7, 1994 expenses includes
cost of goods sold and other operating expenses.
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<PAGE> 15
ITEM 7. 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 technology 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 climate control
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 sell ETS(TM) to the Partnership 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 became
employees of the Partnership and the leases for the space occupied by, and
certain other obligations of, the Company were 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
Years Ended December 31, 1996 and 1995
The Partnership's revenue for the year ended December 31, 1996 increased
$1,560,330 to $10,504,609 from $8,944,279 for the year ended December 31, 1995.
This increase in revenues is due primarily to increased equipment sales, the
effects of which more than offset a decline in sale of substrate and the receipt
of a non-recurring licensing fee in 1995. Equipment sales increased 138% to
approximately $6.1 million in 1996 compared to approximately $2.6 million in
1995. The sale of substrate from the Miami plant to Hexcel pursuant to a supply
agreement decreased to approximately $4.3 million in 1996 from $5.8 million in
1995. In 1995 a non-recurring licensing fee of $500,000 from Chung-Hsin was
earned while no licensing fees were earned in 1996. The Partnership's gross loss
for the year ended December 31, 1996 increased $991,104 to $2,330,820 from
$1,339,716 for the year ended December 31,1995. The increase in gross loss is
due primarily to reduced margins on the sale of substrate of approximately
$400,000 attributable to the decline in substrate sales and receipt in 1995 of
the non-recurring licensing fee of $500,000.
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<PAGE> 16
The Partnership's operating expenses increased $1,298,949 to $9,821,874 for
the year ended December 31, 1996 compared to $8,522,925 for the year ended
December 31, 1995, due to higher general and administrative, marketing and
engineering costs. General and administrative costs increased approximately
$1,108,000 the result of increased payroll and severance costs and increase in
provision to inventory allowance for obsolescence. Marketing expenses increased
approximately $152,000 as a result of increased marketing efforts and increased
sales and marketing personnel. Engineering costs increased approximately
$117,000. The loss from operations for the year ended December 31,1996 increased
$2,290,053 to $12,152,694 compared to $9,862,641 for the year ended December 31,
1995.
The Partnership's net loss increased $2,017,441 to $12,589,664 for the year
ended December 31, 1996 from $10,572,223 for the year ended December 31, 1995
due to the increase in the loss of operations of $2,290,053 discussed above
which more than offset a $272,612 decrease in interest expense resulting
primarily from reduced interest rates.
The Company realized an increase in interest and other income of $326,258
to $688,411 for the year ended December 31, 1996 as compared to $362,153 for the
year ended December 31,1995, which was primarily attributable to an increase in
the average balance of cash equivalents resulting from the investing of the
proceeds from the secondary public offering in the first quarter for the year
ended December 31, 1996. The Company's increase in its 50% equity interest in
the net loss of the Partnership increased $1,008,720 to $ 6,294,832 for the year
ended December 31, 1996 as compared to $5,286,112 for the year ended December
31, 1995. The Company's general and administrative expenses increased $162,430
to $1,545,594 for the year ended December 31, 1996 compared to $1,383,164 for
the same period in 1995 primarily the result of an increased payroll and other
administrative costs.
The Company's net loss for the year ended December 31, 1996 increased
$831,236 to $7,154,609 from $6,323,373 for the same period in 1995. Net loss per
share of Common Stock decreased $.12 to $.35 for the year ended December 31,
1995 from $.47 for the same period in 1995 primarily the result of additional
shares outstanding resulting from the public secondary offering.
Years Ended December 31, 1995 and 1994
The Partnership's revenue for the year ended December 31, 1995 increased
$7,323,893 to $8,944,279 from $1,620,386 for the period from Formation to
December 31, 1994 due to the fabrication of substrate for Ciba-Geigy pursuant to
a supply agreement (the rights and obligations of which were subsequently
assigned to Hexcel in 1995), increased equipment sales and licensing fees. The
increase was attributable to revenue of $5,801,666 from the fabrication of
substrate for Ciba-Geigy and the increase of $1,028,439 in equipment sales and
$500,000 in licensing fees. The Partnership recorded a gross loss of $1,339,716
for the year ended December 31,1995 compared to a gross profit of $28,565 for
the period from Formation to December 31, 1994. The gross loss was due primarily
to increases in manufacturing costs of equipment in anticipation of future
growth without a corresponding increase in equipment sales, which was partially
offset by the licensing fees.
The Partnership's operating expenses increased $2,794,639 to $8,522,925 in
the year ended December 31, 1995 compared to $5,728,286 for the period from
Formation to December 31, 1994, due to higher marketing, research and
development, and general and administrative costs. Marketing expenses increased
$1,350,981 as a result of increased marketing efforts and increased sales and
marketing personnel. Research and development expenses increased $238,943 due to
an increase in the number of research personnel and increased testing of
equipment by independent laboratories. Engineering costs decreased $296,867 in
this period. General and administrative expenses increased $1,501,582 primarily
due to the addition of general and administrative personnel, amortization of
intangibles incurred in connection with the Miami plant acquired in December
1994 and provision for reducing inventory to the lower of cost or market
recorded in 1995. The loss from operations for the year ended December 31, 1995
increased $4,162,920 to $9,862,641 compared to $5,699,721 for the period from
Formation to December 31, 1994.
The Partnership's net loss increased $4,947,378 to $10,572,223 for the year
ended December 31, 1995 from $5,624,845 for the period from Formation to
December 31, 1994 due to the loss from operations and an increase in net
interest expense of $784,458 from additional borrowings.
16
<PAGE> 17
The Company generated nominal revenues of $9,000 for the year ended
December 31, 1995 which were attributable to the sale of cogeneration spare
parts compared to revenues of $88,360 for the same period in 1994 which were
attributable to sales of desiccant climate control systems prior to the
formation of the Partnership on February 7, 1994.
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. The Company's general and administrative expenses decreased $343,169 to
$1,383,164 for the year ended December 31, 1995 compared to $1,726,333 for the
same period in 1994 as a result of a reduction in professional fees offset by
increased payroll expenses and other administrative costs. The Company recorded
an expense of $75,000 in 1995 for services rendered by an investor relations
firm. Pursuant to an agreement with such firm, the obligation was satisfied by
the issuance of 26,653 shares of Common Stock. Consulting expenses of $37,500
were recognized in 1995 for warrants granted in connection with the March 1995
private placement of 300,000 shares of Common Stock.
The Company's net loss for the year ended December 31, 1995 increased
$1,932,291 to $6,323,373 from $4,391,082 for the same period in 1994. This
increase in loss was attributable to the increase in the Company's 50% interest
in the Partnership's loss of $2,473,689 to $5,286,112 for the year ended
December 31, 1995 as compared to $2,812,423 for the same period in 1994 offset
by a decline in operating costs primarily as a result of the transfer of
substantially all operations to the Partnership on February 7, 1994. Net loss
per share of Common Stock increased $.06 to $.47 for the year ended December 31,
1995 from $.41 for the same period in 1994.
The Company's and the Partnership's operations have not been significantly
affected by inflation.
Liquidity and Capital Resources
The Partnership's cash and cash equivalents increased to $1,192,997 at
December 31, 1996 from $346,480 at December 31, 1995. The increases were due to
capital contributions from the Company and Engelhard funding the Partnership's
net losses and capital investments. The Partnership is expected to require
additional financing to support anticipated growth and will be dependent on the
Company and Engelhard to provide additional financing to support its current
operations and future expansion. There can be no assurance that the Company or
Engelhard will be willing, or able, to provide such additional financing.
Net cash used in operating activities by the Partnership was $12,441,884
for the year ended December 31, 1996 due to the net loss of $12,589,664, net
working capital needs of $2,205,778 which offset noncash charges of $2,353,558.
Net working capital utilized was primarily the result of increases in inventory
and receivables which offset the increase in payables related to the increased
sales. Net cash used in investing activities by the Partnership was $716,703 for
the year ended December 31, 1996. Net cash used in investing activities was
primarily the result of additional equipment and fixtures which was offset by
drawn cash held in escrow. Operating and investing activities were financed by
$14 million in capital contributions equally by the Company and Engelhard.
Subsequent to December 31, 1996, each partner made capital contributions of
$1,000,000 for the general working requirements of the Partnership.
The Partnership's cash and cash equivalents decreased to $346,480 at
December 31, 1995 from $648,451 at December 31, 1994 and $8,633,000 contributed
from Engelhard at Formation. The decreases were due to the Partnership's net
losses, working capital requirements and capital investments incurred in
connection with the expansion of the Partnership's business since Formation,
which were partially financed by loans and capital contributions from the
Company and Engelhard. The Partnership is expected to require additional
financing to support anticipated growth and will be dependent on the Company and
Engelhard to provide additional financing to support its current operations and
future expansion. There can be no assurance that the Company or Engelhard will
be willing, or able, to provide such additional financing.
Net cash used in operating activities by the Partnership was $12,105,251
for the year ended December 31, 1995 due to the net loss of $10,572,223, net
working capital needs of $3,265,030 which offset noncash charges of $1,732,002.
Net working capital utilized was primarily the result of increases in inventory
and receivables related to the increased sales. Capital expenditures of
approximately $1,400,000 were incurred primarily for machinery and equipment.
Net cash used in operating activities and capital expenditures were
17
<PAGE> 18
financed with net borrowings of $7,194,988 and capital contributions aggregating
$6,000,000 from the Company and Engelhard.
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
and to fund improvements and capital expenditures at the Miami facility. The
Company guaranteed 50% of the Partnership's indebtedness associated with the
industrial development revenue bonds and established an irrevocable letter of
credit for $2,500,000 to support its portion of the guarantee, which is
collateralized by a $2,500,000 certificate of deposit. In May 1995, each general
partner was repaid $1,500,000 of the $8,000,000 aggregate loan from the Company
and Engelhard made in December 1994, of which the remaining amount, $2,500,000
for each general partner, was converted into an investment in the Partnership.
During 1995, each partner made capital contributions of $3,000,000 to the
Partnership. In addition, the Partnership borrowed $2,750,000 from a bank
through a short-term loan.
Net cash used in operating activities by the Partnership was $6,571,000 for
the period from Formation to December 31, 1994 as a result of the net loss,
before depreciation and amortization, of $5,376,000 and net working capital
needs of $1,195,000 primarily to build inventory and for accounts receivable
which increased with sales. Capital expenditures were $9,361,000 for the period
from Formation to December 31, 1994, primarily due to the acquisition of a
manufacturing facility for $8,000,000 in December 1994 and capital expenditures
of $980,000. The Company and Engelhard financed the Partnership's operating and
investing activities in 1994 with the initial capital contribution of $8,633,000
from Engelhard upon the formation of the Partnership and loans of $4,000,000
from each of the Company and Engelhard in December 1994 to acquire the
Ciba-Geigy manufacturing facility.
The Company's cash and cash equivalents amounted to $9,641,114, $1,573,475
and $1,114,000 at December 31, 1996, 1995 and 1994, respectively. The cash
utilized in the Company's operating and investing activities was financed
primarily through proceeds from the issuance of Common Stock from the public
secondary offering in February 1996 and exercise of stock options and warrants.
Management believes the Partnership will require additional capital
contributions during 1997, and the Company plans to satisfy its 50% portion of
such capital contribution requirements from its available cash and cash
equivalents. To the extent Partnership capital contributions in excess of the
net proceeds are required, or the Company requires additional funds to continue
its activities, 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.
Net cash used in operating activities by the Company was $711,675 for the
year ended December 31, 1996 due to the net loss, before non-cash charges and
the Company's 50% share of the net loss of the Partnership, of $845,687 and net
working capital provided of $134,012. The Company made additional capital
contributions of $7,000,000 to the Partnership during 1996. Net cash used in
operating activities and for investments in the Partnership were financed
through the issuance of Common Stock through proceeds from the issuance of
Common Stock from the public secondary offering in February 1996 and exercise of
stock options and warrants. Net cash provided by financing activities was
approximately $15.8 million of which approximately $17.3 was provided from the
issuance of Common Stock which was offset by the cash redemption of Preferred
Stock of approximately $981,000 and cash dividend on Preferred Stock of
approximately $395,000.
Net cash used in operating activities by the Company was $1,297,534 for the
year ended December 31, 1995 due to the net loss, before non-cash charges and
the Company's 50% share of the net loss of the Partnership, of $914,170 and net
working capital needs of $383,364 since the Company transferred its desiccant
climate control business to the Partnership in February 1994. The Company was
repaid $1,500,000 (and converted $2,500,000 to a capital contribution to the
Partnership) of the $4,000,000 loan extended to the Partnership to acquire the
Ciba-Geigy manufacturing facility in May 1995. The Company made additional
capital contributions of $3,000,000 to the Partnership and supported a portion
of its guarantee of the $8,500,000 industrial development revenue bonds issued
by the Partnership with a $2,500,000 irrevocable letter of credit collateralized
with a certificate of deposit for a like amount. Net cash used in operating
activities and for investments in the Partnership were financed by issuing
Common Stock for net proceeds of $5,761,445 for the year ended December 31,
1995.
18
<PAGE> 19
In March 1995, the Company raised net proceeds of $3,010,000 in a private
placement of 300,000 shares of Common Stock at $11 per share. 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. During the year ended
December 31, 1995, the Company received proceeds of approximately $2,781,353
from the exercise of stock options and warrants to purchase approximately
1,151,833 shares of Common Stock.
Net cash used in operating activities by the Company was $1,373,000 for the
year ended December 31, 1994 due to the net loss, before non-cash charges and
the Company's 50% share of the net loss of the Partnership, of $1,239,000 and
net working capital needs of $134,000 since the Company transferred its
desiccant climate control business to the Partnership in February 1994. The
Company and Engelhard each extended a $4,000,000 loan to the Partnership to
acquire the Ciba-Geigy's Miami substrate manufacturing plant in December 1994.
Net cash used in operating activities and for investments in the Partnership
were financed by issuing Common Stock and warrants for net proceeds of
$5,139,000 and from borrowings of $400,000 from Engelhard.
In June 1994, the Company sold 1,100,000 shares of Common Stock at $3.56
per share for net proceeds of $3,489,000, and two directors each sold 150,000
shares of Common Stock at the same price 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. For financial advisory services related to the offering, the
Company granted to an individual, who subsequently became a director, warrants
to purchase 215,000 shares of Common Stock, which have exercise prices ranging
from of $3.25 to $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 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.
The independent accountants' report on the audit of the Company's 1996
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 $41 million through December 31, 1996. 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 1996 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 February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128 ("SFAS 128") on earnings per share. The
new statement prescribes the method by which basis for computing the dilutive
effect of outstanding options and warrants. SFAS 128 requires the ommission of
securities which would have an antidilutive effect on the computation of
earnings per share. The new pronouncement is effective for the year ended 1997.
The Company believes that the new pronouncement will not have a significant
impact on its calculation of earnings per share.
Safe Harbor for Forward-Looking Statements
Except for historical matters contained herein, the matters discussed in
this Form 10-K are forward-looking and are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Readers are
cautioned that these forward-looking statements reflect numerous assumptions and
involve risks and uncertainties which may affect the Company's or the
Partnership's business, financial position and prospects and cause actual
results to differ materially from these forward-looking statements. The
assumptions and risks include sufficient funds to finance working capital and
other financing requirements of the Company and the
19
<PAGE> 20
Partnership, market acceptance of the Partnership's products, dependence on
proprietary technology, competition in the air conditioning industry and others
set forth in the Company's filings with the Securities and Exchange Commission.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial data required by this Item
8 are set forth in Item 14 of this Form 10-K Report. All information which has
been omitted is either inapplicable or not required.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The required information with respect to each director and
executive officer is contained in the Company 's definitive Proxy Statement in
connection with its Annual Meeting to be filed within 120 days of the
Registrant's year ended December 31, 1996 ("1997 Annual Meeting"), which is
hereby incorporated by reference in this Form 10-K Annual Report.
ITEM 11. EXECUTIVE COMPENSATION
The required information with respect to executive
compensation is contained in the Company's definitive Proxy Statement in
connection with its 1997 Annual Meeting to be filed within 120 days of the
Registrant's year ended December 31, 1996, which is hereby incorporated by
reference in this Form 10-K Annual Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The required information with respect to security ownership of
certain beneficial owners and management is contained in the Company's
definitive Proxy Statement in connection with its 1997 Annual Meeting to be
filed within 120 days of the Registrant's year ended December 31, 1996, which is
hereby incorporated by reference in this Form 10-K Annual Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The required information with respect to certain relationships
and related transactions is contained in the Company's definitive Proxy
Statement in connection with its 1997 Annual Meeting to be filed within 120 days
of the Registrant's year ended December 31, 1996, which is hereby incorporated
by reference in this Form 10-K Annual Report.
20
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following is a list of certain documents filed as a part
of this Form 10-K Report:
(1) Financial Statements of the Registrant.
(I) Report of Independent Accountants
(ii) Consolidated Balance Sheets at December 31, 1996
and 1995.
(iii) Consolidated Statements of Operations for the
years ended December 31, 1996, 1995 and 1994.
(iv) Consolidated Statements of Changes in
Stockholders' Equity (Deficit) for the years ended
December 31, 1996, 1995 and 1994.
(v) Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994.
(vii) Notes to Consolidated Financial Statements.
All other schedules specified in Item 8 or Item 14(d) of Form 10-K are omitted
because they are not applicable or not required, or because the required
information is included in the Financial Statements or notes thereto.
(b) Reports on Form 8-K
None
(c) The following table sets forth those exhibits filed pursuant
to Item 601 of Regulation S-K. Exhibits identified with an
asterisk ("*") below comprise executive compensation plans and
arrangements:
Exhibit Description
------- -----------
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, was filed as an exhibit to the Company's
registration statement filed on Form S-2 declared effective
February 14, 1996 (registration number 33-80223) and is hereby
incorporated by reference.
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 the year ended
December 31, 1994 and is hereby incorporated by reference.
21
<PAGE> 22
3.1 Articles of Incorporation and Bylaws. Incorporated by
reference from ICC's Form 10 filed on September 16, 1985.
3.2 Amendment to Articles of Incorporation changing name to ICC
Technologies, Inc. Incorporated by reference from ICC's Form
8-K dated June 12, 1990.
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 ICC Technologies, Inc. Certificate of Designation for Series J
Preferred Stock. Incorporated by reference from ICC's Form 8-K
dated June 8, 1992.
9.1 Form of voting trust agreement between RIT Capital Partners,
plc, Warburg, Pincus Capital Company L.P. and ICC
Technologies, Inc. Incorporated by reference from ICC's Form
10-K for the fiscal year ended December 31, 1989.
10.1 Lease Agreement for the Partnership's Executive Offices dated
June 14, 1989. Incorporated by reference from ICC's Form 8-K
dated June 12, 1990.
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.
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 ICC Technologies, Inc., Equity Plan for Directors Incorporated
by reference from ICC's Definitive Proxy Statement dated
November 18, 1994 for Stockholders Meeting held December 15,
1994.
10.5 Agreement to Restructure and Retire ICC Technologies, Inc.
Lease Financing Obligations to Textron Financial Corporation.
Incorporated by reference from ICC's Form 8-K filed June 12,
1990.
22
<PAGE> 23
10.6 Conversion and Waiver Agreement between RIT Capital Partners,
plc, Warburg, Pincus Capital Company L.P. and ICC
Technologies, Inc. dated June 6, 1990 including all exhibits
thereto. Incorporated by reference from ICC's Form 10-K for
the fiscal year ended December 31, 1989.
10.7 Joint Development Program Agreement between ICC Technologies
Inc., and Engelhard Corporation dated May 26, 1992.
Incorporated by reference from ICC's Form 10-K for the fiscal
year ended December 31, 1992.
10.8 Employment Agreement between William A. Wilson and ICC
Technologies Inc., dated July 2, 1991 Incorporated by
reference from ICC's Quarterly Report on Form 10-Q for period
ended September 30, 1991.
10.9 Amendment dated February 28, 1994 to Employment Agreement
between William A. Wilson and ICC Technologies Inc.
incorporated by reference from ICC's Form 10-K for the fiscal
year ended December 31, 1994.
10.10 General Partnership Agreement of Engelhard/ICC ,between
Engelhard DT Inc. and ICC Desiccant Technologies, Inc., dated
February 7, 1994 was filed as an exhibit to the Company's
registration statement filed on Form S-2 declared effective
February 14, 1996 (registration number 33-80223) and is hereby
incorporated by reference.
10.11 Technology License Agreement between Engelhard Corporation and
ICC Technologies, Inc., and Engelhard/ICC, 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 Engelhard/ICC and Engelhard
Corporation dated February 7, 1994. Incorporated by reference
from ICC's Form 10-K for the fiscal year ended December 31,
1993.
10.13 Employment Agreement between Irwin L. Gross and the
Partnership dated February 8, 1994. Incorporated by reference
from ICC's Form 10-K for the fiscal year ended December 31,
1993.
10.14 Royalty Agreement between Engelhard/ICC and James Coellner and
Dean Calton dated February 8, 1994. Incorporated by reference
from ICC's Form 10-K for the fiscal year ended December 31,
1993.
10.15 Lease Agreement for the Partnership's manufacturing space,
dated March 25, 1993. Incorporated by reference from ICC's
Form 10-K for the fiscal year ended December 31, 1993.
23
<PAGE> 24
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.
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, 1991 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.
10.23 Agreement Regarding Joint Development Program between the
Partnership and AB Air dated August 21, 1995 was filed as an
exhibit to the Company's registration statement filed on Form
S-2 declared effective February 14, 1996 (registration number
33-80223) and is hereby incorporated by reference.
10.24 Form of Amendment assignment and transfer to Hexcel all
contracts between Engelhard/ICC and Ciba-Geigy, dated October
19, 1995.
10.25 Asia Pacific Market Development Agreement between Carrier APO
and the Partnership dated September 12, 1996.
10.26 Agreement of Lease Between 330 South Warminster Associates,
L.P. as Landlord and Engelhard/ICC as Tenant, including lease
guarantee, dated February 4, 1997.
24
<PAGE> 25
21 Subsidiaries of ICC Technologies, Inc. ICC Desiccant
Technologies, Inc.
23 Consent of Coopers & Lybrand L.L.P., Independent Accountants
27 Financial Data Schedule
(d) The following is a list of certain documents required by Regulation S-X
consisting of financial statements of the fifty percent owned general
partnership Engelhard/ICC included in this Form 10-K Annual Report:
(1) Financial Statements.
(i) Report of Independent Accountants
(ii) Balance Sheet at December 31, 1996 and 1995.
(iii) Statements of Operations for the years ended December 31, 1996
and 1995 and the period February 7, 1994 (date of formation)
to December 31, 1994.
(iv) Statements of Changes in Partners' Capital for the years ended
December 31, 1996 and 1995 and for the period February 7, 1994
(date of formation) to December 31, 1994.
(v) Statements of Cash Flows for the years ended December 31, 1996
and 1995 and for the period February 7, 1994 (date of
formation) to December 31, 1994.
(vii) Notes to Financial Statements.
25
<PAGE> 26
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholders of ICC Technologies
We have audited the accompanying consolidated balance sheets of ICC
Technologies, Inc. (ICC) as of December 31, 1996 and 1995 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, 1996. These
consolidated financial statements are the responsibility of ICC's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ICC
Technologies, Inc. as of December 31, 1996 and 1995 and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that ICC will continue as a going concern. As discussed in Note 1, ICC incurred
losses accumulating to $40,700,328 through December 31, 1996. This factor, among
others, raises substantial doubt about ICC's ability to continue as a going
concern. Management's plans in regard to these matters are described in Note 1.
The accompanying consolidated 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 19 , 1997
26
<PAGE> 27
ICC TECHNOLOGIES, INC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 9,641,114 $ 1,573,475
Receivables -
Employees 0 28,667
Engelhard/ICC 0 160,973
Prepaid expenses and other 108,161 530,131
------------ ------------
Total current assets 9,749,275 2,293,246
RESTRICTED CASH EQUIVALENTS 2,500,000 2,500,000
PROPERTY AND EQUIPMENT, net 1,590 3,180
------------ ------------
Total assets $ 12,250,865 $ 4,796,426
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 22,210 $ 28,358
Payable to Engelhard/ICC 17,035 0
Current portion of note payable to stockholder 0 150,000
Accrued liabilities 48,227 287,091
------------ ------------
Total current liabilities 87,472 465,449
------------ ------------
LOSSES OF ENGELHARD/ICC IN EXCESS OF INVESTMENTS 2,091,997 2,797,165
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value -
Series F, authorized 6,885 shares, issued and outstanding 0
shares at December 31, 1996 and 135 shares at December
31, 1995 (liquidation value $256,270
at December 31, 1995) 0 1
Series G Convertible, authorized 400 shares, issued and outstanding 0 shares
at December 31, 1996 and 350 shares at December 31, 1995
(liquidation value $664,404 at December 31, 1995) 0 4
Series H Convertible, authorized 1,500 shares, issued and outstanding 0 shares
at December 31, 1996 and 1,500 shares at December 31, 1995 0 15
Series I, authorized 500 shares, issued and outstanding 0 shares at December 31,
1996 and 500 shares at December 31, 1995 0 5
Series J, authorized, 225 shares, issued and outstanding 0 shares at December 31,
1996 and 225 shares at December 31, 1995 0 2
Common stock, $.01 par value, authorized 50,000,000 shares,
issued 21,282,354 shares at December 31, 1996 and 14,692,193
shares at December 31, 1995 212,824 146,923
Additional paid-in capital 50,730,330 35,104,011
Accumulated deficit (40,700,328) (33,545,719)
Less: Treasury common stock, at cost, 66,227 shares (171,430) (171,430)
------------ ------------
Total stockholders' equity 10,071,396 1,533,812
------------ ------------
Total liabilities and stockholders' equity $ 12,250,865 $ 4,796,426
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-27-
<PAGE> 28
ICC TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Interest and other income $ 688,411 $ 362,153 $ 162,285
EXPENSES:
Equity interest in net loss of Engelhard/ICC 6,294,832 5,286,112 2,812,423
General and administrative 1,545,594 1,383,164 1,726,333
Interest 2,594 16,250 14,611
------------ ------------ ------------
Total expenses 7,843,020 6,685,526 4,553,367
------------ ------------ ------------
NET LOSS $ (7,154,609) $ (6,323,373) $ (4,391,082)
CUMULATIVE PREFERRED STOCK
DIVIDEND REQUIREMENTS (49,655) (301,413) (227,750)
------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (7,204,264) $ (6,624,786) $ (4,618,832)
============ ============ ============
NET LOSS PER COMMON SHARE $ (0.35) $ (0.47) $ (0.41)
============ ============ ============
WEIGHTED AVERAGE COMMON SHARES 20,322,952 14,072,867 11,390,981
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-28-
<PAGE> 29
ICC TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Common Additional Treasury
Preferred Stock Paid-in Accumulated Stock,
Stock ($.01 par value) Capital Deficit at Cost
--------- -------------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 $ 101 $ 99,693 $ 23,946,571 $(22,831,264) $(171,430)
Conversion of 600 shares Series H preferred stock into
300,000 shares of common stock (6) 3,000 (2,994) 0 0
Issuance of 1,100,000 shares of common stock through
a private placement, net of offering expenses 0 11,000 3,477,920 0 0
Issuance of 919,354 shares of common stock through
exercise of stock options and warrants 0 9,194 1,640,837 0 0
Issuance of warrants to purchase 40,000 shares
of common stock 0 0 179,200 0 0
Net loss 0 0 0 (4,391,082) 0
----- -------- ------------ ------------ ---------
BALANCE, DECEMBER 31, 1994 95 122,887 $ 29,241,534 $(27,222,346) $(171,430)
Issuance of 925,000 shares of common stock to redeem
6750 shares of Series F preferred stock (68) 9,250 (9,182) 0 0
Issuance of 1,151,908 shares of common stock through
exercise of stock options and warrants 0 11,519 2,769,834 0 0
Issuance of 300,000 shares of common stock through
a private placement, net of offering expenses 0 3,000 3,027,092 0 0
Issuance of 26,653 shares of common stock for
services rendered 0 267 74,733 0 0
Net loss 0 0 0 (6,323,373) 0
----- -------- ------------ ------------ ---------
BALANCE, DECEMBER 31, 1995 $ 27 $146,923 $ 35,104,011 $(33,545,719) $(171,430)
Issuance of 2,686,813 shares of common stock through
a secondary offering, net of offering expenses 0 26,868 16,739,905 0 0
Issuance of 3,772,045 shares of common stock through
conversion and redemption of the outstanding
preferred stock (27) 37,720 (1,413,573) 0 0
Issuance of 131,300 shares of common stock through
exercise of stock options and warrants 0 1,313 299,987 0 0
Net Loss 0 0 0 (7,154,609) 0
===== ======== ============ ============ =========
BALANCE, DECEMBER 31, 1996 $ 0 $212,824 $ 50,730,330 $(40,700,328) $(171,430)
===== ======== ============ ============ =========
</TABLE>
<TABLE>
<CAPTION>
Total
Stockholders'
Equity
-------------
<S> <C>
BALANCE, DECEMBER 31, 1993 $ 1,043,671
Conversion of 600 shares Series H preferred stock into
300,000 shares of common stock 0
Issuance of 1,100,000 shares of common stock through
a private placement, net of offering expenses 3,488,920
Issuance of 919,354 shares of common stock through
exercise of stock options and warrants 1,650,031
Issuance of warrants to purchase 40,000 shares
of common stock 179,200
Net loss (4,391,082)
------------
BALANCE, DECEMBER 31, 1994 $ 1,970,740
Issuance of 925,000 shares of common stock to redeem
6750 shares of Series F preferred stock 0
Issuance of 1,151,908 shares of common stock through
exercise of stock options and warrants 2,781,353
Issuance of 300,000 shares of common stock through
a private placement, net of offering expenses 3,030,092
Issuance of 26,653 shares of common stock for
services rendered 75,000
Net loss (6,323,373)
------------
BALANCE, DECEMBER 31, 1995 $ 1,533,812
Issuance of 2,686,813 shares of common stock through
a secondary offering, net of offering expenses 16,766,773
Issuance of 3,772,045 shares of common stock through
conversion and redemption of the outstanding
preferred stock (1,375,880)
Issuance of 131,300 shares of common stock through
exercise of stock options and warrants 301,300
Net Loss (7,154,609)
============
BALANCE, DECEMBER 31, 1996 $ 10,071,396
============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-29-
<PAGE> 30
ICC TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (7,154,609) $(6,323,373) $(4,391,082)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,590 1,591 49,181
Equity interest in net loss of Engelhard/ICC 6,294,832 5,286,112 2,812,423
Common stock and warrants issued for services rendered 12,500 112,500 179,200
Provision for doubtful accounts 0 0 16,112
Increase in inventory reserve 0 9,000 95,000
(Increase) decrease in:
Receivables 189,640 (36,878) 67,321
Inventories 0 7,960 (67,664)
Prepaid expenses and other 172,349 (464,921) (23,873)
Increase (decrease) in:
Accounts payable and accrued expenses (227,977) 110,475 (109,336)
------------ ----------- -----------
Net cash used in operating activities (711,675) (1,297,534) (1,372,718)
------------ ----------- -----------
Cash Flows from Investing Activities:
Capital contribution to Engelhard/ICC (7,000,000) (3,000,000) 0
Repayment of loans from (Loans to) Engelhard/ICC 0 1,500,000 (4,000,000)
Purchase of restricted certificate of deposit 0 (2,500,000) 0
Purchases of property and equipment, net 0 (4,771) (9,300)
------------ ----------- -----------
Net cash used in investing activities (7,000,000) (4,004,771) (4,009,300)
------------ ----------- -----------
Cash Flows from Financing Activities:
Proceeds from sale of common stock and warrants, net 17,305,194 5,761,445 5,138,951
Cash redemption of Preferred Stock (981,270) 0 0
Cash dividend on Preferred Stock (394,610) 0 0
Repayments of borrowings from stockholders (150,000) 0 (185,272)
Borrowings from Engelhard Corporation, net 0 0 400,000
------------ ----------- -----------
Net cash provided by financing activities 15,779,314 5,761,445 5,353,679
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents 8,067,639 459,140 (28,339)
Cash and Cash Equivalents, Beginning of Period 1,573,475 1,114,335 1,142,674
------------ ----------- -----------
Cash and Cash Equivalents, End of Period $ 9,641,114 $ 1,573,475 $ 1,114,335
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
-30-
<PAGE> 31
ICC TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) 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.
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 primarily to operators of
supermarkets and department stores, manufacturers, 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.
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 year ended December 31, 1996. The Company has incurred
cumulative losses since inception of $40,700,328 through December
31, 1996. In order to continue operations, the Company has had to
raise additional capital to offset cash consumed in operations and
the 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 believes the Company has adequate working capital for at
least the next fiscal year to support its half of the estimated
future financing requirements of the Partnership and to fund the
31
<PAGE> 32
Company's working capital requirements; however, there can be no
assurance that the Company will have adequate capital to finance the
requirements of the Partnership or fund its own working capital
requirements.
(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, ICC Desiccant Technologies Inc.,
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. The investment in the
Partnership is accounted for under the equity method of accounting.
The following are the summarized financial results of the
Partnership:
<TABLE>
<CAPTION>
Year ended Year ended Period ended
---------- ---------- ------------
December 31, December 31, December 31,
------------ ------------ ------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
RESULTS OF OPERATIONS:
Revenues $ 10,504,609 $ 8,944,279 $ 1,620,386
Loss from operations (12,152,694) (9,862,641) (5,699,792)
Net loss $(12,589,664) $(10,572,223) $(5,624,845)
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET INFORMATION: December 31, December 31,
-------------------------- ------------ ------------
1996 1995
---- ----
<S> <C> <C>
Cash $ 1,192,997 $ 346,480
Receivables 2,640,804 2,057,420
Inventory 4,570,952 3,385,125
Other current assets 278,762 158,939
Cash held in escrow 307,476 865,744
Property, plant and equipment 7,990,125 8,263,642
Other noncurrent assets 1,978,115 1,802,155
----------- -----------
Total assets $18,959,231 $16,879,505
=========== ===========
Accounts payable and accrued expenses $ 1,885,596 $ 1,153,885
Payable to general partners 298,084 365,509
Debt 11,456,859 11,451,755
Notes payable to general partners 0 0
Partners' capital 5,318,692 3,908,356
----------- -----------
Total liabilities and equity $18,959,231 $16,879,505
=========== ===========
</TABLE>
In December 1994, the Partnership acquired for approximately $8.2
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 structures that are the base material of the desiccant and thermal
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. As a result of the combination of the composite
businesses of Ciba-Geigy and Hexcel Corporation the combined businesses operate
now under the name Hexcel. All rights and obligations under the requirements
contract were assigned to Hexcel. 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 $1.3 million
of intangibles.
32
<PAGE> 33
To finance the acquisition, the Company and Engelhard each lent to
the Partnership $4,000,000 ("General Partners' Bridge Loan"). The
loans, were evidenced by promissory notes with interest payable
monthly at the Prime Rate plus 1%. 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 December 31, 1996, $307,476 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 cash equivalents in
the amount of $2,500,000. Although the bonds do not begin to mature
until April 2000, there can be no assurance that the Partnership
will be able to generate sufficient cash from operations to cover
the debt service on the bonds. If the Partnership defaults on the
bonds and they become due, the Company will become responsible for
repayment for at least a portion of that amount and possibly
additional amounts.
During 1996, capital contributions of $7,000,000 to the Partnership
were made by each partner. Subsequently, in January and March 1997,
an additional $1 million in capital contributions to the Partnership
were made by each partner. During 1995, capital contributions of
$3,000,000 to the Partnership were made by each partner.
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.
The Company's proportionate share of losses of the Partnership are
$6,294,832, $5,286,112 and $2,812,423 for the year ended December
31, 1996, 1995 and 1994, respectively. The Partnership has incurred
cumulative losses of approximately $28,800,000 since inception. The
Company's share of the cumulative losses have resulted in
recognition of losses in excess of the Company's investment in the
Partnership of $2,091,977 and 2,797,165 for 1996 and 1995,which has
been reflected as a liability in the balance sheet.
Payables to the Partnership amounted to $17,035 at December 31,
1996. Receivables from the Partnership were $160,973 and $124,095 at
December 31, 1995 and 1994, respectively. Interest income earned
from the Partnership amounted to approximately $164,000 in 1995. 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 $95,000, $83,000 and $91,000 in various administrative
office support services to the Company in 1996, 1995 and 1994,
respectively. The general partners are guarantors of the
Partnership's long term debt which amounts to approximately
$8,700,000 as of December 31, 1996. Engelhard is guarantor of the
Partnership's short-term loan which amounts to $2,750,000 as of
December 31, 1996.
33
<PAGE> 34
In order to provide capacity and consolidate the Philadelphia office
and manufacturing operations, the Partnership entered into a ten-year
lease commitment which begins April 1997, for approximately 140,000
square feet of office, manufacturing and assembly space. Annual lease
obligation of the Partnership for the new facility for the first
five-years are approximately $500,000 per year. The lease can be
terminated after the fifth year. The general partners are guarantors of
the Partnership's lease obligations.
(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. The carrying amount approximates the fair
value due to the short-term maturity of these instruments.
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
The Company accounts for income taxes under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled.
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 Preferred Stock
amounting to approximately $50,000, $301,000 and $228,000 for the
periods ended December 31, 1996, 1995 and 1994 , respectively, 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 each
respective period. The computations of fully diluted loss per share
were antidilutive; therefore, the amounts reported herein for primary
and fully diluted loss per share are the same.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No.128 ("SFAS 128") on
earnings per share. The new pronouncement prescribes the method of
computing basic and diluted earnings per share. While computing diluted
earnings per share no effect would be given to conversions, exercises
or contingent issuances of securities that would have an antidilutive
effect on earnings per share. The new pronouncement is effective for
the year ended December 31, 1997. The Company believes that the new
pronouncement will not have a significant impact on its calculation of
earnings per share as compared to its present method.
34
<PAGE> 35
Concentration of Credit Risk
The Company invests its cash primarily in deposits or commercial paper
with major banks or institutions. At times, deposits may be in excess
of federally insured limits. The Company obtains commercial paper
primarily with maturities of 30 days or less and with very high credit
ratings. The Company does not anticipate nonperformance by any of the
counterparties to the financial instruments.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Reclassification
Certain reclassifications have been made to the 1995 and 1994
presentations to conform with the 1996 presentation.
(4) SUPPLEMENTAL CASH FLOWS AND EQUITY DISCLOSURE:
Cash paid during the year for interest was $67,985, $0 and $35,628, in
1996, 1995 and 1994, respectively.
Included in the Statement of Cash Flows for 1996 were net cash proceeds
of approximately $16,700,000 from the issuance of 2,686,813 shares of
Common Stock in connection with a secondary offering. In connection
with the offering, all outstanding Preferred Stock was converted into
3,609,696 shares of Common Stock or redeemed in cash for $981,270. In
addition accrued dividends on the Preferred Stock amounting to
approximately $1,044,000 were declared and paid in cash, except for
$649,396 of such dividends associated with the Series H Preferred Stock
were paid in the form of 162,349 shares of Common Stock in accordance
with the original terms of such series. Also included were cash
proceeds of $301,300 from the issuance of 131,000 shares of Common
Stock upon exercise of stock options and warrants. Excluded from the
Statement of Cash Flows in 1996 were the effects of certain non-cash
financing transactions related to $12,500 of compensation expenses
related to the grant of warrants to purchase 375,000 shares of Common
Stock in connection with the private placement of 300,000 shares of
Common Stock in March 1995.
Included in the Statement of Cash Flows for 1995 were net cash proceeds
of $2,980,092 from the issuance of 300,000 shares of Common Stock. Also
included were cash proceeds of $2,781,353 from the issuance of
1,151,833 shares of Common Stock upon exercise of stock options and
warrants. Excluded from the Statement of Cash Flows in 1995 were the
effects of certain non-cash financing transactions related to: the
issuance of 925,000 shares of Common Stock to redeem 6,750 shares of
Series F Preferred Stock; the issuance of 26,653 shares of Common Stock
for $75,000 of investor relation services performed from 1993 through
1995 and $37,500 of compensation expenses related to the grant of
warrants to purchase 375,000 shares of Common Stock in connection with
the private placement of 300,000 shares of Common Stock in March 1995.
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
35
<PAGE> 36
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.
(5) INVENTORIES:
Inventories comprised of cogeneration equipment and related parts that
had been recorded at their net realizable value. At December 31, 1996
and 1995 the Company had no inventory. At December 31, 1994 the
Company's inventory balance of $16,960 was net of a reserve for
obsolete inventory of approximately $430,000. Obsolete inventory of
$439,000 was written off against the corresponding inventory reserve in
1995. For the years ended 1995 and 1994, the Company made provisions of
approximately $9,000 and $95,000 for inventory obsolescence.
(6) PROPERTY AND EQUIPMENT:
Property and equipment, net, comprise the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
------- -------
<S> <C> <C>
Office and computer
equipment $ 3,815 $ 3,815
Furniture and fixtures 956 956
------- -------
4,771 4,771
Less-Accumulated depreciation (3,181) (1,591)
------- -------
$ 1,590 $ 3,180
======= =======
</TABLE>
The Company retired $66,106 of equipment in the year ended December 31,
1995 resulting in no gain or loss on retirement .
(7) ACCRUED LIABILITIES:
Accrued liabilities comprise of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
-------- --------
<S> <C> <C>
Professional fees $ 23,500 $ 23,000
Offering Costs 0 160,914
Accrued interest 0 65,392
Other 24,727 37,785
-------- --------
$ 48,227 $287,091
======== ========
</TABLE>
(8) NOTES PAYABLE TO STOCKHOLDER:
Notes payable to stockholder comprise the following:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- --------
<S> <C> <C>
Notes payable to stockholder $0 $150,000
== ========
</TABLE>
In connection with the secondary offering of 2,500,000 shares of Common
Stock in February 1996 (note 9), the note payable to stockholder was
repaid and the note was canceled.
36
<PAGE> 37
Interest expense on all stockholder loans were $2,594, $16,250 and
$14,611 in 1996, 1995 and 1994, respectively.
(9) STOCK TRANSACTIONS:
In February 1996, the Company issued 2,500,000 shares in a secondary
offering at $7 per share less underwriting discounts and commissions of
$.49 per share. Proceeds of $16,275,000 were offset by costs of
approximately $750,000 incurred in connection with the offering. In
connection with the offering, all outstanding Preferred Stock was
converted into 3,609,696 shares of Common Stock or redeemed in cash for
$981,270. In addition, accrued dividends on the Preferred Stock
amounting to approximately $1,044,000 were declared and paid in cash,
except for $649,396 of dividends associated with the Series H Preferred
Stock were paid in the form of 162,349 shares of Common Stock in
accordance with the original terms of such series. As a result of such
conversion and redemption of Preferred Stock, there are currently no
shares of Preferred Stock outstanding. The Company plans to use the
remaining net proceeds from the offering to fund primarily its half of
the estimated future financing requirements of the Partnership and to
fund the Company's working capital requirements. In April 1996, the
underwriters of the secondary offering exercised their overallotment
option and purchased 186,813 of Common Stock for proceeds of
approximately $1.2 million after underwriting discounts and
commissions. As of December 31, 1995, approximately $400,000 of
offering costs were included in other assets which was offset against
additional paid in capital in 1996 when the proceeds of the offering
were received.
The Company received proceeds of approximately $183,000 from the
exercise of stock options to purchase approximately 106,000 shares of
Common Stock granted under its option plans during 1996. The Company
received proceeds of approximately $119,000 from the exercise of
warrants to purchase approximately 25,000 shares of Common Stock during
1996.
In March 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. Costs of the offering amounted to approximately
$320,000. In August 1995, the promissory note was paid. In connection
with the private placement, the Company issued warrants to purchase
375,000 shares of Common Stock at $9 per share to the placement agent.
The Company received proceeds of approximately $1,954,000 from the
exercise of stock options to purchase approximately 912,000 shares of
Common Stock granted under its option plans for 1995. The Company
received proceeds of approximately $828,000 from the exercise of
warrants to purchase approximately 240,000 shares of Common Stock for
1995.
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 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.
(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.
Options expire 10 years after the date of grant. 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
37
<PAGE> 38
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. The Company had reserved 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 fixed stock option plan whereby vesting
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.
Information with respect to stock options is summarized as follows:
<TABLE>
<CAPTION>
Available for Outstanding Exercisable Weighted Average
------------- ----------- ----------- ----------------
Grant Options Options Exercise Price
----- ------- ------- --------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994 1,203,539 3,750,775 $ 2.14
Additional shares Authorized in 1994 1,500,000
Granted (1,295,000) 1,295,000 $ 5.69
Canceled 502,403 (502,403) $ 2.75
Exercised 0 (753,300) $ 1.46
--------- ---------
BALANCE AT DECEMBER 31, 1994 1,910,942 3,811,019 $ 3.39
Exercisable at December 31, 1994 1,219,784 $ 2.22
=========
Granted (21,940) 21,940 $10.37
Canceled 0 0 $ 0
Exercised 0 (909,333) $ 2.16
--------- ---------
BALANCE AT DECEMBER 31, 1995 1,889,002 2,923,625 $ 3.83
Exercisable at December 31, 1995 1,242,885 $ 2.86
=========
Granted (356,000) 356,000 $ 6.23
Canceled 163,000 (163,000) $ 5.65
Exercised 0 (106,300) $ 1.72
--------- ---------
BALANCE AT DECEMBER 31, 1996 1,696,002 3,010,325 $ 4.09
========= =========
Exerciseable at December 31, 1996 1,498,173 $ 3.08
=========
</TABLE>
At December 31, 1997, the options groups outstanding based on ranges
of exercise prices is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------- ----------------------------------
Range of Exercise Number Weighted Weighted- Number Weighted-
Price Outstanding Average Average Exercisable Average
Remaining Life Exercise Price Exercise Price
(Years)
---------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$.01-$2.50 988,258 5.22 $1.99 714,658 $1.81
$2.60-$5.50 1,147,127 6.04 $4.21 612,127 $3.67
$5.60-$8.13 753,000 7.99 $5.87 147,000 $5.72
$8.25-$12.75 121,940 8.57 $8.99 24,388 $9.35
--------- ---- ----- --------- -----
3,010,325 6.36 $4.09 1,498,173 $3.08
</TABLE>
38
<PAGE> 39
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock-based compensation plans. Accordingly, no
compensation cost has been recognized for its fixed stock option plans.
Had compensation cost for the Company's stock option plans been
determined consistent with Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based compensation", the
Company's net loss and net loss per share would have been increased to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Net Loss: As Reported $7,154,609 $6,323,373
Pro Forma $7,351,632 $6,349,094
Net Loss Applicable to Common Stockholders: As Reported $7,204,264 $6,624,786
Pro Forma $7,401,287 $6,650,507
Net Loss per share: As Reported $ 0.35 $ 0.47
Pro Forma $ 0.36 $ 0.47
</TABLE>
The fair value of each option for 1996 and 1995 is estimated on the
date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants: dividend yield
of 0% for all years; expected volatility of 69.7%; risk-free interest
rates ranging from 5.4% to 7.2%; and expected lives of 6 years. The
weighted average fair value of options on the date of grant during 1996
and 1995 was $3.64 and $6.25, respectively.
In connection with the settlement of a claim in 1994, Common Stock
warrants to purchase 40,000 shares of Common Stock were issued. The
Company had the following Common Stock warrants outstanding at December
31, 1996, 1995, and 1994, respectively:
<TABLE>
<CAPTION>
Warrants outstanding
--------------------
Number Weighted Average
------ ----------------
Exercise Price
--------------
<S> <C> <C>
December 31, 1996
Consultants 525,000 $9.44
Officers and directors 915,000 $2.66
---------
1,440,000 $5.13
=========
December 31, 1995
Consultants 550,000 $9.22
Officers and directors 915,000 $2.66
---------
1,465,000 $5.12
=========
December 31, 1994
Consultants 265,000 $3.57
Officers and directors 965,000 $2.77
---------
1,230,000 $2.94
=========
</TABLE>
(11) 401(k) PROFIT SHARING PLAN:
The Company sponsors for all employees a 401(k) Profit Sharing Plan
("the Plan") which was amended January 1, 1995. Under the Plan, an
employee may elect to contribute on a pre-tax basis to a retirement
account up to 15% of the employee's compensation up to the maximum
annual contributions permitted by the Internal Revenue Code. The
Company matches 50% of each participants contributions up to a maximum
of 4% of the participant's compensation. Each employee is fully vested
at all times with respect to his or her contributions. The Company's
contribution and administration expense was approximately $6,000 for
each of the years ended December 31, 1996 and 1995.
39
<PAGE> 40
(12) COMMITMENTS AND CONTINGENCIES
Claims and Legal Actions:
In February 1997, the Company and filed a complaint asserting a claim
against Engelhard's acquisition of Telaire Systems, Inc. Aside from the
preceding claim, the Company is not engaged in any material lawsuits.
(13) 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.
Temporary differences and carryforwards which give rise to deferred tax
assets at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net operating loss carryforward $ 12,798,000 $ 10,180,000
Other 10,000 10,000
------------ ------------
$ 12,808,000 $ 10,190,000
Less valuation allowance (12,808,000) (10,190,000)
------------ ------------
Total $ 0 $ 0
============ ============
</TABLE>
The Company has incurred losses since inception. At December 31, 1996
the Company has federal net operating loss carryforwards of
approximately $33 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.
(14) OPERATING STATEMENT INFORMATION:
Selected operating statement information for each of the three years in
the period ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Maintenance and repairs $ 0 $ 0 $ 1,411
Advertising $ 0 $ 0 $12,031
Amortization:
Patent and software $ 0 $ 0 $ 1,650
</TABLE>
For the year ended December 31, 1995, the Company's reserve for
doubtful accounts was $0. During 1994, the provision for doubtful
accounts was increased by approximately $18,000 which was included in
the general and administrative expense in the accompanying Statement of
Operations. In 1995 accounts receivable deemed uncollectible and
charged to the reserve for doubtful accounts amounted to approximately
$19,000. 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.
40
<PAGE> 41
REPORT OF INDEPENDENT ACCOUNTANTS
The Partners of Engelhard/ICC
We have audited the accompanying balance sheets of Engelhard/ICC (Partnership)
as of December 31, 1996 and 1995 and the related statements of operations,
changes in partners' capital and cash flows for the years ended December 31,
1996 and 1995 and 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 audits provide 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, 1996 and 1995 and the results of its operations and its cash flows for the
years ended December 31, 1996 and 1995 and 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 accumulating to $28,786,732 through December 31,
1996 and it 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 19, 1997
41
<PAGE> 42
ENGELHARD/ICC
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,192,997 $ 346,480
Accounts receivable, net of allowance for doubtful accounts of
$39,786 and $40,000 respectively 2,623,769 2,057,420
Accounts receivable - ICC Technologies, Inc. 17,035 0
Inventories 4,570,952 3,385,125
Prepaid expenses and other 278,762 158,939
----------- -----------
Total current assets 8,683,515 5,947,964
PROPERTY, PLANT AND EQUIPMENT, net 7,990,125 8,263,642
CASH HELD IN ESCROW 307,476 865,744
PURCHASED INTANGIBLES, net 991,883 1,117,631
OTHER ASSETS, net 986,232 684,524
----------- -----------
Total assets $18,959,231 $16,879,505
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts Payable:
Trade $ 1,404,366 $ 800,289
ICC Technologies, Inc. 0 160,973
Engelhard Corporation 298,084 204,536
Accrued liabilities 481,230 353,596
Short-term loan 2,750,000 2,750,000
Current portion of long term debt 64,529 51,870
----------- -----------
Total current liabilities 4,998,209 4,321,264
----------- -----------
LONG-TERM DEBT 8,642,330 8,649,885
----------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL 5,318,692 3,908,356
----------- -----------
Total liabilities and partners' capital $18,959,231 $16,879,505
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 43
ENGELHARD/ICC
STATEMENT OF OPERATIONS
for the year ended December 31, 1996 and 1995 and
for the period February 7, 1994 (date of formation) to December 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
REVENUES $ 10,504,609 $ 8,944,279 $ 1,620,386
COST OF GOODS SOLD 12,835,429 10,283,995 1,591,821
------------ ------------ -----------
Gross Profit (2,330,820) (1,339,716) 28,565
------------ ------------ -----------
OPERATING EXPENSES:
Marketing 3,563,817 3,412,008 2,061,027
Engineering 1,053,809 936,415 1,233,282
Research and Development 1,055,758 1,133,780 894,837
General and administrative 4,148,490 3,040,722 1,539,140
------------ ------------ -----------
Total operating costs 9,821,874 8,522,925 5,728,286
------------ ------------ -----------
Loss from operations (12,152,694) (9,862,641) (5,699,721)
INTEREST:
Interest income 94,766 50,679 138,718
Interest expense (531,736) (760,261) (63,842)
------------ ------------ -----------
(436,970) (709,582) 74,876
------------ ------------ -----------
NET LOSS $(12,589,664) $(10,572,223) $(5,624,845)
============ ============ ===========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
-43-
<PAGE> 44
ENGELHARD/ICC
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the years ended December 31, 1996 and 1995
for the period February 7, 1994 (date of formation) to December 31, 1994
<TABLE>
<CAPTION>
--------------
<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
Conversion of general partners' loan to partners' capital 5,000,000
Capital Contributions 6,000,000
Net Loss of Partnership (10,572,223)
-------------
Partners' capital, December 31, 1995 3,908,356
Capital Contributions 14,000,000
Net Loss of Partnership (12,589,664)
-------------
Partners' capital, December 31, 1996 $ 5,318,692
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-44-
<PAGE> 45
ENGELHARD/ICC
STATEMENT OF CASH FLOWS
for the year ended December 31, 1996 and 1995 and
for the period February 7, 1994 (date of formation) to December 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $(12,589,664) $(10,572,223) $ (5,624,845)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 1,178,690 940,333 224,516
Provision for doubtful accounts 40,000 31,104 0
Provisions for inventory obsolescence and valuation 941,030 600,000 0
Amortization 170,367 160,565 24,219
Write-off of equipment 23,471 0 0
(Increase) decrease in:
Receivables (606,349) (1,424,973) (426,602)
Inventories (2,126,857) (1,545,616) (1,950,797)
Prepaid expenses and other (119,823) (83,103) (49,346)
Increase (decrease) in:
Accounts payable 604,077 (509,281) 1,049,231
Payables to ICC Technologies, Inc. (178,008) 36,878 (15,227)
Payables to Engelhard Corporation 93,548 141,697 62,839
Accrued expenses and other liabilities 127,634 119,368 134,649
------------ ------------ ------------
Net cash used in operating activities (12,441,884) (12,105,251) (6,571,363)
------------ ------------ ------------
Cash Flows from Investing Activities:
Purchases of property, plant and equipment (928,644) (1,257,464) (7,879,939)
Purchases of intangibles (346,327) (134,244) (1,480,715)
Cash held in escrow 558,268 (865,744) 0
------------ ------------ ------------
Net cash used in investing activities (716,703) (2,257,452) (9,360,654)
------------ ------------ ------------
Cash Flows from Financing Activities:
Proceeds from long-term debt 57,072 69,956 175,044
Repayments of long-term debt (51,968) (43,245) 0
Proceeds from issuance of bonds 0 8,500,000 0
Bond issuance costs 0 (215,979) 8,633,434
Capital contributions by general partners 14,000,000 6,000,000 0
Proceeds from short-term debt 0 2,750,000 0
Proceeds from Joint Development Program (at formation) 0 0 21,990
Equalization payment to ICC 0 0 (250,000)
Proceeds from (repayment of) notes payable to general partners 0 (3,000,000) 8,000,000
------------ ------------ ------------
Net cash provided by financing activities 14,005,104 14,060,732 16,580,468
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 846,517 (301,971) 648,451
Cash and Cash Equivalents, Beginning of Period 346,480 648,451 0
------------ ------------ ------------
Cash and Cash Equivalents, End of Period $ 1,192,997 $ 346,480 $ 648,451
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-45-
<PAGE> 46
ENGELHARD/ICC
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS:
Business and Formation and Going Concern
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. The Partnership
currently markets its systems to certain targeted applications within
the commercial air conditioning market primarily in North America and
Asia-Pacific. 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 Technologies, Inc.
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
Technologies, Inc. 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. Pursuant to their agreement to provide credit
support, Engelhard has guaranteed the short-term loan of $2,750,000 at
December 31, 1996.
ICC Technologies, Inc. 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 notes payable to
Engelhard Corporation. The amounts transferred were recorded at ICC
Technologies' historical cost.
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. The Partnership has incurred cumulative losses from
its formation to December 31, 1996 of $28,786,732 and has been
primarily dependent on its partners for financial support. Until the
Partnership generates sufficient cash flows from operations, it will be
primarily dependent upon the partners to provide financial support.
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
industrial development bonds in 1995 (see note 7). During the year 1996
and 1995 the Partnership received capital contributions of $14,000,000
and $6,000,000, respectively, from its partners. The Partnership
expects that its partners will continue to provide sufficient financial
support until the operations of the Partnership generate sufficient
cash flow and such support is no longer required; however, there can be
no assurance that the Partnership will receive sufficient financial
support, generate sufficient cash flow or obtain sufficient funds from
other sources.
46
<PAGE> 47
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The financial statements include the accounts of the Partnership for
the years ended December 31, 1996 and 1995 and 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. The carrying amount approximates fair value
due to the short-term maturity of these instruments.
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.
Patents
Patents are amortized over their estimated useful lives not exceeding
seventeen years using the straight-line method.
Bond Issuance Costs
Bond issuance costs are deferred and amortized over the life of the
bonds using the straight-line method. Amortization of bond issuance
costs is included in interest expense.
Income Taxes
Partnership income, if any, is taxable to the general partners.
Accordingly, no provision for income taxes has been made by the
Partnership.
47
<PAGE> 48
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. Processing fees for fabricating
raw materials into substrate are recognized in revenue in the period
the substrate material is shipped.
Research and Development Costs
Research and development costs are expensed as incurred. Research
and development costs amounted to approximately $953,000, $1,134,000
and $895,000 for the year ended December 31, 1996 and 1995 and the
period ended December 31, 1994, respectively.
Warranty
The Partnership's warranty on its equipment is for eighteen months
from date of shipment or one year from date of original
installation, except for desiccant or thermal rotors which are
warranted for five years from the 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 at times, these deposits may be in excess of federally insured
limits. The Partnership has sold its equipment and services to
end-users in retail industry, primarily in the continental United
States and Asia-Pacific rim. Concentration of credit risk with
respect to trade receivables is moderate due to the relatively
diverse customer base. At December 31, 1996, the Partnership had
trade receivables of approximately $549,000 from one customer.
During 1996, revenues from this customer amounted to approximately
$4.3 million, which represents approximately 41% of the Partnership
revenues. Trade receivables from this customer were current at
December 31, 1996. 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. The partnership does not anticipate non
performance by any of the counterparties that have been granted
credit or hold instruments.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Long-lived Assets
The Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," effective for fiscal years
beginning after December 15, 1995. The Statement requires long-lived
assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of the asset may not be recoverable. The
Partnership adopted SFAS No. 121 effective January 1, 1996, and is
not aware of any events or circumstances which indicate the
existence of an impairment which would be material to the
Partnership's financial statements.
48
<PAGE> 49
(3) INVENTORIES:
Inventories comprise the following:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Raw materials and purchased parts $ 2,013,913 $1,115,561
Work-in-process 1,547,641 1,212,087
Finished goods 1,591,228 1,147,477
----------- ----------
5,152,782 3,475,125
Less: Allowance for inventory obsolescence (581,830) (90,000)
=========== ==========
$ 4,570,952 $3,385,125
=========== ==========
</TABLE>
Inventory is net of an allowance for inventory obsolescence of
$581,830, and $90,000 as of December 31, 1996 and 1995,
respectively. The Partnership recorded a provision of $941,000 and
$600,000 for inventory obsolescence and valuation in which has been
reflected in general and administrative expenses in the statement of
operations for 1996 and 1995, respectively. In 1996 and 1995 the
Partnership wrote-off approximately $449,000 and $558,000,
respectively, of obsolete inventory against the allowance for
inventory obsolescence.
Raw materials purchased from Engelhard amounted to approximately
$272,000, $86,000 and $169,000 for the years ended December 31, 1996
and 1995 and for the period ended December 31, 1994, respectively.
The Partnership designs, manufactures and markets desiccant based
climate control systems which have not yet achieved consistent sales
levels and consistent product mix. The Partnership's products are
also subject to change due to technological improvements.
Consequently, the Partnership may from time to time have inventory
levels in excess of its short-term needs. Items in inventory may
become obsolete due to changes in technology or product design.
Management has developed a program to monitor inventory levels;
however, it is possible that a material loss could ultimately result
in the disposal of excess inventory or due to obsolescence.
(4) PROPERTY, PLANT AND EQUIPMENT:
Property, Plant and equipment, net, consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ -----------
<S> <C> <C>
Land $ 390,000 $ 390,000
Building 1,779,721 1,622,569
Machinery and equipment 7,607,702 7,455,831
Furniture, fixtures and
leasehold improvements 794,912 305,169
------------ -----------
10,572,335 9,773,569
Less- accumulated depreciation (2,582,210) (1,509,927)
============ ===========
$ 7,990,125 $ 8,263,642
============ ===========
</TABLE>
The Partnership incurred $ 651,774 of construction and installation
costs in progress associated with equipment which had not been
placed in service as of December 31, 1995. Machinery and equipment
purchased through or from Engelhard amounted to approximately
$36,000 in 1995.
49
<PAGE> 50
(5) OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Patents and Trademarks $ 877,623 $ 531,297
Bond Issue Costs 219,483 215,979
Deposits 33,854 32,628
Other 2,000 1,200
----------- ---------
1,132,960 781,104
Accumulated amortization (146,728) (96,580)
---------
$ 986,232 $ 684,524
=========== =========
</TABLE>
(6) ASSET ACQUISITION:
On December 1, 1994, the Partnership acquired for approximately $8.2
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 structures that are the base
material of the desiccant and thermal 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 $1.3 million of intangibles.
To finance the acquisition, the general partners each lent to the
Partnership $4,000,000 ("General Partners' Loan") bearing interest
payable monthly at the Prime Rate plus 1%. In April 1995, the
Partnership obtained financing from the issuance of $8,500,000 of
industrial development revenue bonds (see note 7). In 1995, 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.
(7) LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Industrial development revenue bonds; interest determined weekly
and payable weekly; bonds mature on April 2020, but are subject
to redemption at the option of the
Partnership from April 2000 $ 8,500,000 $ 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 138,649 180,642
Other 68,210 21,113
------------ -----------
8,706,859 8,701,755
Less- Current portion (64,529) (51,870)
------------ ------------
$ 8,642,330 $ 8,649,885
============ ============
</TABLE>
50
<PAGE> 51
In connection with the issuance of the industrial revenue bonds (see
note 6), cash of $307,476 is held in escrow pending the Partnership's
incurrence of certain qualified expenditures.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 64,529
1998 55,983
1999 56,001
2000 18,932
2001 11,414
thereafter 8,500,000
------------
$ 8,706,859
============
</TABLE>
The general partners are guarantors on the long-term debt.
Substantially all of the assets are placed as collateral under the
various debt agreements. In addition, Engelhard is the guarantor on the
short-term loan which amounts to $2,750,000 as of December 31, 1996.
The short-term loan is payable on demand with the interest rate
adjusted on a weekly basis. The interest rate at December 31, 1996 was
5.875%. The fair value of the Partnership's debt was determined by
reference to quotations available in markets where similar issues are
traded. The interest on the long-term debt is adjusted weekly to
current market rates. The estimated fair values of long-term debt at
December 31, 1996 approximates the carrying amount.
(8) REVENUES:
Revenues comprise of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Equipment sales $ 6,097,736 $2,558,250 $1,529,811
Substrate processing 4,302,233 5,801,666 35,345
Licensing fees -- 500,000 --
Maintenance and service 104,640 84,363 55,230
----------- ---------- ----------
$10,504,609 $8,944,279 $1,620,386
=========== ========== ==========
</TABLE>
The Partnership fabricates large cell honeycomb substrate materials at
its Miami facility under a Manufacturing and Supply Agreement with
Ciba-Geigy Corporation ("Ciba"'). All rights and obligations under this
agreement were assigned to Hexcel Corporation by Ciba. Hexcel 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. The Manufacturing and Supply Agreement is for a period of
five years. The Partnership is in the third year of performing services
under such Agreement. Export sales of equipment were approximately
$1,457,000 , $643,000 and $238,000 in 1996, 1995 and 1994,
respectively.
(9) PARTNERS' CAPITAL:
During 1996, $7,000,000 was contributed by each of the general
partners. In January and March 1997, additional capital contributions
of $1,000,000 were contributed by each of the general partners.
During 1995, $3,000,000 was contributed by each of the general
partners. In conjunction with the General Partners' Loan of $8,000,000
and issuance of $8,500,000 of industrial development revenue bonds (see
note 6), $3,000,000 was repaid to each general partner and the
remaining $5,000,000
51
<PAGE> 52
outstanding balance on the loan was converted into a capital
contribution, $2,500,000 for each general partner in 1995.
(10) RELATED PARTY TRANSACTIONS:
The Partnership provided approximately $95,000,$83,000 and
$91,000 in various administrative office support services to ICC
during the year ended December 31, 1996, 1995 and the period ended
December 31, 1994, respectively. Engelhard provided approximately
$504,000, $351,000 and $ 297,000 in various administrative office
support services to the Partnership during the year ended December
31, 1995 and the period ended December 31, 1994, respectively.
Engelhard provided approximately $17,000, $162,000 and $ 320,000 in
research and development to the Partnership during the year ended
December 31, 1996 and 1995 and the period ended December 31, 1994,
respectively. ICC provided approximately $47,000 and $72,000 in
various administrative office support services to the Partnership
during the year ended December 31, 1996 and 1995, respectively. The
Partnership incurred approximately $328,000 and $ 63,000 during the
year ended December 31, 1995 and the period ended December 31, 1994,
respectively, of interest expense to the general partners in
connection with the $8,000,000 General Partners' Loan (see note 6).
In accordance with the Transfer Agreement entered into by the
general partners, a distribution of approximately $140,000 was paid
to ICC in 1995.
(10) SUPPLEMENTAL CASH FLOW DISCLOSURES:
Excluded from the Statement of Cash Flows for the year ended
December 31, 1996 was the write-off of $449,200 of inventory and
$40,214 of bad debts.
Excluded from the Statement of Cash Flows for the year ended
December 31, 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.
Excluded from the Statement of Cash Flows for the period ended
December 31, 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.
Cash paid for interest amounted to approximately $516,394 and
$823,000 for the years ended December 31, 1996 and 1995,
respectively.
(11) 401(k) PROFIT SHARING PLAN:
Effective January 1, 1995, the Partnership provides for all
employees a 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 up to 15% of the employee's compensation up to
the maximum annual contributions permitted by the Internal Revenue
Code. The Partnership matches 50% of each participants contributions
up to a maximum of 4% of the participant's compensation. Each
employee is fully vested at all times with respect to his or her
contributions. The Partnership's contribution and administration
expense was approximately $95,000 and $80,000 for the years ended
December 31, 1996 and 1995, respectively.
52
<PAGE> 53
(11) 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, 1996
are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 357,240
1998 526,440
1999 523,843
2000 521,321
2001 513,918
</TABLE>
Rent expense under these operating leases was $469,580, $224,634 and
$188,158 for the years ended December 31, 1996, 1995 and 1994,
respectively.
In order to provide capacity and consolidate the Philadelphia office
and manufacturing operations, the Partnership entered into a ten-year
lease commitment which begins April 1997, for approximately 140,000
square feet of office, manufacturing and assembly space. The lease
can be terminated after the fifth year. The Partnership is responsible
for paying its allocable portion of all real estate taxes, water and
sewer rates, and common expenses. The obligations under the lease
agreement are guaranteed by the general partners.
53
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
(Registrant): ICC Technologies, Inc.
-------------------------------------
By: Irwin L. Gross
-------------------------------------
(Signature)
Name and Title: Irwin L. Gross, Chairman of the Board
-------------------------------------
Date: March 26, 1997
-------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
- --------- -------- ----
/s/Irwin L. Gross Chairman of the Board March 26, 1997
- --------------------------- and President (Principal
Irwin L. Gross Executive Officer)
/s/William A. Wilson Vice Chairman of the Board March 26, 1997
- --------------------------- and Director
William A. Wilson
/s/Manfred Hanuschek Chief Financial Officer March 26, 1997
- ---------------------------
Manfred Hanuschek
/s/Albert Resnick Director and Secretary March 26, 1997
- ---------------------------
Albert Resnick
/s/Andrew L. Shapiro Director March 26, 1997
- ---------------------------
Andrew L. Shapiro
/s/Stephen Schachman Director March 26, 1997
- ---------------------------
Stephen Schachman
/s/Mark Hauser Director March 26, 1997
- ---------------------------
Mark Hauser
/s/Charles Condy Director March 26, 1997
- ---------------------------
Charles Condy
/s/Robert Aders Director March 26, 1997
- ---------------------------
Robert Aders
54
<PAGE> 1
EXHIBIT 10.24
CIBA COMPOSITES [Ciba Logo]
October 19, 1995 Ciba Composites
Ciba-Geigy Corporation
Mr. William Staron 5115 East La Palma Avenue
Engelhard/ICC Technologies Anaheim, CA 92607-2018, U.S.A.
441 N. 5th St. Telephone: (714) 779-9000
Philadelphia, PA 19123 Fax: (714) 777-0828
Re: See Attachment A
Dear Mr. Staron:
This letter will serve to inform you that on September 29, 1995, Ciba-Geigy
Limited, Ciba-Geigy Corporation and Hexcel Corporation ("Hexcel") signed a
Strategic Alliance Agreement to combine their composites business on a
worldwide basis. The combined businesses will be operated under the Hexcel
name.
We respectfully request that you acknowledge and consent to the assignment and
transfer to Hexcel of the Contract, including all rights, privileges and
obligations of Ciba Composites, a Division of Ciba-Geigy Corporation ("Ciba")
and the assumption by Hexcel of all obligations, duties and liabilities of Ciba
thereunder. In accordance with terms of the Strategic Alliance Agreement,
Hexcel has agreed to be bound by and assume all obligations of Ciba under the
Contract, with respect to periods from and after closing. Your consent will be
effective upon the closing of the transaction. It is anticipated that this
transaction will close by the end of the year.
The result of this merger will strengthen our position as a worldwide leader in
the manufacture of aerospace and non-aerospace composites and will effectively
enhance our relationship with you. We value your support and look forward to a
promising future.
Please confirm your agreement to the foregoing by signing the enclosed copy of
this letter in the space provided below. Your prompt reply would be greatly
appreciated. If you have any questions, please feel free to contact the
undersigned at (714) 779-9000 extension 276.
Agreed to and Accepted:
Sincerely, By: /s/ William Staron
----------------------------------
/s/ Gary D. Halbeisen
- ------------------------------ Name: William Staron
Gary D. Halbeisen, Director --------------------------------
Title: President & COO
-------------------------------
Date: November 8, 1995
--------------------------------
<PAGE> 2
October 25, 1995
Attachment A
Re: -Sale of Assets and License of Technology by Ciba-Geigy to Engelhard/ICC,
dated 11-29-94;
-Transitional Services Agreement between Ciba-Geigy and Engelhard/ICC,
dated 11-29-94;
-Operations Service Agreement between Ciba-Geigy and Engelhard/ICC, dated
11-29-94;
-Agreement of Purchase and Sale of Assets by and between Engelhard/ICC (as
purchaser) and Ciba-Geigy (as seller), dated 11-29-94;
-Manufacturing and Supply Agreement between Ciba Composites and
Engelhard/ICC, dated 11-29-94; and
-License Agreement between Ciba Composites and Engelhard/ICC, dated
11-29-94 (hereinafter collectively the "Contract")
<PAGE> 1
EXHIBIT 10.25
ASIA PACIFIC MARKET DEVELOPMENT AGREEMENT
Asia Pacific Market Development Agreement dated September 12, 1996
("Effective Date") by and between Engelhard/ICC, a partnership organized and
existing under the laws of the Commonwealth of Pennsylvania, United States of
America, (hereinafter referred to as "E/I") and Carrier Asia Pacific Operations
Pte. Ltd., a company organized and existing under the laws of
Singapore. Carrier Asia Operations Pte. Ltd. and the APO Affiliated Companies
(defined below) are referred to collectively herein as "APO".
WITNESSETH:
WHEREAS, E/I owns certain patents, and technical information and
know-how associated with the design, assembly and application of the System
(defined below);
WHEREAS, APO is a major manufacturer and seller of industrial air
handling systems in the Asia Pacific region;
WHEREAS, the parties wish jointly to assess and test the market for
Systems (defined below) in certain countries in the Asia Pacific region (the
"Undertaking");
WHEREAS, for the purposes hereof APO desires to obtain licenses under
such patents and technical information and know-how of E/I to assemble, market
and sell the System as provided in this Agreement under license from E/I, and
with technological assistance extended by E/I; and
WHEREAS, for the purposes hereof E/I is willing to license such patents
and technical information and know-how and provide such technical assistance,
all in accordance with the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained and other good and valuable
consideration, the parties hereby agree as follows:
Article 1. Definitions
1.1 As used in this Agreement, the following terms shall have the
meanings as set forth herein:
(a) "APO Affiliated Company" shall mean a company incorporated
under the laws of and operating in a country listed in Article 2 which company
is controlled
-1-
<PAGE> 2
by, under common control with, controlling, or an affiliate of Carrier Asia
Pacific Operations Pte. Ltd. As used in this subparagraph "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of another's management and policies whether through ownership of
voting securities or partnership interests, by contract or otherwise.
(b) "APO Systems" shall mean any desiccant unit product which (i)
utilizes E/I's System Patents and E/I's System Technical information and
Know-How or (ii) which contains E/I System Components and is designed and
developed solely by APO.
(c) "E/I's Sales Price" shall mean sixty five percent (65%) of
E/I's Ex Works (Incoterms 1990) United States list price for Systems produced
by E/I for APO under this Agreement.
(d) "E/I's System Patents" shall mean System related patents
owned, controlled or licensed by E/I during the term of this Agreement. E/I's
System Patents now in existence are listed in SCHEDULE A attached hereto.
(e) "E/I's System Technical Information and Know-How" shall mean
System technology owned, controlled or licensed by E/I now or during the term
of this Agreement. The table of contents of E/I's System Technical Information
and Know-How which is in existence as of the Effective Date shall be set forth
separately by E/I in SCHEDULE B attached hereto and the complete contents will
be provided to APO within 45 days after the Effective Date.
(f) "Effective Date" as defined in the opening paragraph hereof.
(g) "E/I System Components" shall mean any parts of the System
which utilize E/I's System Patents and E/I's System Technical Information and
Know-How including but not limited to fans, evaporative coolers, boilers and
rotors or cassettes, which may be provided by E/I separately or collectively in
kit form.
(h) "Samsung Group Company" shall mean a facility owned or
controlled by the companies listed in SCHEDULE C.
(i) "System" shall mean a desiccant air-conditioning product with
air handling capacity of two thousand (2,000) cfm or greater, whether
regenerated by gas, steam or electricity which utilizes E/I's System Technical
Information and Know How and/or incorporates technology or know-how for which
E/I is free to grant licenses without accounting to any third party the current
models of which include E/I's designations DC 026, DC 050, DA 100, DA 150,
DB 015, DB 025 and DB 035.
-2-
<PAGE> 3
(j) "Undertaking" as defined in the third WHEREAS clause hereof.
Article 2. APO's Resale Rights
2.1 General. APO will have the exclusive right to sell Systems in
Australia, Bangladesh, Brunei, Burma, Cambodia, Guam, Hong Kong, India,
Indonesia, Laos, Macau, Malaysia, New Guinea, New Zealand, the Philippines,
Singapore, South Pacific (Fiji and Noumea), Sri Lanka. Thailand and Vietnam.
E/I will sell to APO, and APO will purchase from E/I Systems for resale in such
countries under the Carrier brand unless otherwise specified at E/I's Sales
Price for the System ordered. With E/I's prior consent, which consent shall not
be unreasonably withheld, APO may supply Systems assembled in one county in
APO's territory hereunder to another country in APO's territory hereunder under
the Carrier brand.
2.2 China. APO will have the non-exclusive right to sell Systems in
China. Other than the distributor identified in Article 2.3 below E/I shall
have no other distributor of the Systems in China during the term of this
Agreement. E/I will sell to APO, and APO will purchase from E/I Systems for
resale in China at a price that is at least 1O% less than E/I's good faith
estimate (or actual price, if known by E/I) of the such other distributor's
purchase price in China for comparable Systems.
2.3 Taiwan. APO has advised E/I that APO wishes to obtain System resale
and possibly assembly rights in Taiwan. E/I has advised APO that any such right
would be subject to E/I's commitments to Chung-Hsin Electric & Machinery
Manufacturing Corporation. Should E/I become free contractually to enter into
such arrangement with APO then E/I will advise APO of same and enter into good
faith discussions of the subject with APO as soon as possible.
2.4 South Korea. APO will have the exclusive right to sell Systems in
South Korea, provided, however, that E/I will be APO's exclusive distributor
for sales of Systems to the Samsung Group Companies. (a) Sales to Customers
Other Than Samsunq. For final customers other than Samsung Group Companies E/I
will sell to APO, and APO will purchase Systems from E/I for resale in South
Korea at E/I's Sales Price, or APO may sell Systems assembled in Korea,
whichever method is more cost effective and agreeable to such customer. (b)
Sales to Samsung. For Samsung, APO shall begin assembling Systems in South
Korea as soon as possible as provided in Article 3.2. APO will sell Systems
assembled by APO to E/I for distribution to Samsung Group Companies in South
Korea at a most favored price to be agreed, provided that E/I System Components
or kits are price discounted at an agreed level.
-3-
<PAGE> 4
For the existing projects identified in SCHEDULE D, E/I will have the right to
sell to Samsung directly and Samsung will have the right to supply Systems for
use in those projects listed in SCHEDULE D.
Where APO develops or identifies a Samsung project, APO may, if Samsung
Corporation agrees, sell Systems directly to Samsung under the Carrier brand.
Except for Systems sold to Samsung under the E/I brand name, Systems sold in
South Korea by APO will be sold under the Carrier or Daewoo-Carrier brand name.
2.5 Samsung. Except as provided in Article 2.4 above, E/I will be APO's
sole and exclusive distributor of Systems to Samsung Corporation for use by
Samsung Group Companies. E/I shall coordinate such sales opportunities in the
APO countries with APO.
2.6 Japan. APO has advised E/I that APO wishes to obtain System resale,
assembly and manufacturing rights in Japan. E/I has advised APO to contact
Nichimen Engine Sales Co. (Nichimen), E/I's current distributor in Japan
regarding distribution rights in Japan. E/I will work in good faith with
Nichimen and APO regarding Japan.
2.7 General Terms of Sale. Systems sold by E/I to APO pursuant to
Article 2 shall be ordered by individual APO companies in writing submitted to
E/I. No such order shall be binding upon E/I unless and until E/I accepts the
order in writing. With respect to each such order the respective APO company
and E/I will agree to delivery date, mode of transportation, packaging
requirements, and delivery location at the time of the order. (a) Payment and
Retainings: Terms of payment for all such orders shall be net 90 days, risk of
loss for the Systems shall be borne by APO Ex Works (Incoterms 1990) and any
and all purchase payments or other sums; that may become due and owing from APO
hereunder shall bear interest from and after the respective due dates at a rate
of one and one-half percent (1 1/2%) per month. In the event that a percentage
of the purchase price is retained by the ultimate purchaser throughout the
warranty period then the same retention percentage will be retained by APO
during such period. All other terms governing the order will be as set forth
herein including but not limited to the System warranty attached hereto as
EXHIBIT A, it being understood that the System warranty covers only the
apparatus manufactured by E/I and that E/I shall have no responsibility
whatsoever for any other equipment (or purchased by APO from E/I) to which such
apparatus may be attached or incorporated; and provided that the warranty
provided by E/I shall be no less than and co-extensive with the terms of
warranty provided by APO it its customers as shown in EXHIBIT B. THERE SHALL BE
NO OTHER WARRANTIES, EXPRESS OR IMPLIED APPLICABLE TO SALES OF SYSTEMS BY E/I
TO APO. APO will be responsible for any warranty it
-4-
<PAGE> 5
gives which exceeds the terms of the APO warranty in EXHIBIT B. All terms of
sale or purchase appearing on purchase orders submitted by APO companies to E/I,
except those mentioned in the third, fourth and fifth sentences of this Section
2.7, shall be null and void.
Article 3. APO's Assembly Rights
3.1 China. APO will have the non-exclusive right to assemble Systems in
China provided, however, that the E/I System Components included in such
Systems must be purchased by APO from E/I at the price and on such other terms
agreed to by the parties at the time. APO will develop System assembly
capability in China as soon as possible.
3.2 South Korea, Australia and Malaysia. APO will have the exclusive
right to assemble Systems in South Korea, Australia and Malaysia. However, the
E/I System Components included in such Systems must be purchased by APO from
E/I at a price and on such terms agreed to by the parties at the time. APO will
develop System assembly capability in South Korea for DC and DA products in
South Korea as soon as possible but not later than November 1, 1996 and will
maintain and utilize such capacity during the term of this Agreement. APO will
develop System assembly capability in Australia and Malaysia as soon as
possible. System assembly capability shall mean receiving from E/I System
Component kits consisting of major components up to and including all parts for
local assembly. E/I will provide in a manual the components of E/I's System
Technical Information and Know-How needed to assemble, test and maintain
Systems within 45 days of the Effective Date and E/I will update such material
from time to time. Any components or parts substitution by APO shall be
subject to prior approval of E/I which approval, if given orally, must be
confirmed by the parties in writing within two weeks of the oral approval.
3.3 Japan. APO will have the non-exclusive right to assemble Systems in
Japan under separate subcontract from E/I, subject to cost and quality approval
by E/I, Osaka Gas Company, and Nichimen. Systems assembled by APO in Japan will
be sold under the E/I brand name unless and until the parties agree otherwise
during the negotiations referred to in Section 2.6 above. E/I will work in good
faith with Nichimen and APO regarding future System assembly and System
manufacturing rights at APO's Japanese facilities.
3.4 Royalty. During the term of this Agreement the assembly rights
mentioned above shall be royalty free.
-5-
<PAGE> 6
3.5 Sourcing Parts Locally. If APO determines and E/I agrees that it
would be more cost effective to assemble Systems with parts obtained locally,
APO will share any resulting net cost savings determined from the E/I System
Component price list equally with E/I.
3.6 Additional Countries. At Carrier Asia Pacific Operations Pte.
Ltd.'s request E/I will grant APO System assembly rights in additional
countries provided that in E/I's judgment APO is fully utilizing the assembly
rights APO has at the time of the request, and provided further that in E/I's
judgement E/I will be able to obtain the additional resources E/I will need in
order to support such additional assembly rights on reasonable terms. Any such
additional assembly rights will commence on a schedule agreed to the parties at
the time.
Article 4. Contributions by the Parties
4.1 APO.
(a) Dedicated Employees. APO will dedicate three of its competent
employees who have been approved by E/I (whose approval shall not be
unreasonably withheld) to the Undertaking. As soon as possible after the
Effective Date APO will send these employees to E/I's US facilities for
training. A.11 salaries and expenses for APO personnel will be borne by APO.
(b) Parts. E/I will consign spare parts (of type and quantity to be
agreed), and APO will maintain such spare parts in locations appropriate to
meet the needs of purchasers and provide service and technical assistance to
purchasers consistent with commercially reasonable standards and industry
practice.
(c) Installation & Warranty Service. APO will provide installation and
all necessary service or repair of the Systems in accordance with E/I
specifications. E/I will reimburse APO for actual "warranty service costs"
provided that all such charges in excess of the US$5,000 (or equivalent in
local currency) for warranty service must be approved in advance by E/I and
E/I will have the option of handling itself any repair claim in excess of that
amount. As used in this Section 4.1 reimbursable "warranty service costs"
means the following direct out-of-pocket costs: Labor, spare parts, travel and
repair related utility costs directly and primarily related to a service call.
The APO which provided the service will send to E/I all records relating to
System warranty claims immediately after preparation of such records. APO will
at all times ensure that the Systems sold by it are covered by insurance to the
same extent as are other products sold by APO.
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<PAGE> 7
(d) Purchasing Economics Where feasible APO will use its best efforts
to give E/I the benefit of its purchasing power for parts needed by E/I for
Systems.
4.2 E/I.
(a) Demonstration Units. At E/I's expense E/I will deliver to APO, Ex
Works (Incoterms 1990), six (6) DC026 Systems to be used as demonstration units
in connection with the Undertaking in countries for which sales performance
targets have been agreed in accordance with Section 4.5.
(b) Technical Support. E/I shall make available to APO, up to the
equivalent of one full time person during the term of this Agreement,
technically qualified trained employee(s) who have been approved by APO whose
approval shall not be unreasonably withheld) and are familiar with E/I's System
Technical Information and Know-How. Such E/I employee(s) purpose and obligation
shall be to advise APO's personnel in the design, assembly, application, use
and sale of Systems which employ E/I's System Technical Information and
Know-How and shall make up to 3 trips to Asia (and no less than one visit for
each APO assembly site) for a total of up to 6 weeks for the purpose of
training APO personnel how to assemble Systems. If more time is required for
training in assembly of Systems APO and E/I will discuss the terms of such
additional support. Within the limits set forth in this Section 4.2, during the
first six months of this Agreement E/I will send one of its employees to a
facility designated by APO to train APO's personnel regarding the Systems.
Payment for salaries and expenses for E/I technically trained employees up to
the above hourly limits, will be borne by E/I. E/I shall disclose to APO E/I's
System Technical Information and Know-How and E/I's System Patents owned,
controlled or licensed by E/I after the Effective Date. Any information which
E/I shall disclose to APO shall be in English.
4.3 Mutual Assistance. From time to time during the term of this
Agreement, E/I and APO shall have a regular exchange of experience and
information. Each of APO and E/I shall designate two employees to be members of
a management committee in respect to the Undertaking and such committee shall
meet quarterly to review the operations under this Agreement.
4.4 Third Parties. E/I will not initiate contact with any third party
regarding assembly, use or sales rights for E/I Systems in the countries
mentioned in Articles 2 or 3 during the term of this Agreement except as
specifically permitted under the terms of this Agreement. In any case, E/I
agrees to grant APO the first right to enter into any arrangement for the
assembly, manufacturing, marketing or sale of E/I Systems in all countries in
the APO region (including Japan, Taiwan and China to the extent E/I can
renegotiate its existing agreements with sales representatives in those
countries). In
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<PAGE> 8
addition, E/I further agrees to negotiate in good faith with representatives
of Carrier Corporation to extend the E/I and Carrier relationship described
herein to other regions of the world, using this agreement as a model.
4.5 Market Entry Targets. Within 60 days after the Effective Date, APO
and E/I will establish market performance targets for South Korea, Thailand,
China, Malaysia, and Australia (the "Initial Targeted Countries"). These country
targets will apply during the term of this Agreement and will be based upon
APO's sales history for the prior three years, current market assessment, and
E/I's desiccant system application knowledge.
4.6 Conversion of Exclusive Rights to Non-Exclusive. Notwithstanding any
other provisions of this Agreement, any exclusive assembly, sales or use rights
granted herein to APO shall revert to non-exclusive in respect to any targeted
country in which (i) APO fails to meet the sales target agreed to by the
parties.
Article 5. Licenses
5.1 Assembly. E/I hereby grants and agrees to grant to APO affiliated
companies a non-exclusive non-transferable license without the right to
sublicense under E/I's System Patents and E/I's System Technical Information
and Know-How to assemble and sell Systems in accordance with the terms of this
Agreement.
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<PAGE> 9
5.2 Limitation. It is understood that the license granted or to be
granted pursuant to Section 5.1 will not include or imply any license to: (1)
assemble Systems outside of the countries in the APO region (to be discussed
and agreed), or (2) any authorization on the part of E/I for APO to
communicate, use, transfer or deliver any of E/I's System Technical Information
and Know-How except among APO Affiliated Companies to the extent necessary to
perform the Undertaking.
5.3 Future Manufacturing. It is the intent of E/I and APO to enter into
an exclusive long term manufacturing and distribution license agreement within
90 days of the termination of this Agreement. The specific elements of such
long term agreement are to be determined by mutual agreement of the parties,
however, it is agreed that (i) APO's rights to manufacture and sell Systems
will be exclusive in the countries listed in Article 2, except for Japan, and
subject to agreements currently in place regarding Japan, Taiwan and China, and
(ii) in the event APO manufactures, uses or sells APO Systems under that
license agreement APO shall exclusively use E/I made or licensed rotors and
shall pay to E/I a royalty based upon the value of E/I's System Patents and
E/1's System Technical Information and Know-How utilized. Such royalty shall
not exceed 2.5% of the APO Systems sales price.
Article 6. Quality Control
6.l APO shall with reasonable assistance from E/I:
(a) obtain all necessary licenses as well as any other governmental
permissions and registrations necessary for the design, assembly,
manufacture, packaging, sale and distribution of Systems in accordance with
the terms of this Agreement;
(b) assemble the Systems strictly in accordance with E/I's
specifications and directions;
(c) follow such quality control procedures as E/I shall from time to
time specify to assure that the Systems sold by APO meet E/I's quality
standards and customer specifications;
(d) permit the duly authorized representatives of E/I to inspect
during normal working hours each of APO's System assembly plants, the process
of assembly and packaging of the Systems by APO, and cause to be inspected by
them the plant of any contract assembler producing any components used in
production of the Systems when reasonably practicable.
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6.2 APO agrees to exercise all due care and diligence in the
assembly, processing, packaging, sale and distribution of the Systems.
Article 7. Confidentiality
7.1 Except as specified in this Section 7.1 and except to the extent
that such E/I System Technical Information and Know-How ("INFORMATION") is or
becomes public knowledge otherwise than by any act or omission
of APO, all INFORMATION disclosed under this Agreement, and all samples and
materials embodying such INFORMATION shall be treated by APO as confidential
and shall not be disclosed or made available to any third party. In the event
E/I provides APO with samples or materials that are under development and
therefore not yet commercialized APO will not analyze or have analyzed, or make
any use of any analysis of such samples and materials for chemical composition
unless agreed to in advance in writing by E/I. APO shall have the right to
disclose such INFORMATION and samples and materials embodying such INFORMATION
to a potential purchaser of Systems but only to the extent necessary for the
use of such Systems by such purchaser. APO shall have the right to disclose
such INFORMATION and make available samples and materials embodying same to
those of its management and technical or production employees who shall have a
need to know same for the purposes provided by this Agreement. Carrier Asia
Pacific Operations Pte. Ltd. shall be liable to E/I for any disclosure or
prohibited analysis of INFORMATION and sample materials by such employee unless
authorized in advance in writing by E/I. APO shall use the INFORMATION
disclosed hereunder only in performing under the licenses granted hereunder.
If a license granted under this Agreement is terminated, APO agrees to refrain
from using for any purpose such of the INFORMATION as is related to the
terminated license. Carrier Asia Pacific Operations Pte. Ltd. will advise each
APO Affiliated Company involved in the Undertaking of the confidentiality and
non-analysis obligations hereunder.
Article 8. Patent, Technical Information
And Know-how and Assistance
8.1 E/I shall have the right to review APO's System-related
improvements and developments and to recommend the filing of one or more patent
applications in one or more countries thereon. If APO has not filed patent
applications thereon and/or does not wish to follow E/I's recommendation with
respect to any particular country, then E/I shall, after consultation with APO,
have the right to file such patent applications. APO agrees to fully cooperate
and cause its employees to fully cooperate with E/I to effect the filing and
prosecution of said patent applications.
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<PAGE> 11
8.2 All information of United States origin made available directly or
indirectly under this Agreement by E/I to APO for use outside the United States
shall be used by APO subject to and in accordance with the regulations of any
department or agency of the United States Government. Such information or the
direct product thereof shall not be exported or shipped by APO to any
destination which requires the approval of the United States Government for
such exportation or shipment until a request to do so has been submitted to and
approved by the United States Government and E/I. To the extent such
information or the direct product thereof may be offered in a country where
such approval for the export of technology would be required, APO shall assist
E/I in providing sufficient information in a timely manner so that requisite
approvals may be obtained.
8.3 In the event that E/I determines that a third party is infringing
an E/I System patent licensed hereunder, E/I shall either take appropriate
action at its own expense against the third party infringer, or give APO
authority to take such appropriate action against the third party infringer at
APO's expense or E/I expense as authorized, in either case, the parties agree
to assist each other to the extent reasonably necessary.
Article 9. Warranties
9.1 E/I represents that E/I's System Technical Information and
Know-How disclosed to APO will be the same technology used by or being
developed for use by E/I in the commercial production of Systems, will be
prepared with reasonable care, and will, if properly applied by APO enable APO
to assemble products substantially equal in quality to Systems produced by E/I
using such technology. E/I also represents that it has no knowledge as of the
Effective Date that would indicate that assembly of Systems using E/I System
Technical Information and Know-How would infringe any patent, technical
information or know-how owned by a third party. Other than the above
representations, E/I hereby disclaims any warranty or representation regarding
the above matters.
9.2 If E/I's System Technical Information and Know-How which is
disclosed hereunder is not the same technology which, at the time of transfer,
was used by or was being developed for use by E/I, or is defective, then E/I's
sole responsibility shall be to replace such Technical Information and Know-How
with technology that E/I was using or had developed. In no event shall E/I be
liable for incidental, consequential or special damages incurred by APO arising
out of or relating to the use of E/I's System Technical Information and Know-
How.
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<PAGE> 12
Article 10 Air Handlers of Less Than 2000 CFM
10.1 In the event that during the term of this Agreement E/I obtains a
desiccant air-conditioning product with an air handling capacity of less than
two thousand (2,000) cfm, whether regenerated by gas, steam or electricity,
that is designed and developed solely by E/I then E/I will grant to APO a right
of first refusal to sale and/or manufacture such products on terms and
conditions to be agreed. APO's right of first refusal mentioned in this Section
10.1 shall be exercisable for a period of 30 days from the date E/I gives
notice to APO that the product is available. If APO does not indicate in
writing any interest in the product within such 30 day period then APO's right
of first refusal shall terminate and E/I shall have no further obligation to
APO with respect to such product. If APO states in writing that it is
interested in the product during such 30 day period then during the next 90
days APO and E/I shall negotiate in good faith the terms of cooperation
regarding the product. If the parties fail to reach agreement during such 90
day period then APO's right of first refusal shall terminate and E/I shall have
no further obligation to APO with respect to such product.
10.2 In the event that during the term of this Agreement E/I obtains
a desiccant air-conditioning product with an air handling capacity of less than
two thousand (2,000) cfm, whether regenerated by gas, steam or electricity,
that is designed and developed by E/I in conjunction with a third party (other
than APO) E/I will enter into good faith negotiations with APO regarding the
manufacture and sale of such product subject to any agreements E/I has with the
codeveloper of the product.
Article 11. Term
11.1 This Agreement shall come into effect on the Effective
Date and shall continue in effect until March 30, 1998.
Article 12. Consequences of Termination
12.1 Upon termination of this Agreement, all licenses and rights
granted pursuant to Articles 2 and 3 and obligations undertaken hereunder shall
forthwith terminate except (i) the obligation of confidentiality of APO under
Article 7 shall survive such termination, and (ii) such termination shall not
relieve either party from any obligations accrued to the date of termination or
relieve the party in default or breach from liability and damages to the other
for default or breach of this Agreement.
12.2 Upon any termination of this Agreement, APO shall take all
actions necessary to cancel any and all rights APO may have to use the E/I
System Patents and to provide E/I with suitable evidence of such cancellations
if E/I exercises its option
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<PAGE> 13
to demand it. Notwithstanding the above, APO shall be permitted, for a period
of six (6) months after termination of this Agreement to dispose of stocks of
the Systems provided, however, that E/I shall have the right (but not the
obligation) to purchase all such stocks from APO at a price agreed to by the
parties at the time.
12.3 In the event that this Agreement expires or is otherwise
terminated without the parties entering into a replacement agreement then for
a period of two (2) years after the date of termination of this Agreement APO
shall give E/I the right of first refusal for the supply to APO of any rotors
and cassettes used in regenerated desiccant units manufactured by APO during
that 2 year period.
Article 13. Force Majeure
13.1 The failure or delay of any party hereto to perform any
obligation under this Agreement solely by reason of acts of God, acts of
government (except as otherwise enumerated herein), riots, wars, strikes,
lockouts, accidents in transportation or other causes beyond its control shall
not be deemed to be a breach of this Agreement; provided, however, that the
party so prevented from comply herewith shall continue to take all actions
within its power to comply as fully as possible herewith.
13.2 Except where the nature of the event shall prevent it from doing
so, the party suffering such force majeure shall notify the other party in
writing within fourteen (14) days after the occurrence of such force majeure
and shall in every instance, to the extent it is capable of doing so, use its
best efforts to remove or remedy such cause with all reasonable dispatch.
Article 14. Agency
14.1 E/I is not an agent of APO, and APO is not an agent of E/I with
respect to each other. However, Carrier Asia Pacific Operations Pte. Ltd. will
insure that all companies in APO comply with their obligations hereunder.
Article 15. Assignability
15.1 Neither party shall have the right to transfer or assign its
interest or rights in this Agreement or delegate its obligations under this
Agreement without the prior written consent of the other party.
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<PAGE> 14
15.2 The provisions of Section 15.1 notwithstanding, either party may
freely assign its interest, rights and obligations in this Agreement to an
entity that acquires substantially all of the business assets of the
assigning party to which this Agreement applies.
Article 16. Notices
16.1 Any notice required or permitted hereunder shall be
sufficiently given if delivered personally or if sent by air mail, registered,
postage prepaid, or by cable, telex or telefax if confirmed on the same day in
writing by registered air mail, to such address as the party may have
designated in writing for receipt of notices and other documents. Any notice
shall be deemed to have been given, if sent by registered air mail, as of the
tenth (10) day following the date of deposit thereof in the U.S. Mails or the
Singapore post, postage prepaid, or if sent by telex, cable or telefax
seventy-two (72) hours after dispatched (except that a notice of a change of
address shall not be deemed to have been given until received by the
addressee).
If to E/I:
Engelhard/ICC
441 North 5th Street
Philadelphia, PA 19123
Attn.: President
Fax No. 1-215-592-8299
with a copy to
General Counsel
Engelhard Corporation
101 Wood Ave.
Iselin, NJ 08830
If to APO:
Carrier Asia Pacific Operations Pte. Ltd.
76 Shenton Way
#17-00 Ong Building, Singapore 0207
Attn: President
Fax No: 65 534 6540
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Article 17. Language
17.1 This Agreement is written in the English language and executed
in two (2) counterparts, each of which shall be deemed an original. The English
language text of the Agreement shall prevail over any translation thereof.
Article 18. Miscellaneous
18.1 The construction, validity and performance of this Agreement
shall be governed in all respects by the laws of New York (excluding any such
laws that may direct the application of the laws of another jurisdiction). The
parties hereby submit to the exclusive jurisdiction of the New York State and
Federal Courts for all purposes in relation to this Agreement and waive any
objections to such jurisdiction on the grounds of venue or forum non conveniens
or similar grounds.
18.2 This Agreement supersedes all previous representations,
understandings or agreements, oral or written, between the parties with respect
to the licensing of Systems, APO Systems, E/I's Systems Patents and E/I
Technical Information and Know-How, and together with the exhibits hereto and
the agreements and documents contemplated hereby contains the entire
understanding of the parties as to the terms and conditions of their
relationship.
18.3 Terms included herein may not be contradicted by evidence of any
prior oral or written agreement or of a contemporaneous oral or written
agreement.
18.4 No changes, alterations or modifications hereto shall be
effective unless in writing and signed by authorized representatives of all
parties hereto and if required, upon approval by the competent governmental
authorities.
18.5 Heading of Articles in this Agreement are for convenience only
and do not substantively affect the terms of this Agreement.
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<PAGE> 16
IN WITNESS WHEREOF, the authorized representatives of the parties
hereto have set their hands or their names and seals, the day and year first
above written.
ENGELHARD/ICC
By: /s/ WILLIAM STARON
--------------------------
Name: William Staron
------------------------
Title: President
-----------------------
CARRIER ASIA PACIFIC OPERATIONS PTE. LTD.
By: /s/ NICHOLAS T. PINCHUK
--------------------------
Name: Nicholas T. Pinchuk
------------------------
Title: President
-----------------------
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<PAGE> 17
EXHIBITS AND SCHEDULES OF
ASIA PACIFIC MARKET DEVELOPMENT AGREEMENT
Exhibits A and B and Schedules A, B, C and D have been intentionally aomited.
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<PAGE> 1
EXHIBIT 10.26
AGREEMENT OF LEASE
BETWEEN
330 SOUTH WARMINSTER ASSOCIATES, L.P.
AS LANDLORD
AND
ENGELHARD/ICC
AS TENANT
<PAGE> 2
PLANT SPACE LEASE
LEASE made this 4th day of February, 1997, by and between 330 SOUTH
WARMINSTER ASSOCIATES, L.P. (hereinafter called "LANDLORD"), and ENGELHARD/ICC,
a Pennsylvania General Partnership (hereinafter called "TENANT").
WITNESSETH, THAT:
1. DEMISED PREMISES. Landlord, for the term and subject to the
provisions and conditions hereof, leases to Tenant, and Tenant accepts from
Landlord, the space (hereinafter referred to as the "DEMISED PREMISES") and more
particularly described by the cross-hatched area on the floor plans annexed
hereto as Exhibit "A" consisting of approximately 138,150 rentable square feet
on the GROUND floor of the building (hereinafter referred to as the "BUILDING")
known as the 330 SOUTH WARMINSTER ROAD located in HATBORO, PENNSYLVANIA to be
used by Tenant for the purpose of CONDUCTING MANUFACTURING AND RELATED
OPERATIONS and for no other purpose.
2. TERM. Tenant shall use and occupy the Demised Premises for a
term of TEN (10) YEARS AND TWO (2) MONTHS commencing on the FIRST day of APRIL,
1997, and ending on the THIRTY-FIRST day of MAY, 2007 unless sooner terminated
as herein provided.
3. MINIMUM RENT.
A. See Rent Schedule on the Rider attached hereto as
Schedule "A". The first monthly installment of Minimum Rent payable under this
Lease shall be due and payable on the execution of this Lease and subsequent
installments shall be payable on the first day of each month of the term hereof
as set forth on the Rent Schedule.
B. All rent and other sums due to Landlord hereunder
shall be payable to 330 SOUTH WARMINSTER ASSOCIATES, L.P. and mailed to the
office of Landlord at P.O. BOX 13700, PHILADELPHIA, PENNSYLVANIA, 19191-1062, or
to such other party or at such other address as Landlord may designate, from
time to time, by written notice to Tenant, without demand and without deduction,
set-off or counterclaim (except to the extent demand or notice shall be
expressly provided for herein).
C. If Landlord, at any time or times, shall accept Rent
or any other sum due to it hereunder after the same shall become due and
payable, such acceptance shall not excuse delay upon subsequent occasions, or
constitute or be construed as, a waiver of any of Landlord's rights hereunder.
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<PAGE> 3
4. PAYMENT OF TAXES, OPERATING COSTS, COST OF ELECTRICITY.
A. DEFINITIONS. As used in this Section 4, the following terms
shall be defined as hereinafter set forth:
(1) "TAXES" shall mean all real estate taxes and
assessments, general and special, excluding penalties ordinary or extraordinary,
foreseen or unforeseen, imposed upon the Building or with respect to the
ownership thereof and the parcel of land appurtenant thereto excluding all
penalties or interest for late payment. If, due to a future change in the method
of taxation, any franchise, income, profit or other tax, however designated,
shall be levied or imposed in substitution, in whole or in part, for (or in lieu
of) any tax which would otherwise be included within the definition of Taxes,
such other tax shall be deemed to be included within Taxes as defined herein. At
Tenants request, Landlord will have a third party evaluate the tax assessment
and challenge it, if it is found to be too high .
(2) "TENANT'S FRACTION" shall be 138,150/266,000
Tenant's Fraction is only on the warehouse portion of the total property,
expenses will be prorated between the warehouse portion and the office portion
according to services rendered and value. Such fraction shall be adjusted if the
mix of office and warehouse/manufacturing shall be changed.
(3) OPERATING EXPENSES
(A) Operating Expenses shall mean, except as
hereinafter limited, Landlord's actual out-of-pocket expenses in respect of the
operation, maintenance and management of the Building (after deducting any
reimbursement, discount, credit, reduction or other allowance received by
Landlord) and shall include, without limitation: (1) wages and salaries (and
taxes imposed upon employers with respect to such employees) for rendering
service in the normal operation, cleaning, maintenance, and repair of the
Building only for on site staff; (2) contract costs of contractors hired for the
operation, maintenance and repair of the Building; (3) the cost of steam,
electricity, water and sewer and other utilities (except for electricity and any
other utility, which is separately charged by Landlord to the Demised Premises
as herein provided) chargeable to the operation and maintenance of the Building;
(4) cost of insurance for the Building, including fire and extended coverage,
elevator, boiler, sprinkler leakage, water damage, public liability and property
damage, plate glass, and rent protection, but excluding any charge for increased
premiums due to acts or omissions of other occupants of the Building or because
of extra risk which are reimbursed to Landlord by such other occupants; (5)
supplies; (6) legal and accounting expenses as they relate to the direct
operations of the building excluding those expenses for drafting or enforcing
leases; (7) taxes; and (8) management fees not to exceed 4% of the total rent;
The term "OPERATING EXPENSES" shall not include: (1) the cost of redecorating or
repairing not provided on a regular basis to tenants of the Building; (2) the
cost of any repair or replacement items which, by U.S. generally accepted
accounting principles , should be capitalized including replacement of major
systems, or roof; (3) any charge for depreciation, interest or rents paid or
incurred by Landlord; (4) any charge for Landlord's income tax, excess profit
taxes, franchise taxes or similar taxes on Landlord's business; and (5)
commissions.
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<PAGE> 4
(4) "DEMISED RENTABLE SQUARE FEET" shall mean 138,150
square feet.
(5) "RENTABLE SQUARE FEET IN THE BUILDING" shall
initially mean 266,000 square feet.
B. PAYMENT OF OPERATING EXPENSES AND TAXES.
(1) For and with respect to each calendar year of the term of
this Lease (and any renewals or extensions thereof) there shall accrue, as
additional rent, an amount equal to the product obtained by multiplying the
Tenant's Fraction by the amount of Operating Expenses and Taxes for such year
(appropriately pro-rated for any partial calendar year included within the
beginning or end of the term).
(2) Landlord shall furnish to Tenant as soon as reasonably
possible after the beginning of each calendar year of the term hereof:
(a) A statement (the "EXPENSE STATEMENT") setting
forth (1) Operating Expenses for the previous calendar year, and (2) Tenant's
Fraction of the Operating Expenses for the previous calendar year; and
(b) A statement of Landlord's good faith estimate of
Operating Expenses for the current calendar year, and the amount of Tenant's
Fraction thereof (the "ESTIMATED SHARE"), for the current calendar year (which
is estimated to be $1.25/sq. ft. for the 1997 calendar year).
(3) Beginning with the next installment of minimum rent due
after delivery of the foregoing statements to Tenant, Tenant shall pay to
Landlord, on account of its share of Operating Expenses : (a) One-twelfth of the
Estimated Share multiplied by the number of full or partial calendar months
elapsed during the current calendar year up to and including the month payment
is made, plus any amounts due from Tenant to Landlord on account of Operating
Expenses for prior periods of time, less:
(b) The amount, if any, by which the aggregate of
payments made by Tenant on account of Operating Expenses for the previous
calendar year exceed those actually due as specified in the Expense Statement.
(4) On the first day of each succeeding month up to the time
Tenant shall receive a new Expense Statement and statement of Tenant's Estimated
Share, Tenant shall pay to Landlord, on account of its share of Operating
Expenses, one-twelfth of the then current Estimated Share. Any payment due from
Tenant to Landlord, or any refund due from Landlord to Tenant, on account of
Operating Expenses not yet determined as of the expiration of the term hereof
shall be made within twenty (20) days after submission to Tenant of the next
Expense Statement.
(5) Tenant shall have the right to request additional
information which in Tenant's opinion is needed from Landlord which will verify
the validity and accuracy of the Expense Statement calculations. Such request
must be delivered to Landlord in writing within six (6) months of Tenant's
receipt of the Expense Statement.
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<PAGE> 5
5. UTILITIES SEPARATELY CHARGED TO DEMISED PREMISES. Tenant shall
be responsible for all utilities (including gas and electric) which are consumed
within the Demised Premises. Tenant shall pay for the consumption of such
utilities based on its metered usage. Utility bills from Landlord shall be paid
by Tenant to Landlord within ten (10) days after the receipt and non-payment or
late payment of such bills shall be considered a default under this Lease.
6. SECURITY DEPOSIT.
INTENTIONALLY DELETED
7. CARE OF DEMISED PREMISES. Tenant agrees, on behalf of itself,
its employees and agents, that it shall:
(A) Comply at all times with any and all Federal, state, and
local statutes, regulations, ordinances, and other requirements of any of the
constituted public authorities relating to its use and occupancy of the Demised
Premises.
(B) Give Landlord access to the Demised Premises at all
reasonable times, without charge or diminution of rent, to enable Landlord (i)
to examine the same and to make such repairs, additions and alterations as
Landlord may be permitted to make hereunder or as Landlord may deem advisable
for the preservation of the integrity, safety and good order of the Building or
any part thereof; and (ii) upon reasonable notice, to show the Demised Premises
to prospective mortgagees and purchasers and, during the six (6) months prior to
expiration of the term, to prospective tenants;
(C) Keep the Demised Premises in good order and condition and
replace all glass broken by Tenant, its agents, employees or invitees with glass
of the same quality as that broken, except for glass broken by fire and extended
coverage type risks, and commit no waste in the Demised Premises;
(D) Upon the termination of this Lease in any manner
whatsoever, remove Tenant's goods effects and those of any other person claiming
under Tenant, and quit and deliver up the Demised Premises to Landlord peaceably
and quietly in as good order and condition at the inception of the term of this
Lease or as the same hereafter may be improved by Landlord or Tenant, reasonable
use and wear thereof, damage from fire and extended coverage type risks, and
repairs which are Landlord's obligation excepted. Goods and effects not removed
by Tenant at the termination of this Lease, however terminated, shall be
considered abandoned and Landlord may dispose of and/or store the same as it
deems expedient, the cost thereof to be charged to Tenant;
(E) Not place signs on the Demised Premises other than the
exterior sign noted in Exhibit "D", the Sign Specifications and except on doors
and then only of a type and with lettering and text approved by Landlord.
Identification of Tenant and Tenant's location shall be provided in a directory
in the Building lobby;
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(F) Not overload, damage or deface the Demised Premises or do
any act which might make void or voidable any insurance on the Demised Premises
or the Building or which may render an increased or extra premium payable for
insurance (and without prejudice to any right or remedy of Landlord regarding
this subparagraph, Landlord shall have the right to collect from Tenant, upon
demand, any such increase or extra premium).
Tenant shall maintain at its own sole cost adequate insurance coverage for all
of its equipment, furniture, supplies and fixtures and provide Landlord with
certificates evidencing such coverage;
(G) Not make any alteration of or addition to the Demised
Premises which would exceed $5,000.00 without the prior written approval which
approval shall not be unreasonably withheld of Landlord (except for work of a
decorative nature);
(H) Not install or authorize the installation of any coin
operated vending machines, except for the dispensing of cigarettes, coffee, and
similar items to the employees of Tenant for consumption upon the Demised
Premises;
(I) Observe the rules and regulations annexed hereto as
Exhibit "C", as the same may from time to time be amended by Landlord for the
general safety, comfort and convenience of Landlord, occupants and tenants of
the Building; and
(J) Keep the Demised Premises heated at a level to keep the
sprinkler system and plumbing from freezing.
8. SUBLETTING AND ASSIGNING. Tenant shall not assign this Lease
or sublet all or any portion of the Demised Premises without first obtaining
Landlord's prior written consent thereto which shall not be reasonably withheld.
If such consent is given, it will not release Tenant from its obligations
hereunder and which will not be deemed a consent to any further subletting or
assignment. If Landlord consents to any such subletting or assignment, it shall
nevertheless be a condition to the effectiveness thereof that a fully executed
copy of the sublease or assignment be furnished to Landlord and that any
assignee assume in writing all obligations of Tenant hereunder. Tenant shall not
mortgage or encumber this Lease. Under no circumstances may the Tenant employ
the services of any real estate broker other than Preferred Real Estate
Advisors, Inc. to act as their agent in obtaining an assignee or subtenant. If
Preferred does not perform to Tenant's satisfaction, they can be relieved as
broker after six (6) months and Tenant may use any other licensed real estate
broker of their choosing.
9. DELAY IN POSSESSION. If Landlord shall be unable to deliver
possession of the Demised Premises to Tenant on the date specified for
commencement of the term hereof because of the holding over or retention of
possession of any tenant or occupant, or if repairs, improvements or decoration
of the Demised premises are not completed, or for any other reason, Landlord
shall not be subject to any liability to Tenant. Under such circumstances, the
rent reserved and covenanted to be paid herein as well as any rent free period
shall not commence until possession of Demised Premises is given or until
Landlord shall give written notice to Tenant that the Demised Premises are
available for occupancy by Tenant, whichever shall first occur, and no such
failure to give possession shall in any other respect affect the validity of
this Lease or any obligation to extend the term of this Lease.
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10. FIRE OR CASUALTY. In case of damage to the Demised Premises or
the Building by fire or other casualty, Tenant shall give immediate notice
thereof to Landlord. Landlord shall thereupon cause the damage to be repaired
with reasonable speed, subject to delays which may arise by reason of adjustment
of loss under insurance policies and for delays beyond the reasonable control of
Landlord. To the extent and for the time that the Demised Premises are thereby
rendered untenantable, the rent shall proportionately abate. Landlord agrees to
maintain adequate fire insurance on the Building.
In the event the damage shall be so extensive that Landlord shall decide not to
repair or rebuild, or if any mortgagee, having the right to do so, shall direct
that the insurance proceeds are to be applied to reduce the mortgage debt rather
than to the repair of such damage, this Lease shall, at the option of Landlord,
exercisable by written notice to Tenant given within thirty (30) days after
Landlord is notified of the casualty, be terminated as of a date specified in
such notice (which shall not be more than ninety (90) days thereafter), and the
rent (taking into account any abatement as aforesaid) shall be adjusted to the
termination date. Thereafter, Tenant shall promptly vacate the Demised Premises.
11. LIABILITY. Tenant and Landlord agree that both Tenant and
Landlord and building managers and their officers, employees and agents shall
not be liable to each party , and both parties hereby release the other, for any
personal injury or damage to or loss of personal property in the Demised
Premises from any cause whatsoever unless such damage, loss or injury is the
result of the willful misconduct or negligence of the party, its building
manager, or their officers, employees or agents, and Neither of their officers,
employees, or agents, shall be liable to the other for any such damage or loss
whether or not the result of their willful misconduct or negligence to the
extent the other is compensated therefor by the other's insurance (except force
majure). Each shall and do hereby indemnify and hold the other harmless of and
from all loss or liability incurred by the other in connection with any failure
of the other to fully perform its obligations under this Lease and in connection
with any personal injury or damage of any type or nature occurring in or
resulting out of the other's use of the Demised Premises, unless due to
Landlord's willful misconduct or negligence.
12. EMINENT DOMAIN. If the whole or a substantial part of the
Building shall be taken or condemned for a public or quasi-public use under any
statute or by right of eminent domain or private purchase in lieu thereof by any
competent authority, Tenant shall have no claim against Landlord and shall not
have any claim or right to any portion of the amount that may be awarded as
damages or paid as a result of any such condemnation or purchase; and all rights
of the Tenant to damages therefore are hereby assigned by Tenant to Landlord.
The foregoing shall not, however, deprive Tenant of any separate award for
moving expenses or for any other award which would not reduce the award payable
to Landlord. Upon the date the right to possession shall vest in the condemning
authority, this Lease shall cease and terminate with rent adjusted to such date,
and Tenant shall have no claim against Landlord for the value of any unexpired
term of this Lease.
13. INSOLVENCY. (a) The appointment of a receiver or trustee to
take possession of all or a portion of the assets of Tenant, or (b) an
assignment by Tenant for the benefit of creditors, or (c) the institution by or
against Tenant of any proceedings for bankruptcy or reorganization under any
state or federal law (unless, in the case of involuntary proceedings, the same
shall be dismissed within thirty (30) days after institution), or (d) any
execution issued against Tenant which is not stayed or discharged within fifteen
(15) days after issuance of any execution sale of the assets of Tenant, shall
constitute a breach of this Lease by Tenant. Landlord, in the event of such a
breach, shall have, without need of further notice, the rights enumerated in
Section 14 herein.
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14. DEFAULT.
A. If Tenant shall fail to pay Rent or any other sum payable to
Landlord hereunder when due (excepting that two (2) times in any given calender
year, Landlord shall provide ten (10) days notice that such failure has
occurred), or if Tenant shall fail to perform or observe any of the other
covenants, terms or conditions contained in this Lease within twenty (20) days
(or such longer period as is reasonably required to correct any such default,
provided Tenant promptly commences and diligently continues to effectuate a
cure, but in any event within thirty (30) days after written notice thereof by
Landlord) or if any of the events specified in Section 13 occur, or if Tenant
vacates or abandons the Demised Premises during the term hereof or removes or
manifests an intention to remove any of Tenant's goods or property therefrom
other than in the ordinary and usual course of Tenant's business, then and in
any of said cases (notwithstanding any former breach of covenant or waiver
thereof in a former instance), Landlord, in addition to all other rights and
remedies available to it by law or equity or by any other provisions hereof, may
at any time thereafter:
(1) Upon three (3) days notice to Tenant, declare to be
immediately due and payable, on account of the rent and other charges herein
reserved for the balance of the term of this Lease (taken without regard to any
early termination of said term on account of default), a sum equal to the
Accelerated Rent Component (as hereinafter defined), and Tenant shall remain
liable to Landlord as hereinafter provided; and/or
(2) Whether or not Landlord has elected to recover the
Accelerated Rent Component, terminate this Lease on at least five (5) days
notice to Tenant and, on the date specified in said notice, this Lease and the
term hereby demised and all rights of Tenant hereunder shall expire and
terminate and Tenant shall thereupon quit and surrender possession of the
Demised Premises to Landlord in the condition elsewhere herein required and
Tenant shall remain liable to Landlord as hereinafter provided.
B. For purposes herein, the Accelerated Rent Component shall mean
the net present value aggregate of:
(1) all Rent and other charges, payments, costs and
expenses due from Tenant to Landlord and in arrears at the time of the election
of Landlord to recover the Accelerated Rent Component;
(2) the Minimum Rent reserved for the then entire
unexpired balance of the Term of this Lease as adjusted by the early termination
option and, provided the early termination notice is given as provided under the
Lease, the total payment reserved is no less than three (3) years rent (taken
without regard to any early termination of the Term by virtue of any default),
plus all other charges, payments, costs and expenses herein agreed to be paid by
Tenant up to the end of said Term which shall be capable of precise
determination at the time of Landlord's election to recover the Accelerated Rent
Component; and
(3) Landlord's good faith estimate of all charges,
payments, costs and expenses herein agreed to be paid by Tenant up to the end of
said Term which shall not be capable of precise determination as aforesaid (and
for such purposes no estimate of any component of additional rent to
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accrue pursuant to the provisions of Section 4 hereof shall be less than the
amount which would be due if each such component continued at the highest
monthly rate or amount in effect during the twelve (12) months immediately
preceding the default).
(C) In any case in which this Lease shall have been terminated, or in
any case in which Landlord shall have elected to recover the Accelerated Rent
Component and any portion of such sum shall remain unpaid, Landlord may, without
future notice, enter upon and repossess the Demised Premises, by force, summary
proceedings, ejectment or otherwise, and may dispossess Tenant and remove Tenant
and all other persons and property from the Demised Premises and may have, hold
and enjoy the Demised Premises and the rents and profits therefrom. Landlord
may, in its own name, as agent for Tenant, if this Lease has not been
terminated, or in its own behalf, if this Lease has been terminated, relet the
Demised Premises or any part thereof for such term or terms (which may be
greater or less than the period which would otherwise have constituted the
balance of the Term of the this Lease) and on such terms (which may include
concessions of free rent) as Landlord in its sole discretion may determine.
Landlord may, in connection with any such reletting, cause the Demised Premises
to be redecorated, altered, divided, consolidated with other space or otherwise
changed or prepared for reletting. No reletting shall be deemed a surrender and
acceptance of the Demised Premises.
(D) Tenant shall, with respect to all periods of time up to and
including the expiration of the Term of this Lease (or what would have been the
expiration date in the absence of default or breach) remain liable to Landlord
as follows:
(1) In the event of termination of this Lease on account of
Tenant's default or breach, Tenant shall remain liable to Landlord for damages
equal to the Rent and other charges payable under this Lease by Tenant as if
this Lease were still in effect, less the net proceeds of any reletting after
deducting all costs incident thereto (including without limitation all
repossession costs, brokerage and management commissions, operating and legal
expenses and fees, alteration costs and expenses of preparation for reletting)
and to the extent such damages shall not have been recovered by Landlord by
virtue of payment by Tenant of the Accelerated Rent Component (but without
prejudice to the right of Landlord to demand and receive the Accelerated Rent
Component), such damages shall be payable to Landlord monthly upon presentation
to Tenant of a bill for the amount due.
(2) In the event and so long as this Lease shall not have been
terminated after default or breach by Tenant, the Rent and all other charges
payable under this Lease shall be reduced by the net proceeds of any reletting
by Landlord (after deducting all costs incident thereto as above set forth) and
by any portion of the Accelerated Rent Component paid by Tenant to Landlord, and
any amount due to Landlord shall be payable monthly upon presentation to Tenant
of a bill for the amount due.
(E) In the event Landlord shall, after default or breach by Tenant,
recover the Accelerated Rent Component from Tenant and it shall be determined at
the expiration of the Term of this Lease (taken without regard to early
termination for default) that a credit is due Tenant because the net proceeds of
reletting, as aforesaid, plus amounts paid to Landlord by Tenant exceed the
aggregate of Rent and other charges accrued in favor of Landlord to the end of
said Term, Landlord shall refund such excess to Tenant, without interest,
promptly after such determination.
(F) Landlord shall in no event be responsible or liable for any failure
to relet the Demised Premises or any part thereof, or for any failure to collect
any rent due upon a reletting.
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(G) As an additional and cumulative remedy of Landlord in the event of
termination of this Lease by Landlord following any breach or default by Tenant,
Landlord, at its option, shall be entitled to recover damages for such breach in
an amount equal to the Accelerated Rent Component (determined from and after the
date of Landlord's election under this subsection (G)), less the fair rental
value of the Demised Premises for the remainder of the term of this Lease (taken
without regard to the early termination) and such damages shall be payable by
Tenant upon demand. Nothing contained in this Lease shall limit or prejudice the
right of Landlord to prove and obtain as damages incident to a termination of
this Lease, in any bankruptcy, reorganization or other court proceedings, the
maximum amount allowed by any statute or rule of law in effect.
(H) In the event of any failure to pay rent or Operating Expense Escrow
default for more than sixty (60) days Landlord shall have the rights and
remedies specified in this Section 14:
(i) INTENTIONALLY DELETED
(ii) For the purpose of obtaining possession of the
Demised Premises, Tenant hereby authorizes and empowers any prothonotary or
attorney of any court of record to appear for Tenant and to file in any court an
agreement for entering an amicable action and judgment in ejectment for recovery
of possession, and/or to confess judgment for possession against Tenant and
those claiming by, through or under Tenant in favor of Landlord by Complaint to
Confess Judgment or otherwise, and Tenant agrees that upon such entry or
judgment a writ of possession for the Demised Premises may forthwith issue; and
(I) Tenant hereby waives all errors and defects of a procedural nature
in any proceedings brought against it by Landlord under this Lease. Tenant
further waives the right to any notices to quit as may be specified in the
Landlord and Tenant Act of Pennsylvania, as amended, and agrees that five (5)
days notice shall be sufficient in any case where a longer period may be
statutorily specified.
(J) If Rent or any other sum due from Tenant to Landlord shall be
overdue for more than five (5) business days after notice from Landlord, it
shall thereafter bear interest at the rate of twenty (20%) percent per annum
(or, if lower, the highest legal rate) until paid.
15. SUBORDINATION. This Lease is and shall be subject and
subordinate to all the terms and conditions of all underlying mortgages and to
all ground or underlying leases of the entire Building which may now or
hereafter be secured upon the Building, and to all renewals, modifications,
consolidations, replacements and extensions thereof. This clause shall be
self-operative and no further instrument of subordination shall be necessary.
Tenant shall execute, within fifteen (15) days after request, any certificate
that Landlord may reasonably require acknowledging such subordination.
Notwithstanding the foregoing, provided Tenant is not in Default of this Lease,
the party holding the instrument to which this Lease is subordinate shall
recognize and preserve this Lease in the event of any foreclosure sale or
possessory action, and this Lease shall continue in full force and effect, and
Tenant shall attorn to such party and shall execute, acknowledge and deliver any
instrument that has for its purpose and effect the confirmation of such
attornment, on the same terms and conditions of the Lease.
16. NOTICES. All bills, statements, notices or communications
which Landlord may desire or be required to give to Tenant shall be deemed
sufficiently given or rendered if in writing and
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either sent by registered or certified mail addressed to Tenant at the Building
and a copy to: Engelhard Corporation, 101 Wood Avenue, Iselin, NJ 08830-0770,
Attn: Treasurer, and the time of the giving of such notice or communication
shall be deemed to be the time when the same is delivered to Tenant or deposited
in the mail, as the case may be. Any notice by Tenant to Landlord must be served
by registered or certified mail addressed to Landlord at the address where the
last previous rental hereunder was payable, or in the case of subsequent change
upon notice given, to the latest address furnished.
17. HOLDING-OVER. Should Tenant continue to occupy the Demised
Premises after expiration of the term of this Lease or any renewal or renewals
thereof, or after a forfeiture incurred, such tenancy shall (without limitation
of any of Landlord's rights or remedies therefor) be one at sufferance from
month to month at a minimum monthly rental equal to twice the rent payable for
the last month of the term of this Lease, unless otherwise directed by written
agreement between Landlord and Tenant.
18. MISCELLANEOUS.
A. Tenant represents and warrants that it has not
employed any broker or agent as its representative in the negotiation for or the
obtaining of this Lease other than Eustace Wolfington, Grubb & Ellis, 1600
Market Street, Suite 1900, Philadelphia, PA, and agrees to indemnify and hold
Landlord harmless from any and all cost or liability for compensation claimed by
any broker or agent with whom it has dealt.
B. The word "TENANT" as used in this Lease shall be
construed to mean tenants in all cases where there is more than one tenant, and
the necessary grammatical changes required to make the provisions hereof apply
to corporations, partnerships or individuals, men or women, shall in all cases
be assumed as though in each case fully expressed. This Lease shall not inure to
the benefit of any assignee, heir, legal representative, transferee or successor
of Tenant except upon the express written consent or election of Landlord.
Subject to the foregoing limitation, each provision hereof shall extend to and
shall, as the case may require, bind and inure to the benefit of Tenant and its
heirs, legal representatives, successors and assigns.
C. The term "LANDLORD" as used in this Lease means the
fee owner of the Building or, if different, the party holding and exercising the
right, as against all others (except space tenants of the Building) to
possession of the entire Building. Landlord above-named represents that it is
the holder of such rights as of the date of execution hereof. In the event of
the voluntary transfer of such ownership or right to a successor-in-interest of
Landlord, Landlord shall be freed and relieved of all liability and obligation
hereunder which shall thereafter accrue (and, as to any unapplied portion of
Tenant's security deposit, Landlord shall be relieved of all liability therefor
upon transfer of such portion to its successor in interest) and Tenant shall
look solely to such successor in interest for the performance of the covenants
and obligations of the Landlord hereunder which shall thereafter accrue.
Notwithstanding the foregoing, no mortgagee or ground lessor which shall succeed
to the interest of Landlord hereunder (either in terms of ownership or
possessory rights) shall (i) be liable for any previous act or omission of a
prior landlord; (ii) be subject to any rental offsets or defenses against a
prior landlord; (iii) be bound by any amendment of this Lease made without its
written consent, or by payment by Tenant of rent in advance in excess of one (1)
month's rent; or (vi) be liable for any security not actually received by it.
Subject to the foregoing, the provisions hereof shall be binding upon and inure
to the benefit of the successors and assigns of Landlord. Notwithstanding
anything to
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the contrary contained in this Lease, any liability of Landlord, its agents,
partners or employees, arising out of or in respect of this Lease, the Demised
Premises or the Building, and, if Landlord shall default in the performance of
Landlord's obligation under this Lease or otherwise, Tenant shall look solely to
the equity of Landlord in its interest in the Building.
D. Tenant agrees to execute a memorandum of this Lease
in the form submitted by Landlord, which may be recorded by Landlord. Tenant
also agrees to execute any assignment of this Lease by Landlord, evidencing its
consent to such assignment.
19. LANDLORD IMPROVEMENT. Landlord will deliver possession of the
Demised Premises to Tenant, and Landlord shall make improvements to the Demised
Premises, pursuant to Exhibit "B1" the Tenant Improvement Plan and Exhibit "B2"
The Construction Standards Memorandum.
20. WAIVER OF SUBROGATION. Each party hereto waives any and every
claim which arises or which may arise in its favor and against the other party
hereto during the term of this Lease, or any extension or renewal thereof, for
any and all loss of, or damage to, any of its property located within or upon or
constituting a part of the Building, to the extent that such loss or damage is
recovered under an insurance policy or policies and to the extent such policy or
policies contain provisions permitting such waivers of claims. Each party agrees
to request its insurers to issue policies containing such provisions and if any
extra premium is payable therefor, the party which would benefit from the
provision shall have the option to pay such additional premium in order to
obtain such benefit.
21. RENT TAX. If, during the term of this Lease or any renewal or
extension thereof, any tax is imposed upon the privilege of renting or occupying
the Demised Premises or upon the amount of rentals collected therefor, Tenant
will pay each month, as additional rent, a sum equal to such tax or charge that
is imposed for such month, but nothing herein shall be taken to require Tenant
to pay any income, estate, inheritance or franchise tax imposed upon Landlord.
22. PRIOR AGREEMENT, AMENDMENTS. Neither party hereto has made any
representations or promises except as contained herein or in some further
writing signed by the party making such representation or promise. No agreement
hereinafter made shall be effective to change, modify, discharge or effect an
abandonment of this Lease, in whole or in part, unless such agreement is in
writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought. Tenant agrees to execute any
amendment to this Lease required by a mortgagee of the Building, which amendment
does not materially adversely affect Tenant's rights or obligations hereunder.
23. CAPTIONS. The captions of the paragraphs in this Lease are
inserted and included solely for convenience and shall not be considered or
given any effect in construing the provisions hereof.
24. MECHANIC'S LIEN. Tenant shall, within thirty (30) days after
notice from Landlord, discharge or bond over any mechanic's lien for materials
or labor claimed to have been furnished to the Demised Premises on Tenant's
behalf (except for work contracted for by Landlord) and shall indemnify and hold
harmless Landlord from any loss incurred in connection therewith.
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25. LANDLORD'S RIGHT TO CURE. Landlord may (but shall not be
obligated), on five (5) days notice to Tenant (except that no notice need be
given in case of emergency) cure on behalf of Tenant any default hereunder by
Tenant, and the cost of such cure (including any attorney's fees incurred) shall
be deemed additional rent payable upon demand.
26. PUBLIC LIABILITY INSURANCE. Tenant shall at all times during
the term hereof maintain in full force and effect with respect to the Demised
Premises and Tenant's use thereof, comprehensive public liability insurance,
naming Landlord as an additional insured, covering injury to persons in amounts
at least equal to One Million ($1,000,000.00) Dollars combined single limit
bodily injury and property. Tenant shall lodge with Landlord duplicate originals
or certificates of such insurance at or prior to the commencement date of the
term hereof, together with evidence of paid-up premiums, and shall lodge with
Landlord renewals thereof at least fifteen (15) days prior to expiration.
27. ESTOPPEL STATEMENT. In conjunction with Landlord's financing
or sale of the Building. Tenant shall from time to time, within twenty (20) days
after request by Landlord, execute, acknowledge and deliver to Landlord a
statement certifying that this Lease is unmodified and in full force and effect
(or that the same is in full force and effect as modified, listing any
instruments or modifications), the dates to which rent and other charges have
been paid, and whether or not, to the best of Tenant's knowledge, Landlord is in
default or whether Tenant has any claims or demands against Landlord (and, if
so, the default, claim and/or demand shall be specified).
28. ENVIRONMENTAL COMPLIANCE.
A. Tenant hereby covenants and agrees to use and occupy
the Demised Premises and to conduct its business and operations thereupon in
full compliance with all applicable statutes, codes, rules, regulations, and
ordinances as they may change from time to time pertaining to the protection of
the environment and to hazardous substances and hazardous wastes as those terms
may be defined from time to time in such statutes, codes, rules, regulations,
and ordinances ("Environmental Laws").
B. Landlord represents and warrants that to the best of
Landlord's knowledge, and after reasonable due diligence other than as described
on the environmental report for the property prepared by Geraghty & Miller Inc.
dated 12/96 (a copy of which has been delivered to and reviewed by Tenant): the
Premises have not been used for the storage sale or distribution of petroleum
products or hazardous substances; no hazardous substances have been placed on or
are migrating onto the Demised Premises; and there have been no spills, leaks,
releases or seepage of petroleum products or hazardous substances at the Demised
Premises, onto or under the ground or into the groundwater.
C. Landlord further warrants that the property is in
environmental compliance with the State of Pennsylvania and the EPA, and there
is no contamination that exists on the property that would result in liability
to the Tenant.
D. Landlord shall defend and indemnify Tenant and its
affiliates from and against all claims, expenses (including reasonable
attorney's fees), losses and liabilities arising from:
(i) any third party claims relating to
contamination existing on or migrating towards the Demised Premises on or before
the commencement, or after the expiration, of the term of this Lease; and
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(ii) any costs of corrective action ordered by
any governmental authority exercising jurisdiction relating to contamination
existing on or migrating toward the Demised Premises prior to the commencement,
or after the expiration, of the term of this Lease.
E. Tenant shall defend and indemnify Landlord and its
affiliates from and against all claims, expenses (including reasonable
attorneys' fees), losses and liabilities arising from:
(i) any third party claims (except the claims of
subsequent or current tenants of the Demised Premises for other than the costs
of any corrective action described in clause (ii) below) related to
contamination that arises out of Tenant's use of the Premises; and
(ii) any costs of corrective action ordered after
expiration of this Lease by federal, state or local government authorities for
contamination that arose out of Tenant's use of the Demised Premises; provided,
however, that Landlord has first given Tenant a reasonable opportunity to
undertake any such action ordered by the governmental authority and Tenant has
refuse to do so.
F. Landlord shall provide, upon request by Tenant, true
and complete copies of all reports and documents related to the environmental
conditions of the Demised Premises, sampling and test results obtained from
samples and tests taken at or around the Demised Premises, and without request
copies of any and all notifications to any governmental authority related to the
release of any hazardous substance or hazardous waste (including, but not
limited to, a description of the release, substances involved and the remedial
efforts taken). Landlord's obligations under this clause shall be ongoing during
the course of Tenant's lease term.
G. Tenant shall promptly provide Landlord with copies of
all correspondence from or to the U.S. Environmental Protection Agency, the
Pennsylvania Department of Environmental Resources or any other federal, state
or local governmental agency which pertains to the Demised Premises regarding
but not limited to the following: (1) Tenant's compliance with the Environmental
Laws; (2) any permits which Tenant may be required to obtain pursuant to the
Environmental Laws; (3) any release or threat of release of a hazardous
substance or hazardous waste which has occurred in the Demised Premises.
H. (i) Tenant shall notify Landlord of its receipt of
any notices of alleged violations of the Environmental Law from any other party
including but not limited to governmental agencies including requests for
information. (ii) Landlord shall notify Tenant of its receipt of any notices of
alleged violations of the Environmental Law from any other party including but
not limited to governmental agencies including requests for information
I. INTENTIONALLY DELETED.
J. Tenant shall promptly supply to Landlord true and
complete copies of all sampling and test results obtained from any samples and
tests taken at or around the Demised Premises.
K. In the event of any "release" of a "hazardous
substance" or "hazardous waste" as those terms are defined in any of the
Environmental Laws, which release requires notification of any
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<PAGE> 15
governmental agency, Tenant shall immediately notify Landlord of the release and
provide a full, true and complete description of the release, the substances
involved and the remedial efforts taken.
L. At any time during the term hereof, Landlord shall
have a right to enter upon the Demised Premises to inspect the Demised Premises
and to evaluate Tenant's compliance with the Environmental Laws. Such right of
access shall include a right to review Tenant's records pertaining to compliance
with the Environmental Laws. Tenant hereby agrees to cooperate with Landlord in
any such inspection and evaluation.
M. Landlord agrees that any environmental
indemnification from Procter and Gamble to Landlord will be made available to
Tenant.*
N. Prior to the commencement date of this Lease, Tenant
shall supply to Landlord an affidavit of an officer or principal of Tenant
setting forth Tenant's SIC number (when applicable) and a detailed description
of Tenant's operation and the processes Tenant will undertake at the Demised
Premises, including a description and quantification of any hazardous substances
and hazardous waster generated, manufactured, refined, transported, treated,
stored, handled or disposed of at or from the Demised Premises. Following the
commencement of the lease term, Tenant shall update this affidavit in the event
of any changes in Tenant's operations, SIC number or use of hazardous substances
and waste. Tenant shall also supplement and update such affidavit upon each
anniversary of the commencement of the lease term.
O. All of the terms and conditions of this Section shall
survive the termination of this Lease Agreement for so long as any liability may
arise under the Environmental Laws with respect to the Demised Premises.
29. EARLY TERMINATION. Provided that Tenant is not in default of
any of the terms or conditions of this Lease, Tenant may elect to cancel this
Lease at the end of the sixty second (62nd) month or the ninety-eighth (98th)
month, by providing Landlord with; i) twelve (12) months prior written notice of
its intention to cancel the Lease (the "Termination Notice"); and ii) a payment
(the "Termination Fee") in an amount equal to $2.50 multiplied by the Demised
Rentable Square Feet.
30. USE OF RACKING. During the term of this Lease, Landlord shall
grant Tenant the use of three hundred (300) lineal feet of pallet racks. Tenant
shall be responsible for all maintenance and repairs necessary to keep the racks
in good working condition. Upon termination of this Lease, Tenant will surrender
the racks to Landlord in the same condition as which they were delivered. Tenant
shall indemnify and hold harmless Landlord from any claims or liabilities in
connection with the racks.
Page - 14
<PAGE> 16
31. USE OF FORKLIFT. During the term of this Lease, Landlord shall
grant Tenant the use of the pallet forklift and its battery charger currently
located at the Demised Premises which services the north warehouse of the
Building. Tenant shall be responsible for all maintenance and repairs necessary
to keep the forklift in good working condition as well as purchase adequate
service contracts or insurance to cover the operation of the forklift.
IN WITNESS WHEREOF, the parties hereto have executed this Lease or
caused this Lease to be executed by their duly authorized representatives the
day and year first above written.
LANDLORD:
330 SOUTH WARMINSTER ASSOCIATES,
L.P.
BY: /s/ M. O'Neill
---------------------------
DATE: 2 / 5 / 97
---- ---- ----
TENANT:
ENGELHARD/ICC
By Its General Partners
ENGELHARD DESICCANT
TECHNOLOGIES INC.
BY: /s/ M. Sperduto
---------------------------
DATE: 2 / 4 / 97
---- ---- ----
ICC DESICCANT TECHNOLOGIES INC.
BY: /s/ M. Hanuschek
---------------------------
DATE: 2 / 4 / 97
---- ---- ----
Page - 15
<PAGE> 17
SCHEDULE "A"
RENT SCHEDULE
<TABLE>
<CAPTION>
PERIOD MONTHLY ANNUALLY
------ ------- --------
<S> <C> <C>
April 1, 1997 - May 31, 1997 $ 0 $ 0
June 1, 1997 - May 31, 2002 $42,826.50 $513,918.00
June 1, 2002 - May 31, 2007 $51,460.88 $617,530.50
</TABLE>
Page - 16
<PAGE> 18
EXHIBITS TO LEASE AGREEMENT
Exhibits A, B2, C, D, F and G have been intentionally omitted.
Page - 17
<PAGE> 19
EXHIBIT E LEASE GUARANTEE
[ICC TECHNOLOGIES LOGO]
ICC Technologies Inc.
551 N. Fifth St.
Philadelphia, PA 19123
330 South Warminster Associates, L.P.
555 North Lane, Suite 6101
Conshocken, PA 19428
February 4, 1997
Attention: Mr. Michael O'Neill
Gentlemen:
ICC Technologies Inc. (the "Guarantor") has been advised that its
subsidiary ICC Desiccant Technologies Inc., in its capacity as a general
partner of Engelhard/ICC (ICC Desiccant Technologies Inc. is hereafter
referred to as the "Subsidiary") has entered into a certain Plant Space Lease
(the "Lease") for the lease of premises at 330 South Warminster Road, Hatboro,
PA from 330 South Warminster Associates, L.P. (the "Landlord").
In consideration of the Landlord's entering into the Lease, the
Guarantor hereby guarantees to the Landlord the payment of the Guarantor's
Percentage (as defined in paragraph 6 below) of all obligations of the
Subsidiary to pay rent and any and all other sums of money payable by the
Subsidiary, its successors and assigns under the Lease (the "Guaranteed
Obligations"), now or hereafter existing, under the Lease, when and as the same
are to be paid under the terms of the Lease; provided that this guarantee is
given subject to the following terms and conditions:
1. This Guarantee shall be enforceable against the Guarantor, its successors and
assigns, without the necessity for any suit or proceedings on the Landlord's
part of any kind or nature whatsoever against Engelhard/ICC or the
Subsidiary, their successors and assigns, and without the necessity of any
notice of acceptance of this Guarantee, all of which the Guarantor hereby
expressly waives. Guarantor acknowledges that the Subsidiary, as a general
partner of Engelhard/ICC, would have joint and several liability for all
obligations of Engelhard/ICC under the Lease.
2. The Guarantor's obligations under this guaranty shall remain in full force
and effect without regard to, and shall not be impaired or affected by: (a)
any amendment, extension or modification of or addition or supplement to any
of the terms of the Lease; or (b) any bankruptcy, insolvency, reorganization,
arrangement, adjustment, composition, liquidation, or the like of
Engelhard/ICC or the Subsidiary or any other guarantor; or the discharge or
release of Engelhard/ICC or the Subsidiary or any other guarantor in any
such bankruptcy proceeding, whether or not the Guarantor shall have had
notice or knowledge thereof.
3. The Guarantor's obligations shall be binding upon its successors and assigns
and shall inure to Landlord's benefit and to the benefit of any successor in
interest to Landlord.
<PAGE> 20
330 South Warminster Associates, L.P.
February 4, 1997
Page 2
4. Guarantor warrants and represents that the person executing this
Guarantee on its behalf was duly authorized to execute this document by
its Board of Directors. Any claim under this guarantee must be submitted
to Guarantor in writing within one hundred (180) days from the date of
the default by the Subsidiary from which it arises, taking into account
any time or other indulgence granted by the Landlord to the Subsidiary,
failing which such claim will be deemed to have been waived.
5. This guarantee is a continuing guarantee which shall remain in effect
with respect to each Guarantor until the termination of the Lease.
Termination will not affect Guarantor's liability hereunder in respect
of any Guaranteed Obligation incurred by the Subsidiary under the Lease
prior to such termination.
6. Except as limited by section 8 below or elsewhere in this Guarantee, the
Guarantor's "Percentage" is 50% of the Guaranteed Obligations
specifically itemized in a written demand submitted by Landlord to the
Guarantor for payment hereunder (each a "Demand"). If Guarantor shall at
any time and from time to time, on behalf of the Subsidiary, make a
payment in respect of the Guaranteed Obligations itemized in a Demand,
the Guarantor's Percentage in respect to the items listed in that Demand
shall be reduced in proportion to the amount of such payment. If the
Guarantor pays 50% of the total amount claimed in a Demand then
Guarantor shall have no further liability for any of the items of
Guaranteed Obligations listed in that Demand.
7. Guarantor's liability to the Landlord hereunder will be affected by any
action taken by the Landlord or any failure by the Landlord to take, any
action to enforce its rights against the Subsidiary or by any
arrangement made by the Landlord with the Subsidiary modifying the
Landlord's rights and remedies against the Subsidiary in respect of the
Lease.
8. The maximum liability of Guarantor to Landlord hereunder shall in no
event exceed three million seven hundred fifty thousand dollars
($3,750,000).
<PAGE> 21
330 South Warminster Associates, L.P.
February 4, 1997
Page 3
Please confirm the Landlord's acceptance by signing and returning
one original.
Sincerely,
ICC TECHNOLOGIES INC.
551 N. Fifth St.
Philadelphia, PA 19123
By: /s/ M. Hanuschek
---------------------------------
By: ---------------------------------
Accepted
330 SOUTH WARMINSTER ASSOCIATES, L.P.
555 North Lane, Suite 6101
Conshocken, PA 19428
By: /s/ M. O'Neill
---------------------------------
Title:
------------------------------
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
ICC Technologies, Inc. (the Company) on Form S-8 (File Nos. 33-37036, 33-37037,
33-85634, 33-85636, 33-89122 and 33-89124) 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 19,
1997, on our audits of the consolidated financial statements of ICC
Technologies, Inc. as of December 31, 1996 and 1995 and for the years ended
December 31, 1996, 1995, and 1994, which report is included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996. We also
consent to the incorporation by reference in the Registration Statements (set
forth above) 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 19, 1997,
on our audits of the financial statements of Engelhard/ICC as of December 31,
1996 and 1995 and for the years ended December 31, 1996 and 1995, which report
is also included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
March 27, 1997
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