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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-10446
LITHIUM TECHNOLOGY CORPORATION
(Name of Small Business Issuer in Its Charter)
DELAWARE 13-3411148
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5115 CAMPUS DRIVE, PLYMOUTH MEETING, PENNSYLVANIA
(Address of Principal Executive Offices)
19462
(Zip Code)
(610) 940-6090
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: NONE.
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK
PAR VALUE, $0.01
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendments to this Form 10-KSB.[ ]
State issuer's revenues for its most recent fiscal year. None for the fiscal
year ended December 31, 1998.
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the stock was
sold, or the average bid and asked prices of such common equity, as of a
specified date within the past 60 days.
Approximately $10,340,683.24 as of January 31, 1999. The
aggregate market value was based upon the mean between the
closing bid and asked price for the common stock
as quoted by the NASD Electronic
Bulletin Board.
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of January 31, 1999, 43,257,689
shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security-holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). None.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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TABLE OF CONTENTS
<TABLE>
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PAGE
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PART I
Item 1. Description of Business ........................................................ 1
Item 2. Description of Property ........................................................ 10
Item 3. Legal Proceedings .............................................................. 10
Item 4. Submission of Matters to a Vote of Security Holders ............................ 10
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters.......... 11
Item 6. Management's Discussion and Analysis or Plan of Operation ...................... 12
Item 7. Financial Statements ........................................................... 17
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ....................................................... 17
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act .............................. 17
Item 10. Executive Compensation ......................................................... 19
Item 11. Security Ownership of Certain Beneficial Owners and Management ................. 27
Item 12. Certain Relationships and Related Transactions ................................. 28
Item 13. Exhibits and Reports on Form 8K ................................................ 30
FINANCIAL STATEMENTS
Independent Auditors' Reports ........................................................ F-2 to F-3
Consolidated Financial Statements:
Consolidated Balance Sheet at December 31, 1998 and December 31, 1998
(Pro Forma) ............................................................................. F-4
Consolidated Statements of Operations for the Years Ended December 31,
1998 and 1997, and the Period from July 21, 1989 (Date of Inception)
to December 31, 1998 ..................................................................... F-5
Consolidated Statements of Changes in Stockholders' Deficiency for the
Period from July 21, 1989 (Date of Inception) to December 31, 1998 .............. F-6 to F-10
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998 and 1997 .................................................................. F-11 to F-12
Notes to Consolidated Financial Statements ......................................... F-13 to F-23
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW AND RECENT DEVELOPMENTS
Lithium Technology Corporation (the "Company" or "LTC") is in the late stages of
developing and seeking to commercialize unique, solid-state, lithium-ion polymer
and lithium metal polymer rechargeable batteries. The Company believes that its
battery technology, which is currently in the prototype development phase, is
capable of providing up to four times the performance of current rechargeable
batteries. The Company's objective is the commercialization of such technology,
inclusive of moving from laboratory-scale product prototypes and related
prototype processes to full scale market introduction, achieving
cost-competitiveness, and establishing manufacturing operations and distribution
channels. The Company's commercialization focus is on the rapidly growing
portable electronics market segment (notebook computers and wireless
communications handset devices). The Company's patented and proprietary
composite cell construction and low-cost manufacturing process are equally
applicable to lithium-ion polymer technology and lithium metal polymer
technology. The Company intends to pursue both chemistries -- "lithium-ion
polymer technology" and "lithium metal polymer technology" which are discussed
and differentiated below -- for specific portable electronics applications. The
Company's immediate objective is the commercialization of its "lithium-ion
polymer technology." The Company's operating results consist solely of operating
losses attributable to research and development, general and administrative
expenses and interest expense. The Company has generated no revenues from
operations and has no commercial operations to date.
The Company had cash of $1,073,000 at December 31, 1998. In the absence of new
capital, such cash is only sufficient to meet the Company's operating needs
through approximately May, 1999 other than financing for the development of
manufacturing capacity. The Company has developed and is implementing
appropriate strategies to minimize expenses and conserve cash. Although
management's operating plan seeks to minimize the Company's capital
requirements, commercialization of the Company's battery technology will require
substantial amounts of additional capital. The Company expects that research and
development expenses will increase as it continues to advance its battery
technology and develop products for commercial applications. The Company's
working capital and capital requirements will depend upon numerous factors,
including, without limitation, the progress of the Company's research and
development program, the levels and resources that the Company devotes to the
development of manufacturing and marketing capabilities, technological advances,
the status of competitors, the ability of the Company to obtain equity and/or
debt financing in the public or private markets, and the ability of the Company
to establish collaborative agreements with other companies to provide research
and development funding to the Company and to manufacture and market the
Company's products. There can be no assurance that the Company will obtain
needed capital on terms favorable and acceptable to the Company. For details see
"Management's Discussion and Analysis -- Liquidity, Capital Resources, and
Financial Condition."
During the last five years, the Company has recruited a management team and a
core technical staff with commercialization and battery technology expertise.
The staff has expertise in technology, commercialization, process development,
battery engineering and strategic alliance development. Thomas R. Thomsen serves
as the Company's Chief Executive Officer, David J. Cade serves as the Company's
President and Chief Operating Officer, and Dr. George Ferment serves as the
Company's Executive Vice President of Operations and Chief Technical Officer.
Mr. Thomsen was elected to the Company's Board of Directors in 1995. Mr. Cade
and Dr. Ferment were elected to the Company's Board of Directors in 1997.
In December, 1998, the Company elected two new members to its Board - Barry
Huret and Dr. John McFeeley. Mr. Huret is the President and CEO of Huret
Associates, Inc., Yardley, PA, a management and battery consulting company. Dr.
McFeeley is a Distinguished Engineer with the Polaroid Corporation. Effective
December 1, 1998, Dr. William Chu resigned from the Company's Board to focus on
the establishment of the TMP (See below). See "Directors, Executive Officers,
Promoters and Control Persons, Compliance with Section 16(a) of the Exchange
Act". Also, in December, 1998, the Board of Directors established the 1998 Stock
Incentive Plan (the "1998 Plan") See "Executive Compensation - 1998 Plan" for a
detailed description of the 1998 Plan.
The Company's strategy is to commercialize a new generation of solid state
lithium-ion polymer and lithium metal polymer batteries based on: fifteen years
research and development, a patent portfolio covering both the battery
construction and manufacturing process unique to the battery industry, and the
establishment of manufacturing operations and distribution channels through the
development of strategic alliances with partners of global prominence from whom
the Company will seek assistance in bringing the technology to the manufacturing
stage and participation in the distribution and sale of the Company's products.
To advance this strategy (i) in May, 1998, the Company entered into a technology
development agreement (the "1998 TDA") with a global notebook computer
manufacturer (the "PC OEM") for the Company to provide its proprietary
rechargeable lithium-ion polymer
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batteries for an advanced notebook application. The PC OEM subsequently decided
to cancel the advanced high-end notebook product for which the Company's battery
was intended. Accordingly, the Company will not receive from the PC OEM the
latter two of three milestone equity investments contemplated by the 1998 TDA,
although the PC OEM intends to continue to work with the Company to develop the
Company's technology into a next generation of notebook products; (ii) in June,
1998, the Company entered into an agreement with the Ben Franklin Technology
Center of Southeastern Pennsylvania to undertake an advanced battery research
and development project with Temple University. The agreement provides funding
for a collaborative effort on the part of the Company and Temple to develop an
advanced solid polymer electrolyte for use in the Company's next generation of
rechargeable lithium-ion polymer batteries; (iii) in January, 1999, the Company
signed a letter of intent with the Hengdian Group, of mainland China, to enter
into a joint venture to manufacture rechargeable lithium-ion polymer batteries
in China using the Company's patented and proprietary technology, with the year
2000 as a target for initial commercial production; and (iv) in February, 1999,
the Company received a small purchase order from the NASA Lewis Research Center
for twenty large prototype lithium-ion polymer cells. Previously, in 1997, the
Company had entered into a letter of intent to establish a strategic
manufacturing joint venture with Elite Material Co., Ltd. (EMC) of Taiwan
contemplating a 194,000 square foot joint venture manufacturing facility in
Taiwan (Taiwan Manufacturing Plant - TMP) to produce lithium-ion polymer
batteries. The Company and EMC have mutually agreed to reassess the TMP
financing as originally contemplated by the letter of intent. This reassessment
is on-going at the time of this report. There can be no assurance as to the
completion of definitive agreements with respect to the implementation of the
TMP and the Hengdian joint venture or the other strategies referred to herein.
In September, 1997, the Company entered into a Senior Secured Convertible Note
Purchase Agreement (the "1997 Note Purchase Agreement") with Lithium Link LLC
(the "Lender") for the sale of $5.5 million of the Company's Senior Secured
Convertible Notes (the "1997 Notes"). In January 1999, all of the principal
amount of the 1997 Notes were converted into 19,642,857 shares of the Company's
common stock and 562,647 shares of the Company's common stock were issued to pay
accrued interest through the conversion date. See "Management's Discussion and
Analysis--Liquidity, Capital Resources, and Financial Condition" for details.
In early 1996 the Company installed a continuous flow coating and laminating
pilot line. The pilot line has been undergoing trial runs and
modifications/upgrades over the past three years and is being used to fabricate
the Company's lithium-ion polymer cell and battery pack samples for distribution
to selected Original Equipment Manufacturers (OEMs) which has been on-going
since the second quarter of 1997. The pilot line is currently evolving into the
Plymouth Meeting Manufacturing Plant (PMMP), subject to the uncertainties
discussed in this report and the availability of capital. It is anticipated that
an additional expenditure of approximately $4.0 million in equipment and
engineering services will be required in the 1999-2000 time frame, including
manufacturing equipment meeting applicable environmental regulatory standards to
achieve initial production levels for specific OEM battery pack applications.
There can be no assurance that such new capital will be available on terms
satisfactory and favorable to the Company. See "Management's Discussion and
Analysis --Liquidity, Capital Resources, and Financial Condition" for details.
As of the date of this report, the Company is evaluating, and taking measures
with respect to, several alternative strategies to address the Company's needs
for (a) manufacturing capacity and (b) working capital for short-term
applications and longer-term applications, inclusive of bridge financing. No
commitments relative to these strategies have been received by the Company as of
the date of this report and there can be no assurance that these strategies and
measures will result in capital and/or manufacturing capacity on terms favorable
and acceptable to the Company.
The Company is a corporation organized under the laws of the State of Delaware
on December 28, 1995. The Company's predecessor -- Lithium Technology
Corporation (a Nevada corporation previously named Hope Technologies, Inc.) --
merged with and into the Company in a reincorporation merger that became
effective on February 8, 1996. In connection with the reincorporation on
February 8, 1996, the Company also implemented a recapitalization of its
outstanding common stock and convertible preferred stock, a reverse stock split,
the ratification of an amendment to the Company's 1994 Stock Incentive Plan, and
ratification of a Directors Stock Option Plan. Until 1994, the Company had been
named Hope Technologies, Inc. (HTI), consisting of two subsidiaries: Hope
Industries, Inc. (Industries) and Lithion Corporation. Industries was the
operating arm of the Company and it manufactured professional and industrial
photoprocessing and X-ray equipment. Lithion was engaged in rechargeable battery
research and development. By the end of 1993, Industries was divested and since
such time the Company has focused on commercialization of battery technology and
developing strategic alliance partners of global prominence. The Company
currently has one subsidiary, Lithion Corporation, which is wholly-owned by the
Company.
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MARKET SUMMARY; CAPITAL REQUIREMENTS
The worldwide battery market consists of a variety of segments, such as
household "disposable" batteries, automotive batteries, and high performance
rechargeable batteries for portable electronic devices. Virtually all segments
are growing and experiencing a technological revolution with the important
driving forces being technology/portability and environmental issues. In
particular, miniaturization of electronic devices has fueled explosive market
growth in mobile electronic products, including notebook and palmtop computers,
wireless communications handsets, wireless multimedia devices, camcorders and
medical applications. Battery power, size and shape shortcomings have been the
limiting factors in product engineering and design. Improved batteries are
necessary to increase operating times and mobility. There is also increasing
demand for environmentally friendly batteries. Lead-acid, alkaline and nickel
cadmium (NiCd) batteries, unlike the Company's battery, contain metals such as
lead, mercury and cadmium, which have become environmental and public health
concerns.
This growth has created a worldwide search for advanced rechargeable battery
systems with much longer run times with lighter weights and lower costs, and
which are environmentally friendly. The Company believes that its
lithium-polymer battery technology may be capable of filling these demands.
There can be no assurance, however, that the Company will be able to achieve the
technological breakthroughs that will be necessary in order to ultimately
achieve commercialization and/or obtain financings or generate revenues in order
to sustain the Company's on-going research and development phase or to undertake
the design and construction of the TMP, DMF and PMMP, including the obtaining of
additional financing of approximately $4.0 million for equipment expenditures
that is currently estimated to be required to achieve sustained production
levels, discussed herein and other manufacturing-related facilities.
There can also be no assurance that the incremental capital needed for attaining
commercial viability of the Company's battery technology through the year 2000
will be obtained, which the Company currently estimates at $18,000,000 (without
regard to the capital requirements for the development of any manufacturing
capacity). See "Management's Discussion and Analysis--Liquidity, Capital
Resources and Financial Condition."
THE BATTERY TECHNOLOGY
The Company's lithium metal polymer rechargeable battery design is based upon an
integrated approach employing a patented and proprietary cell construction using
high performance fiber webs, and a flexible solid polymer electrolyte. The
Company's lithium metal technology incorporates a lithium alloy foil anode and a
composite vanadium oxide cathode. The Company's lithium-ion polymer technology
uses fiber webs for both the anode and cathode. One advantage of this approach
is the use of a solid polymer electrolyte rather than the traditional liquid
electrolyte technology. Unlike the liquid electrolyte used in most batteries,
the Company's battery electrolyte is a thin, flat, solid plastic which reduces
weight and volume, and improves safety. The Company's research and development
and marketing strategy is to seek to distinguish the Company's battery products
from competitors' products as to the following features: energy density, run
time, self-discharge rate, design flexibility, thin, flat lightweight form
factor, cost, user safety and environmental safety. The Company's ability to
implement this strategy is highly dependent upon the Company's ability to
achieve its technology research and development, manufacturing scale-up, and
financing objectives and overcome the related uncertainties as discussed herein.
The ability to manufacture so called "laminated batteries" (See "Glossary") with
consistent high quality and low cost is a critical commercialization challenge
and the Company believes its strategic advantage lies in its patented
manufacturing approach. The Company's composite electrolyte and composite
electrode technology lends itself to the use of commonly used thin film
manufacturing equipment and proven process methodology. These composites act as
traveling carriers in the manufacturing process, starting as rolls that are then
coated with electrolyte or oxide materials using existing and proven coating
technology. Such traveling carriers are usually called "traveling webs" or
simply "webs". "Web" processing is a common practice in the paper, textile, thin
film, barrier plastics, floor covering, and packing industries. Other companies
also attempting to commercialize lithium-polymer batteries do not use this
Company-patented and proprietary approach and therefore use more complex and
hence costly manufacturing methods. The Company's approach, which involves fewer
separate operations, offers significant promise for lower production costs and
consistent quality. The Company's web-handling and coating techniques are
expected to result in a lower cost manufacturing process for lithium-ion polymer
cells because of: (1) fewer laminate components; (2) fewer processing steps; (3)
better bonding; (4) better structural stability; (5) lower defect rates higher
yields; and (6) web coating enables easier cell assembly. In addition, superior
battery performance is expected because of: (1) fiber webs give higher
gravimetric energy density than metal grids; (2) better pulse discharge rate;
and (3) equivalent cycle life.
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INTELLECTUAL PROPERTY
The Company holds twenty-five issued U.S. patents and twelve pending patent
applications on its technology. The Company also has other proprietary knowledge
that is in the patent disclosure stage or that it protects as trade secrets. The
Company's early patents relate to materials and construction for lightweight
solid-state rechargeable batteries. The later patents and applications relate to
improvements to the technology contained in the first patent or to other key
aspects of rechargeable battery technology. In 1998, two patents were issued
which gave the Company patent protection on the use of metalized fiber webs for
building electrodes and separators. These metalized webs, which are now being
incorporated into the Company's composite cell structures, provide superior
conductivity and further simplify the manufacturing process.
There are other companies with lithium-polymer battery technology patents;
however, the Company believes its patents to be unique from those of its
competitors in that they focus upon the manufacturing process for a composite
cathode structure, composite electrolyte structure, alloy anode and packaging.
The earliest of the Company's patents expires 2003. There is no current or, to
the Company's knowledge, threatened litigation on its patents. See "Description
of Business-Competition".
The following table sets forth the patents currently held by the Company:
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Patent Number Description Year of Expiration
- ------------- ----------- ------------------
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4,576,883 Electrode Construction for Solid State Electrochemical Cell 2003
4,794,059 Lightweight Solid Rechargeable Batteries 2005
4,808,496 Electrode Construction for Solid State Electrochemical Cell 2006
4,816,357 Intensification of Ion Exchange in Lithium Batteries 2006
4,861,690 Lightweight Battery Construction 2006
4,888,206 Method and Apparatus for Coating a Substrate with Alkaline 2006
or Alkaline Earth Metals
4,960,655 Lightweight Batteries 2007
5,006,431 Solid State Polymer Electrolyte for Batteries 2008
5,053,295 Lightweight Electroconductive Solderless Internal Cell 2008
Connector for Alkaline or Alkaline Earth Metal Batteries
5,057,385 Battery Packing Construction 2008
5,057,651 Lightweight Electroconductive Wire 2008
5,006,554 Fire and Moisture Proof Anode Construction for Alkaline 2008
Metal or Alkaline Earth Metal Batteries
5,102,752 Solid State Composite Electrolyte for Batteries 2009
5,350,647 Electrodes for Electrochemical Devices 2011
5,378,558 Solid State Composite Electrolyte for Electrochemical 2012
Devices
5,422,200 Battery Packaging Construction for Alkali Metal Multicell 2012
Batteries
5,443,602 Apparatus and Method for Automatic Mass Production and 2012
Packaging of Electrochemical Cells
5,521,023 Composite Electrolytes for Electrochemical Devices 2013
5,529,707 Lightweight Composite Polymeric Electrolytes for 2013
Electochemical Devices
5,597,658 Rolled Single Cell and Bi-Cell Electrochemical Devices and 2014
Method of Manufacturing Same
5,650,243 Battery Packaging Construction using Flexible Plastic Barrier 2014
Structures
5,655,313 Apparatus for Fluidized Vacuum Drying and Gas Treatment 2014
for Powdered, Granular, or Flaked Material
5,705,084 Polymer Alloy Electrolytes for Electrochemical Devices 2015
5,747,195 Current collectors for high energy density cells 2018
5,750,289 Lightweight current collectors and carriers 2018
</TABLE>
With respect to licensing relationships, the Company has: (i) granted a license
to Valence Technology Corporation ("Valence") with respect to certain technology
and entered into a cross-license with Valence with respect to certain
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technology; and (ii) granted certain license/distributorship option rights
pursuant to the Japanese consortium technology development agreement noted
above.
TECHNOLOGY DEVELOPMENT HISTORY
The Company's advanced rechargeable battery technology is based on nearly
fifteen years of specific research and development and nearly forty years of
experience in plastics, thin films and emulsions. With the divestiture of Hope
Industries in late 1993, the Company successfully raised capital from outside
sources, narrowed the Company's focus, and renewed development of its
rechargeable battery technology. During 1994, the Company was re-staffed with
needed technical personnel, and critical research, including historical test
data such as capacity and cycle life, was reconfirmed. During 1995, the Company
concentrated its efforts on improving its base line technology in the crucial
areas of weight reduction, design flexibility, rechargeability, self-discharge,
safety, capacity and cycle life. The research and development effort has also
focused on the carbon fiber web used to build the cathode structure, the
proprietary lithium metal alloy used as the anode structure, the polymer
electrolyte structure, and thermal curing of the polymer as opposed to expensive
and complicated electron beam methodology. Improvements have also been made in
sealing which has resulted in a patented, fireproof anode concept and improved
current-collection technology has been developed through lightweight, embedded
fiber construction. The Company has also advanced its technology by developing a
solid state lithium-ion polymer battery using proprietary web structures in both
the anode and cathode with excellent cycle life and which demonstrate the
utility of the Company's manufacturing technology for use in other battery
chemistries. During 1996, the Company focused on improving its patented
manufacturing approach which is unique to the battery industry. In March 1996, a
prototype continuous flow coating and laminating pilot line was installed. Since
then, the pilot line has been undergoing continuing upgrade and trial runs. In
1997, the pilot line was upgraded and distribution of pilot line made
lithium-ion polymer cells samples processed on the pilot line commenced to
selected Original Equipment Manufacturers (OEMs).
During 1998, development and distribution of prototype battery packs commenced
to certain OEMs and is on-going. The Company is in the late stages of developing
and seeking to commercialize innovative solid-state lithium polymer batteries.
As of December 31, 1998, the Company had not generated any product revenues and
had no commercial operations. To date, the Company has delivered limited
quantities of its battery cells to selected OEMs for evaluation. In early 1999,
the Company successfully produced on its pilot manufacturing line a 90 watt hour
battery prototype for notebook computers and other portable electronics
applications. In January, 1999, the Company delivered to the PC OEM the first
battery prototype, which is approximately 8 x 12 inches, -1/4 inch thick and
provides run times for up to 10 hours. Based on continuing price declines in the
global notebook PC market, the PC OEM has decided to cancel the advanced
high-notebook product for which this 90 watt hour battery was intended. However,
the OEM has indicated its intention to work with the Company to infuse the
technology into a next generation of notebook products.
For the period July 1989 through October 1993, the Company had accumulated net
losses attributable to activities associated with the battery technology of
$1,801,000. For the period November 1993 through December 1997, the Company had
accumulated net losses of $31,240,000 of which $67,000 was incurred during 1993,
$3,776,000 was incurred during 1994, $8,849,000 was incurred during 1995,
$4,384,000 was incurred during 1996, $14,164,000 was incurred during 1997
(including interest expense of approximately $9,821,000 relating to the
beneficial conversion feature of certain debt issued by the Company) and
$3,261,000 was incurred during 1998 (including interest expense of approximately
$341,000). Therefore, the Company's aggregate accumulated losses for the battery
technology through December 1998 are $36,302,000 (including interest expense of
approximately $17,841,000 relating to the beneficial conversion features of
certain debt issued by the Company and including $1,816,000 of other interest
expenses). The Company spent approximately $1,399,000 and $1,899,000 on research
and development activities during 1997 and 1998, respectively. These funds were
derived from the Company's debt and equity financings as discussed in this
report as opposed to operating revenues.
BUSINESS STRATEGY
The Company's business strategy is to commercialize a new generation of solid
state lithium-ion polymer and lithium metal polymer batteries based on fifteen
years of research and development, a strong patent portfolio covering both the
battery construction and manufacturing process unique to the battery industry
the establishment of manufacturing operations and distribution channels through
the development of strategic alliances with partners of global prominence from
whom the Company will seek assistance in bringing the technology to the
manufacturing stage and participation in the distribution and sale of the
Company's products.. The proprietary technology uses high performance fibers in
composite battery structures and low-cost web coating/handling methods for
manufacturing. This technology encompasses lithium-ion polymer batteries (market
entry in 1998) and lithium alloy polymer batteries (market entry in three to
five years). The Company's target market is mobile communications and computing
applications which showcase the Company's thin, flat lightweight form factor and
long run-times. The
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Company's long term objectives include the development and/or licensing of
battery technology for a variety of other applications including
microelectronics, electric vehicles, aerospace and defense and solar cells.
There can be no assurance, however, that the Company will be able to achieve the
technological breakthroughs that will be necessary in order to ultimately
achieve commercialization and/or obtain financings or generate revenues in order
to sustain the Company's on-going research and development phase or to undertake
the design and construction of the pilot line and its equipment augmentation,
discussed herein, and other manufacturing-related facilities including
commercial production at the PMMP and commercial production at the TMP. The TMP,
as noted herein, is currently being reassessed by the Company and EMC.
Consummation of corporate alliances is also an important step in the
commercialization plan. The Company's strategy contemplates that these corporate
partners will bring technology and funding support through equity, joint
technology and development programs, licensing of the technology, and
manufacturing and distribution rights. Extensive discussions have been and
continue to be held with numerous potential corporate partners from the United
States, the Pacific Rim and Europe. In March 1996, the Company entered into a
two-year technology development agreement (the "1996 Agreement") with a Japanese
consortium headed by Mitsubishi Materials Corporation. The LTC-Mitsubishi
Materials alliance was successful for both parties. Mitsubishi Materials and LTC
expect to continue exchanging appropriate technical information and Mitsubishi
Materials has expressed its intention to remain as a shareholder of LTC.
According to the terms of the 1996 Agreement, certain provisions pertaining to
technology ownership, option rights for manufacturing and distribution of LTC's
future lithium alloy polymer battery products, and confidential treatment of
information, survived the March 1998 expiration of the 1996 Agreement.
As the Company has reported in its September 30, 1998 report on Form 10-QSB, no
commitments were received, or have since been received, by the Company for the
purchase of $22,000,000 of redeemable convertible preferred stock the Company
sought to issue in order to raise capital. The Company, with the advice of its
investment banking firm determined not to proceed with the 1998 offering and the
Company is currently evaluating and reformulating its financial objectives and
strategies in conjunction with its technology development and manufacturing
strategies. The decision not to proceed with the 1998 offering was based on
several factors including the global economic down cycle as well as unfavorable
conditions in the domestic and international securities markets during the third
fiscal quarter for 1998 (particularly in the Far East where significant
investment interest in the Company is potentially located), and a significant
decrease in the market price for the Company's common stock with the potential
adverse consequence on the pricing of the 1998 offering and resulting dilutive
effect to the Company's existing shareholders. In connection with this
re-evaluation the Company is currently developing several strategies to address
the Company's needs for manufacturing capacity and working capital for
short-term applications and longer-term applications, inclusive of bridge
financing. No commitments relative to these strategies have been received by the
Company as of the date of this report and there can be no assurance that
commitments will be obtained on terms favorable and acceptable to the Company.
There can be no assurance that the incremental capital needed to attain
commercial viability of the Company's battery technology through the year 2000
will be obtained, which the Company currently estimates at approximately
$18,000,000 (without regard to the capital requirements for the development of
any manufacturing capacity). If the Company is unable to raise sufficient
capital, it will be forced to curtail research and development expenditures
which, in turn, will delay and could prevent, the completion of the
commercialization process.
The Company is also actively seeking other strategic partners to assist in the
commercialization of its lithium-ion polymer technology and has had discussions
with a number of globally prominent companies in this regard, although there can
be no assurance as to the consummation of any such strategic alliances. As noted
above, in December 1997, the Company had entered into a letter of intent to
establish a strategic manufacturing joint venture with EMC contemplating a
194,000 square foot joint venture manufacturing facility in Taiwan. During 1998,
the Company and EMC mutually agreed to reassess the manufacturing facility in
Taiwan as originally contemplated by the letter of intent and the level of
potential financial involvement by the Company in the joint venture in light of
the Company's decision, as discussed above, not to proceed with the Company's
1998 securities offering. In May 1998, the Company entered into the 1998 TDA (as
defined above) with the PC OEM (as defined above) contemplating the development
of a specific battery for the PC OEM's notebook computers. The PC OEM
subsequently decided to cancel the advanced high-end notebook product for which
the Company's battery was intended. Accordingly, the Company will not receive
from the PC OEM the latter two of three milestone equity investments
contemplated by the 1998 TDA, although the PC OEM intends to continue to work
with the Company to develop the company's technology into a next generation of
notebook products. In June, 1998, the Company entered into an agreement with the
Ben Franklin Technology Center of Southeastern Pennsylvania to undertake an
advanced battery research and development project with Temple University. The
agreement provides funding for a collaborative effort on the part of the Company
and Temple to develop an advanced solid polymer electrolyte for the Company's
next generation of rechargeable lithium-ion polymer batteries. In January, 1999,
the Company
6
<PAGE> 10
signed a letter of intent with the Hengdian Group, of mainland China, to enter
into a joint venture to manufacture rechargeable lithium-ion polymer batteries
in China using the Company's patented and proprietary technology with the year
2000 as a target for initial commercial production. In February, 1999, the
Company received a small purchase order from the NASA Lewis Research Center for
twenty large prototype lithium-ion polymer cells.
During March 1996, a benchtop continuous flow coating/laminating pilot line was
installed by the Company. This line has been used to further define the
Company's manufacturing technology, to sharpen manufacturing cost estimates,
produce market test samples and then serve as the initial production facility
for battery cells which will be assembled into battery packs for Original
Equipment Manufacturer ("OEMs"). The Company has already begun multi-cell
configuration designs for battery packs of two specific electronic devices of
two OEMs. Thereafter, based on design data obtained from the pilot line, the
Company must successfully augment the pilot line equipment in establishing the
Plymouth Meeting Manufacturing Plant (PMMP) reflecting the cost, quality,
reliability, and performance required for the various target market
applications. It is anticipated that the PMMP and associated equipment will cost
approximately $4.0 million to construct in the 1999-2000 time frame.
The Company's development and commercialization plan currently has the following
milestones:
(i) hand-made cell samples tested by potential strategic partners
in 1995 (accomplished);
(ii) installation of a pilot line continuous flow coating and
laminating unit in first quarter of 1996 (accomplished);
(iii) upgrade of the pilot line and distribution of lithium-ion
polymer cell samples made on the pilot line to selected
Original Equipment Manufacturers (OEMs) beginning in early
1997 (accomplished);
(iv) distribution of prototype battery packs to selected OEMs in
early 1998 (on-going);
(v) installation of packaging equipment at PMMP, with initial
commercial production at PMMP in late 1999 or early 2000;
(vi) initial production at the Taiwan Factory subject to the
reassessment of the TMP as noted above; and
(vii) construction of additional manufacturing facilities in Asia,
the United States and Europe in the 2000-2001 time frame once
market demand exceeds initial manufacturing capacity.
The PMMP, according to the Company's current strategy, will be located within
the Company's existing facility in Plymouth Meeting, Pennsylvania. Plant
equipment augmentation will require approximately 12 months. The Company intends
to finance the overall estimated $18 million total required for capital
equipment, plant augmentation and operating expenses at Plymouth Meeting in
order to bring the Company to the initial commercial production stage in late
1999 or early 2000. The Company has thus far successfully raised approximately
$14.8 million through the private sale of its securities including the sale of
$5.5 million of the 1997 Notes described above. There can be no assurances that
the approximately $18 million in incremental capital still needed for attaining
commercial viability of the Company's battery technology through the year 2000
will be obtained. If the Company is unable to raise sufficient capital, it will
be forced to curtail research and development expenditures which, in turn, will
delay, and could prevent, the completion of the commercialization process. See
"Management's Discussion and Analysis -- Liquidity, Capital Resources, and
Financial Conditions".
There can be no assurance that the Company will be able to meet the
technological objectives, finalize definitive agreements, implement and complete
plant/equipment plans, and/or satisfy the capital requirements that the Company
believes are necessary to convert its battery technology into successful
commercial products. There can be no assurance that the Company's products will
generate any revenues, will not encounter technical problems when used, will be
successfully marketed, will be produced at a competitive cost, or will achieve
customer acceptance or, if commercial products are developed and revenues
produced, that the Company will be profitable. The likelihood of the success of
the Company must be weighed against the problems, expenses, difficulties,
complications and delays frequently encountered in developing and marketing a
new product.
The Company believes that the "web" construction of its battery (See "Glossary")
is unique compared to other emerging lithium-polymer approaches. It allows the
Company to use proven and well understood equipment from the textile, barrier
plastics and paper coating industries. This manufacturing approach presents the
flexibility to utilize alternative component chemistries as required to meet
specific OEMs' application operating parameters.
7
<PAGE> 11
While the Company is confident that this approach increases the probability of
success in commercializing the technology, there can be no assurances of that
success.
COMPETITION
Competition in the battery industry is intense. The industry consists of
developmental stage companies and major domestic and international companies,
many of which have financial, technical, marketing, sales, manufacturing,
distribution and other resources significantly greater than those of the
Company.
The Company believes that its lightweight, thin, low-cost, high energy,
rechargeable battery is uniquely appropriate for the high-growth portable
electronics market (notebook computers, cellular telephones and other wireless
devices). Longer term, its technology may have significant potential for the
emerging Electric Vehicle (EV) market. The portable electronics markets are
currently served mainly by Nickel-Cadmium ("NiCd") batteries and
Nickel-Metal-Hydride ("NiMH") batteries. NiCd batteries suffer from lower energy
density, memory effect, short shelf life (high self-discharge rate) and
environmental problems. It is anticipated, however, that NiCd batteries will
continue to be a force in the marketplace for the foreseeable future. NiMH
batteries have a somewhat higher energy density than NiCd batteries. However,
they too have a short shelf life and they cost more than NiCd batteries. Liquid
electrolyte ("Lithium-Ion") batteries are beginning to dominate the portable
electronics marketplace, particularly in high end computer and cell phone
applications. These batteries have higher energy density but suffer from short
shelf life and higher cost.
Competition in the high energy-density arena comes mainly from other emerging
companies such as AER (Air-Zinc), licensees of Bellcore lithium ion polymer
technology, including Ultralife and Valence, Moltech (Li-Metal Polymer) and
Poly-Plus (Li-Metal Polymer). A number of these competitors are seeking to move
their technologies from the laboratory to commercialization and face similar
challenges that the Company faces.
The Company believes that its focus on the manufacturing process presents
superior commercialization potential, since it has a lower cost potential and
can be readily adapted to run various component chemistries including
lithium-ion polymer. Additionally, its "web" construction has the inherent
ability to provide higher energy densities and to accept future technological
advances. The Company believes that its lithium-ion polymer and lithium-alloy
polymer battery products also will be competitively superior from an
environmental point of view because the Company's batteries can be disposed of
with less risk of adverse impact on the environment due to the design features
and the materials utilized in the Company's product.
RAW MATERIALS
Certain materials used in the Company's products are available only from a
limited number of sources. The industry currently has sufficient capacity to
meet the Company's needs. However, there can be no assurances that sources and
the currently adequate supply of raw materials will continue.
EQUIPMENT AND FACILITIES
The Company has outfitted a modern research and development facility with
appropriate equipment and instrumentation. At 12,400 square feet, this modern
facility has sufficient space to meet the Company's near-term needs, including
the DMF and pilot manufacturing line. In 1998, the Company received a
Semi-Automatic Cell Packaging and Filling machine. This new piece of equipment
is one of the central elements of the Company's capital investment program to
expand and upgrade its continuous flow production line.
EMPLOYEES
During the last five years, the Company hired a new management team and a core
technical staff. The staff has the required expertise in technology,
commercialization, process development, battery engineering, electrochemistry
international marketing, fund-raising and strategic alliance development. In
May, 1998, the Company hired three technical employees. As of December 31, 1998,
the Company had a total of 17 employees, of whom 14 were employed full-time by
the Company. The Company anticipates that it will need to hire approximately 11
additional employees in order to advance the Company's manufacturing scale-up in
1999. The Company believes that
8
<PAGE> 12
individuals having appropriate expertise are readily available in the workforce
at compensation levels consistent with the Company's business plan and
compensation policies
GOVERNMENT REGULATION, SAFETY, ENVIRONMENTAL COMPLIANCE
The Company's products incorporate lithium, which is known to cause explosions
and fires if not properly handled. Although the Company believes that its
batteries do not present safety risks substantially different from those
inherent in currently-marketed lithium-ion batteries, there can be no assurance
that safety problems will not develop in the future. The Company intends to
incorporate safety policies in its manufacturing processes designed to minimize
safety risks, although there can be no assurance that an accident in its
facilities will not occur. Any accident, whether occasioned by the use of a
battery or the Company's manufacturing operations, could result in significant
production delays or claims for damages resulting from injuries, which would
adversely affect the Company's operations and financial condition.
Prior to the commercial introduction of the Company's batteries into a number of
markets, the Company will seek to obtain approval of its products by one or more
of the organizations engaged in testing product safety, such as Underwriters
Laboratories. Such approvals could require significant time and resources from
the Company's technical staff and, if redesign were necessary, result in a delay
in the introduction of the Company's products.
Pursuant to the regulations of the United States Department of Transportation
("DOT"), a permit is required to transport lithium across state lines. The
International Air Transport Association ("IATA") similarly regulates the
international shipment of lithium. Although the Company believes that DOT has
granted permits for, and IATA has allowed, the transport of rechargeable
lithium-based batteries to be shipped or used by the general public, there can
be no assurance that DOT or IATA will grant such a permit to the Company or that
changes in such regulations, or in their enforcement, will not impose costly
requirements or otherwise impede the transport of lithium. In addition, the DOT
and IATA approval processes will require significant time and resources from the
Company's technical staff and if redesign were necessary, could delay the
introduction of the Company's products.
Various regulatory agencies will have jurisdiction over the operation of any
manufacturing facilities established by the Company. Because of the risks
generally associated with the use of lithium, the Company expects rigorous
enforcement. No assurance can be given that the Company will not encounter any
difficulties in complying with applicable health and safety regulations.
Federal, state and local regulations impose various environmental controls on
the storage, use and disposal of certain chemicals and metals used in the
manufacture of lithium-polymer batteries. Although the Company believes its
activities will conform to current environmental regulations, there can be no
assurances that changes in such regulations will not impose costly equipment or
other requirements. Any failure by the Company to adequately control the
discharge of hazardous wastes could also subject it to future liabilities.
9
<PAGE> 13
<TABLE>
<CAPTION>
GLOSSARY OF TECHNICAL TERMS
<S> <C>
Alkaline Metals........................ The elements which are in Group 1A of the Periodic Table including
lithium, sodium and potassium.
Anode.................................. The electrode in a battery which releases electrons to an external
circuit and ions into the electrolyte.
Cathode................................ The electrode in a battery which accepts electrons from the external
circuit and ions from the electrolyte.
Electrolyte............................ The medium in a battery which provides the ion transport mechanism
between the anode and cathode.
Electron............................... An elementary particle having a negative charge.
Energy Density......................... The total quantity of electrical energy in a battery, expressed as a
function of volume (e.g., Watt-hours per liter) or weight (e.g., Watt-hours per
kilogram).
Ion.................................... An atom or a molecule that has acquired an electrical charge by the loss
or gain or electrons.
Laminated Battery...................... A battery composed of thin sheets of anode, electrolyte and cathode that
have been bonded together.
Lead Acid Battery...................... A rechargeable battery with electrodes made of lead compounds and with
an electrolyte containing acid.
Lithium................................ A soft, low density alkali earth metal with high electrochemical
potential.
Lithium Polymer Battery................ A battery which has a polymer electrolyte rather than the liquid
electrolyte found in conventional batteries. Also known as "solid state" or "plastic"
batteries.
Lithium Metal Polymer Battery.......... A lithium polymer battery which uses pure lithium foil or lithium alloy
foil as the anode and lithiated oxides in the cathode.
Lithium-Ion Polymer Battery............. A lithium polymer battery which uses lithiated graphite or carbon anode
rather than lithium metal foil and lithiated oxides in the cathode.
Memory Effect.......................... The undesirable characteristic of NiCd batteries to lose energy storage
capacity on each recharge after a partial discharge.
Polymer................................ A large molecule that is made by bonding together many smaller identical
molecules.
Primary Battery........................ A battery that is not rechargeable.
Rechargeable Battery................... A battery that, after discharge, may be restored close to the fully
charged state by the passage of electric current through the battery in the
opposite direction to that of discharge.
Self-Discharge Rate.................... The rate at which a charged battery loses energy while not in use.
Web.................................... A non-woven net composed of thin fibers that have been randomly placed
in all directions and bonded together to form an open mesh structure of
continuous length.
</TABLE>
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases a 12,400 square foot research facility and corporate
headquarters in a free-standing building at 5115 Campus Drive in Plymouth
Meeting, Pennsylvania, near Philadelphia. This facility includes sufficient
laboratory and office space to allow the Company to expand its research efforts
and to construct its DMF and the pilot manufacturing line. The lease commenced
on November 1, 1994 for a term of 5 years with a base rent of $122,400 per year.
Management expects that the facility will be suitable for the Company's
currently planned operations. The Company believes that its properties and
assets are adequately covered by appropriate insurance.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
fourth quarter of the fiscal year ended December 31, 1998.
10
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
The Company's common stock is traded only in the over-the-counter markets, and
"bid" and "asked" price quotations of dealers who make a market in the common
stock are quoted on the NASD Electronic Bulletin Board. The Company's common
stock is traded under the symbol "LITH". The following table sets forth certain
information with respect to the high and low bid prices for the Company's common
stock as of the close of each of the four calendar quarters of 1998 and 1997 and
as of the last practical date prior to the date of this Report. Such quotations
reflect inter-dealer prices, without retail mark-ups, mark-downs or commissions,
and may not represent actual transactions.
<TABLE>
<CAPTION>
Bid Prices for Common
---------------------
Stock
- -----
High Low
---- ---
<S> <C> <C>
1998
Fourth Quarter $.45 $.23
Third Quarter $.90 $.35
Second Quarter $1.04 $.83
First Quarter $1.20 $.84375
1997
Fourth Quarter $1.45 $0.89
Third Quarter $1.4375 $0.75
Second Quarter $1.00 $0.34375
First Quarter $1.4375 $0.5625
</TABLE>
As of December 31, 1998, there were approximately 692 holders of record of the
Company's common stock.
DIVIDEND POLICY
The Company has never paid cash dividends on its common stock and does not
presently anticipate paying cash dividends in the foreseeable future. It is
anticipated that earnings, if any, will be retained for use in the business of
the Company for an indefinite period. Payments of dividends in the future, if
any, will depend, among other things, on the Company's ability to generate
earnings, its need for capital, and its financial condition. Additionally, the
Company's ability to pay dividends is limited by applicable state law.
Declaration of dividends in the future will remain within the discretion of the
Company's Board of Directors which will review its dividend policy from time to
time.
RECENT SALES OF COMMON STOCK
In May 1996, the Company issued an aggregate of 1,650,000 warrants to two
consultants pursuant to the terms of consulting agreements entered into by the
Company. These warrants included certain anti-dilutive provisions which as of
September 22, 1997 had entitled the two consultants to purchase approximately
2,640,000 shares of the Company's common stock at exercise prices of $0.96 and
$1.60 per share. In December 1997, in consideration for (i) removing all
anti-dilution provisions (except for those activated by a stock split, reverse
stock split or a stock dividend) and (ii) reducing the term of the warrants from
ten years to five years and for other consideration, the Company amended the
warrants to the two consultants by increasing the aggregate amount to 3,080,000
warrants at an exercise price of $0.85 per share and reduced the warrant
exercise period from ten years to five years. In addition, the consulting
agreements were terminated upon payment of an additional $150,000 to the two
consultants.
11
<PAGE> 15
Between January 1997 and March 1997, the Company issued an aggregate of 493,186
shares of its common stock to the holders of its $1.75 million 1996 Notes for
penalties and maturity extensions pursuant to the 1996 Note Purchase Agreements.
Between September 1997 and November 1997, the Company issued an aggregate of
2,668,668 shares of its common stock to (i) repay the remaining $1,650,000 of
principal due the 1996 Note Purchasers, (ii) to satisfy interest obligations,
and (iii) to comply with obligations to share 12.5% of the remaining Escrowed
Shares, as defined, with the 1996 Note Purchasers.
In September 1997, the Company issued 500,000 warrants to a consultant
exercisable at $0.40 per share in connection with consulting services.
In November 1997, warrants to purchase 100,000 shares of the Company's common
stock were exercised at an exercise price of $0.14 per share. The warrants had
been granted in July and August of 1997 in connection with the Company obtaining
a bridge loan of $500,000.
In December 1997, the Company agreed to issue 200,000 warrants to a consultant
exercisable at $1.25 per share, and in June 1997, the Company agreed to issue
100,000 warrants to a consultant exercisable at $3.60 per share, each in
connection with consulting services.
During 1997, the Company granted an aggregate of 93,334 common stock options
pursuant to the Director's Stock Option Plan and an aggregate of 1,017,500
common stock options pursuant to the 1994 Stock Incentive Plan.
During 1998, the Company granted an aggregate of 26,668 common stock options
pursuant to the Directors Stock Option Plan and an aggregate of 112,000 common
stock options pursuant to the 1994 Stock Incentive Plan.
Additionally, during 1998, the Company granted an aggregate of 1,964,059 common
stock options pursuant to the Company's 1998 Stock Incentive Plan.
In May 1998, the Company reached agreements to settle lawsuits with a former
director of the Company and the Company's former legal counsel. As a result of
the agreements, the Company issued 125,000 shares of its Common Stock, received
a cash settlement payment and eliminated an accrued liability.
Also during 1998, pursuant to the terms of the Company's technology development
agreement with a global notebook computer manufacturer (See "Liquidity, Capital
Resources and Financial Condition"), the Company issued 142,857 shares of Common
Stock to the computer manufacturer as payment for $100,000 advanced to the
Company.
In 1998, the Company issued 1,669,634 shares of its common stock in payment of
interest due for the first year on the $5.5 million principal amount of the 1997
Notes. In January 1999, the principal of these $5.5 million 1997 Notes was
converted into 19,642,857 shares of the Company's common stock, and 562,647
shares of the Company's common stock were issued to pay accrued interest through
the conversion date.
There were no underwriters involved in any of the transactions described above.
The sales and issuances of common stock described above were deemed to be exempt
from registration under the Securities Act pursuant to Section 4(2) thereof
based on the investor's suitability and/or representations furnished by the
securityholders.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this report.
GENERAL
The Company is a development stage company engaged in the business of developing
and seeking to commercialize unique, solid state, lithium-ion polymer and
lithium metal polymer rechargeable batteries. The Company has generated no
revenues from operations and has no commercial operations to date. The Company
has been unprofitable since inception, expects to incur substantial additional
operating losses over the next few years and needs significant additional
financing to repay existing indebtedness and to continue the development and
commercialization of its technology. The Company does not expect to generate any
significant revenues from operations during the fiscal year ending December 31,
1999. The Company believes that its battery technology, which is currently in
the prototype development phase, is capable of providing up to four times the
performance of current rechargeable batteries. The Company's objective is the
commercialization of such technology, inclusive of moving from laboratory-scale
product prototypes and related prototype processes to full scale market
introduction,
12
<PAGE> 16
achieving cost-competitiveness, and constructing a manufacturing plant. The
Company's commercialization focus is on the rapidly growing portable electronics
market segment (notebook computers and wireless communications devices). The
Company's patented and proprietary composite cell construction and low-cost
manufacturing process are equally applicable to lithium-ion polymer technology
or lithium metal polymer technology. The Company intends to pursue both
chemistries for specific portable electronics applications.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
The Company has financed its operations since inception with convertible debt
and private placements of common and preferred stock and has raised
approximately $14.8 million, including, most recently, $5.5 million from the
September 1997 sale of convertible notes described herein (the "1997 Notes").
The Company believes that as of December 31, 1998, it has sufficient capital
resources to meet the Company's needs and satisfy the Company's obligations
through approximately May 1999 other than financing for the development of
manufacturing capacity, based on the Company's current strategies and subject to
the uncertainties discussed in this report. The Company does not currently have
sufficient cash to achieve all its development and production objectives,
including the 1999 installation of the pilot manufacturing line. Continuation of
the Company's operations is dependent upon its ability to raise additional
financing. In order to raise sufficient capital for its future growth, the
Company will be required to sell additional debt or equity securities.
At December 31, 1998, the Company had cash and cash equivalent of $1,073,000,
fixed assets of $463,000 and other assets of $591,000. The Company's total
liabilities were $6,154,000 consisting of accounts payable, accrued salaries,
and accrued expenses in the amount of $654,000 and the 1997 Notes due July 1,
2002 in the amount of $5,500,000 (which $5,500,000 1997 Notes were converted
into common stock subsequent to December 31, 1998 as discussed below). The
Company had net working capital of $513,000 on December 31, 1998.
The Company's net working capital was decreased by approximately $2,459,000 from
December 31, 1997 to December 31, 1998. The Company's cash and cash equivalents
(including cash held in escrow at December 31, 1997) decreased by approximately
$2,763,000 from December 31, 1997 to December 31, 1998. The decrease in net
working capital and in cash and cash equivalents is attributable primarily to
normal on-going activities of the business.
The Company's stockholders deficiency was $3,933,000 at December 31, 1998, after
giving effect to an accumulated deficit of $43,167,000 which consisted of
$36,302,000 accumulated deficit during the development stage from July 21, 1989
through December 31, 1998 and $6,865,000 accumulated deficit from prior periods.
The Company expects to incur substantial operating losses as it continues its
commercialization efforts.
In October 1996, the Company completed a bridge financing pursuant to which the
Company issued $1.75 million principal amount convertible notes (the "1996
Notes") to two purchasers (the "1996 Note Purchasers"). The Company did not
repay the $1.75 million principal of the 1996 Notes on the March 24, 1997
maturity date and, accordingly, pursuant to the terms of the 1996 Note Purchase
Agreements, the Company and the 1996 Note Purchasers placed in escrow an
additional 6,201,550 shares of the Company's common stock (the "Escrowed
Shares"). In August 1997, the Company and the 1996 Note Purchasers agreed to the
restructuring of the 1996 Notes. Thereafter, the Company satisfied and paid in
full the 1996 Notes in accordance with the restructuring pursuant to which on
September 22, 1997, the Company paid $100,000 to the 1996 Note Purchasers to
reduce the principal amount of the 1996 Notes; during September 1997 through
November 1997, the 1996 Note Purchasers sold 2,163,158 Escrowed Shares which
further reduced the principal amount of the 1996 Notes by $1,650,000; and 32,350
Escrowed Shares were issued to the 1996 Note Purchasers to satisfy interest
obligations. Of the remaining Escrowed Shares, 12.5% or 473,160 Escrowed Shares
were issued to the 1996 Note Purchasers and 87.5% or 3,532,882 Escrowed Shares
were retired by the Company.
On September 22, 1997, the Company entered into a Senior Secured Convertible
Note Purchase Agreement (the "1997 Note Purchase Agreement") with Lithium Link
LLC (the "Lender") for the sale of $5.5 million of the Company's Senior Secured
Convertible Notes (the "1997 Notes"). In January 1999, the 1997 Notes were
converted into 19,642,857 shares of the Company's Common Stock and 562,647
shares of the Company's Common Stock were issued to pay accrued interest to the
conversion date. Interest accrued at 8.5% and was payable annually, at the
Company's election in cash or the Company's Common Stock. The principal of the
1997 Notes was payable on or before July 1, 2002. The 1997 Notes were
convertible into the Company's Common Stock at a conversion price of $.28 per
share. In 1997, the Company recorded the intrinsic value of the beneficial
conversion feature of the 1997 Notes as a charge to interest expense of
$9,821,000. The holders of the 1997 Notes have two demand registration rights
and "piggyback" registration rights, subject to conditions set forth in the Note
Purchase Agreement.
In May 1998, the Company entered into a technology development agreement with a
global notebook computer
13
<PAGE> 17
manufacturer for the Company to provide its proprietary rechargeable lithium-ion
polymer batteries for an advanced notebook application. Under the terms of the
agreement, the manufacturer was to invest up to $1,000,000 in the Company for
1,428,571 shares of Common Stock. Of this amount, $100,000 was advanced to the
Company and 142,857 shares of Common Stock were issued to the computer
manufacturer. In December 1998, development activities were curtailed based upon
adverse market conditions which the computer manufacturer was experiencing with
certain of its notebook products. As a result, the Company will not receive the
remaining $900,000 equity investment contemplated under the agreement, although
the computer manufacturer intends to continue to work with the Company to
develop the Company's technology into a next generation of notebook products.
In May 1998, the Company reached agreements to settle lawsuits pursuant to which
the Company issued 125,000 shares of its Common Stock, received a cash
settlement payment and eliminated an accrued liability, the net effect of which
was the receipt of approximately $505,000.
Although the Company's operating plan seeks to minimize the Company's capital
requirements, commercialization of the Company's battery technology will require
substantial amounts of additional capital. The Company expects that research and
development and production expenses will increase significantly as it continues
to advance its battery technology and develop products for commercial
applications. The Company's working capital and capital requirements will depend
upon numerous factors, including, without limitation, the progress of the
Company's research and development program, the levels and resources that the
Company devotes to the development of manufacturing capability, technological
advances, the status of competitors, the ability of the Company to obtain equity
and/or debt financing in the public or private markets, and the ability of the
Company to establish collaborative arrangements with other companies to provide
research and development funding to the Company and to manufacture and market
the Company's products.
There can be no assurances that the incremental capital needed for attaining
commercial viability of the Company's battery technology, will be obtained,
which the Company estimates at approximately $18,000,000 (without regard to the
capital requirements for the development of any manufacturing capacity).
The $18,000,000 is comprised as follows (i) $10,000,000 for working capital
through the fourth quarter of 2000; (ii) $4,000,000 for capital and equipment
(iii) $2,500,000 for technology licensing; and (iv) $1,500,000 for fees and
legal expenses. If the Company is unable to raise sufficient capital, it will be
forced to curtail research and development expenditures which, in turn, will
delay, and could prevent, the completion of the commercialization process.
As discussed above in this report, the Company has entered into two letters of
intent: one with Elite Material Co., Ltd. (EMC) contemplating a joint venture
manufacturing facility in Taiwan (Taiwan Manufacturing Plant - TMP) and one with
the Hengdian Group in Mainland China. The implementation and completion of
either or both of these projects will require the Company to make material
commitments for capital expenditures to the extent contained in definitive
agreements as entered into in furtherance of the current letters of intent. See
"Description of Business -- Overview and Recent Developments." The Company's
current estimates of these capital requirements and expected sources of funds
are included in the discussion above relating to the Company's $18 million
estimate of the incremental capital needed for attaining commercial viability of
its battery technology.
RESULTS OF OPERATIONS
The Company had no revenues from commercial operations for the years ended
December 31, 1998 and 1997. Engineering, research and development expenses were
$1,899,000 for the year ended December 31, 1998 compared to $1,399,000 in 1997.
The increase of $500,000 results from increased contract research activities and
increased lab supplies and salaries as the Company continues to accelerate its
commercialization efforts.
General and administrative expenses were $1,770,000 for the year ended December
31, 1998 compared to $1,654,000 in 1997. The increase of $116,000 was due to
increased legal costs offset by decreased consulting expenses.
Interest expense decreased to $341,000 (net of interest income of $126,000) for
the year ended December 31, 1998 compared to $1,290,000 (net of interest income
of $86,000) in 1997. The decrease in interest expense for the comparable periods
is attributable to the Company's convertible term notes and the issuance of
certain additional shares in connection with the Company's exercise of its right
to extend the maturity date for repayment of the Convertible Notes. The Company
also recorded in 1997 the intrinsic value of the beneficial conversion feature
of the Senior Secured Convertible Notes as a charge to interest expense of
$9,821,000.
14
<PAGE> 18
PLAN OF OPERATIONS FOR THE COMPANY
The Company's strategy is to commercialize a new generation of solid state
lithium-ion polymer and lithium metal polymer batteries based on fifteen years
research and development and a strong patent portfolio covering both the battery
construction and manufacturing process unique to the battery industry. The
proprietary technology uses high performance fibers in composite battery
structures and low-cost web coating/handling methods for manufacturing. This
technology encompasses lithium-ion polymer batteries (product development
completed in 1998) and lithium alloy polymer batteries (product development
completed in three to five years). The Company's target market is mobile
communications and computing applications which showcase the Company's thin,
flat lightweight form factor and long run-times. The Company's long term
objectives include the development and/or licensing of battery technology for a
variety of other applications including microelectronics, electric vehicles,
aerospace and defense and solar cells. There can be no assurance, however, that
the Company will be able to achieve the technological breakthroughs that will be
necessary in order to ultimately achieve commercialization and/or obtain
financings or generate revenues in order to sustain the Company's on-going
research and development phase or to complete the construction of the commercial
production capability at the Plymouth Meeting Manufacturing Plant (PMMP) and
commercial production at the Taiwan Manufacturing Plant (TMP) (subject to the
reassessment of the TMP as noted above) or the Hengdian joint venture plant.
During the last five years, the Company recruited a new management team and a
core technical staff with commercialization and battery technology expertise. A
modern research facility was leased in late 1994 and product development has
continued at an accelerated pace. At December 31, 1998, the management team and
technical staff consisted of fourteen full-time employees. The staff has the
required expertise in technology, commercialization, process development,
battery engineering, electrochemistry and strategic alliance development. During
1996, the Company entered into employment agreements with Thomas R. Thomsen as
the Company's Chief Executive Officer, David J. Cade as the Company's President
and Chief Operating Officer, and Dr. George R. Ferment as the Company's
Executive Vice President and Chief Technical Officer. In May 1997, these
employment agreements were extended for one year. In June 1998, the Company
extended Mr. Thomsen's agreements as of May 1, 1998, through December 31, 1998.
Also, in June 1998, the Company extended Messrs. Cade and Ferment's employment
agreements for one year on the same terms and conditions except that no new
options were granted.
The Company's development and commercialization plan currently has the following
milestones:
(i) hand-made cell samples tested by potential strategic partners
in 1995 (accomplished);
(ii) installation of a pilot line continuous flow coating and
laminating unit in first quarter of 1996 (accomplished);
(iii) upgrade of the pilot line and distribution of lithium-ion
polymer cell samples made on the pilot line to selected
Original Equipment Manufacturers (OEMs) beginning in early
1997 (accomplished);
(iv) distribution of prototype battery packs to selected OEMs in
early 1998 (on-going);
(v) installation of packaging equipment at PMMP, with initial
commercial production at PMMP in late 1999 or early 2000;
(vi) initial production at the Taiwan Factory subject to the
reassessment of the TMP as noted above; and
(vii) construction of additional manufacturing facilities in Asia,
the United States and Europe in the 2000-2001 timeframe once
market demand exceeds initial manufacturing capacity.
The Company estimates that completion of phases (iv) and (v) through the end of
1999 will cost the Company approximately $18 million in capital expenditures and
operating costs. There can be no assurances that the Company will meet these
development milestones on the time schedule outlined above. In connection with
achieving and implementing manufacturing capability and commercialization, the
Company expects to hire significant additional personnel.
During March 1996, a continuous flow coating/laminating line -- referred to
previously in this "Plan of Operation" as the pilot line -- was installed by the
Company. This line has been used to further define the Company's manufacturing
technology, to sharpen manufacturing cost estimates, and then serve as the
initial production facility for battery cells which will be manually assembled
into battery packs for Original Equipment Manufacturer ("OEM") customers.
Thereafter, based on design data obtained from the pilot line, the Company must
successfully augment the pilot line equipment to construct a manufacturing line
(Plymouth Meeting Manufacturing Plant --
15
<PAGE> 19
PMMP) reflecting the cost, quality, reliability, and performance required for
the various target market applications. It is anticipated that the PMMP will
cost approximately $4.0 million to construct in the 1999-2000 time frame. The
PMMP will be located within the Company's existing facility in Plymouth Meeting,
Pennsylvania. During the next twelve months after the date of this report, the
Company expects to incur expenses of approximately $4.0 million for the purchase
of equipment and services at the PMMP based on the Company's current strategies
and subject to the uncertainties discussed in this report and the availability
of capital. The Company intends to finance the overall estimated $18 million
total capital equipment and operating expense required to bring the Company to
the initial commercial production stage at late 1999 or early 2000 by means of
private and/or public equity or debt financings.
The Company does not currently have sufficient cash to achieve all its
development and production objectives, including the 1999-2000 completion of the
PMMP. As noted above (See "Liquidity, Capital Resources, and Financial
Condition") the Company believes that as of December 31, 1998 it has sufficient
capital resources to meet the Company's needs and satisfy the Company's
obligations through approximately May 1999 based on the Company's current
strategies and subject to the uncertainties discussed in this report. In order
to raise sufficient capital to fund its operations, the Company will be required
to sell additional debt or equity securities. Such new capital is planned to be
sought from several sources, including strategic partners, although the Company
has no commitments for new capital as of the date of this report. The Company is
also seeking to raise additional capital for its activities beyond 1999, which
may result in substantial dilution to the Company's existing stockholders. The
Company will seek to expand its strategic alliances which would provide capital
from joint development programs, license fees or an additional equity
investment. Discussions are continuing with companies in Japan, Korea, Taiwan,
Europe and the United States. However, there can be no assurances that
additional capital will be available to the Company on a timely basis or on
acceptable terms. In addition, there can be no assurance that the Company will
be able to meet the technological objectives and/or satisfy the capital
requirements that the Company believes are necessary to convert battery
technology into successful commercial products. There can be no assurance that
the Company's products will generate any revenues, will not encounter technical
problems when used, will be successfully marketed, will be produced at a
competitive cost, or will achieve customer acceptance or, if commercial products
are developed and revenues produced, that the Company will be profitable. The
likelihood of the success of the Company must be weighed against the problems,
expenses, difficulties, complications and delays frequently encountered in
developing and marketing a new product.
YEAR 2000
The Company is in the process of conducting a review of its computer and
business systems to identify and address any problems that the systems may have
with correctly interpreting and processing date information as the year 2000
approaches. The Company's review includes a series of initiatives to ensure that
the Company's computer equipment and software will function properly into the
next millennium. Computer hardware and software includes systems generally
thought of as information-technology dependent, such as accounting, data
processing, and telephone equipment ("IT systems"), as well as systems not
obviously information-technology dependent, such as battery manufacturing and
testing equipment, telecopier machines and securities systems ("non-IT
systems"). These systems may contain embedded technology, which requires that
the Company's review include broad identification, assessment, remediation and
testing efforts.
Based upon its identification and assessment efforts to date, the Company
believes that certain of its IT systems will require replacement or
modification. In addition, in the ordinary course of business, the Company
periodically replaces computer equipment and software, and in so doing, seeks to
acquire only year 2000 compliant software and hardware. The Company plans to
complete its assessment of its non-IT systems by mid 1999. The Company presently
believes that its planned modifications or replacements of existing IT systems
and non-IT systems will be completed on a timely basis so as to avoid any of the
potential year 2000-related disruptions or malfunctions of the computer
equipment and software it has identified.
As a development stage enterprise, the Company has not yet established any
significant customer relationships, whereby year 2000 compliance or
non-compliance might materially affect the Company's operations. At this point
in the review process, the Company cannot reasonably estimate the cost of
achieving year 2000 compliance; however, the Company does not anticipate the
cost of implementing its year 2000 efforts to be material. As and when the
Company transitions from the development stage to significant commercial
manufacturing operations, the Company plans to determine the year 2000 readiness
of its then key suppliers, identify alternative sources for materials and
services in the event that lack of year 2000 compliance is indicated, and make
inquiries regarding the year 2000 readiness of any potential strategic partners.
Management is continuing to examine the year 2000 issues as they potentially
impact the Company, and will be developing contingency plans as necessary.
SAFE HARBOR STATEMENT
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. Statements contained in this
report that are not historical facts are forward-looking statements that involve
risks and uncertainties that could cause actual results to differ materially
from those stated in the forward-looking statements. Factors that could cause
actual results to differ materially include, among others: general economic
conditions, changes in laws and government regulations, fluctuations in demand
for the Company's products, the Company's ability to consummate strategic
alliances, technology development problems, and the Company's ability to
successfully finance future plant and equipment plans, as well as its current
ongoing operations.
16
<PAGE> 20
ITEM 7. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
The Company's financial statements, as itemized below, appear in a
separate section of this report following Item 13
Independent Auditors' Reports
Consolidated Financial Statements:....................................... F-2 to F-3
Consolidated Balance Sheet at December 31, 1998 and December 31, 1998
(Pro Forma).............................................................. F-4
Consolidated Statements of Operations for the Years Ended December 31,
1998 and 1997 and the Period from July 21, 1989 (Date of Inception) to
December 31, 1998........................................................ F-5
Consolidated Statements of Changes in Stockholders' Deficiency for the
Period from July 21, 1989 (Date of Inception) to December 31, 1998....... F-6 to F-10
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998 and 1997............................................................ F-11 to F-12
Notes to Consolidated Financial Statements............................... F-13 to F-23
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In 1997, the Company terminated its engagement of its previous
independent accounting firm and engaged the firm of Deloitte & Touche, LLP as
reported in the Company's reports on Form 8-K dated December 18, 1997 and
December 23, 1997.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth information concerning the directors and
executive officers of the Company as of the date of this report:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas R. Thomsen 63 Chairman of the Board and Chief Executive Officer
David J. Cade 61 Director, President and Chief Operating Officer
George R. Ferment 59 Director, Executive Vice President of Operations and
Chief Technical Officer
Stephen F. Hope 56 Director
Barry Huret 61 Director
Ralph D. Ketchum 72 Director
Arif Maskatia 49 Director
John McFeeley 53 Director
John D. McKey, Jr. 55 Director
William D. Walker 57 Treasurer and Chief Financial Officer
</TABLE>
Thomas R. Thomsen was appointed Chief Executive Officer of the Company on May 9,
1996. Mr. Thomsen was elected a director of the Company, effective February 22,
1995, and was elected Chairman of the Board of the Company, effective August 7,
1995. Mr. Thomsen was President of AT&T Technology Systems from 1983 to 1990 and
was a director of AT&T Credit Corp., Sandia Corporation and Rennselear
Polytechnic Institute from 1984 to 1990. Mr. Thomsen currently serves as a
director of Transcypt International Corporation and the TPA Foundation and is on
the Executive Committee of the University of Nebraska Technology Park, L.L.C.
Mr. Thomsen holds a Master's Degree from MIT and a BSME from the University of
Nebraska.
David J. Cade was elected President and Chief Operating Officer of the Company
in May 1996. Mr. Cade served as the Company's Vice President of Marketing from
August 1994 to May 1996 and was elected as an officer in October 1994. Mr. Cade
was elected a director of the Company in August, 1997. Mr. Cade has over thirty
years of experience in senior business development, marketing, sales and
international strategic alliances in global telecommunications systems,
electronics and information technologies. From February 1988 to October 1992,
Mr. Cade was Senior Vice President of Marketing and Business Development for
COMSAT Systems Division and from
17
<PAGE> 21
October 1992 until April 1994, Mr. Cade was Vice President of Sales and
Marketing at Interdigital Communications Corporation, a Philadelphia company
that manufacturers wireless telephone systems for customers worldwide.
Previously, Mr. Cade held managerial positions with AT&T, Martin Marietta (now
Lockheed Martin) and the Department of Defense. Mr. Cade holds an MBA from
Syracuse University and an undergraduate degree from the University of Illinois.
George R. Ferment, Ph.D. was elected Executive Vice President of Operations and
Chief Technical Officer of the Company in May 1996. Dr. Ferment previously
served as the Company's Vice President of Technology and Engineering from
October 1994 to May 1996 and from March 1994 through October 1994, as Director
of Technology Development. Dr. Ferment was elected a director of the Company in
August, 1997. Dr. Ferment has over 25 years of technology experience in product
and process development with extensive background in plastic and polymer
science. His early experience was in research and development of fibers and
polymers at Celanese Corporation. Dr. Ferment spent 14 years at GAF/Tarkett
Corporation where he rose to the position of General Manager (October 1983 - May
1988). From October 1989 to October 1993, Dr. Ferment was Group Director of
Campbell Soup Company where he had worldwide responsibility for the company's
diverse packaging technology development programs. Dr. Ferment received his
Master's Degree and Ph.D. in Chemical Engineering from the New Jersey Institute
of Technology.
Stephen F. Hope currently serves as a director of the Company and was President,
Chairman of the Board and Treasurer of the Company from October 1990 through
April 1994. He is a director of Lithion Corporation, a wholly-owned subsidiary
of the Company. Mr. Hope has an ongoing consulting arrangement with the Company
with respect to the battery technology that is being developed by the Company.
He received a B.A. from Dartmouth University in 1965 and is a member of the
Society of Manufacturing Engineers and the Society of Photo-Finished Engineers.
Mr. Hope was Director and the President of Hope Industries, Inc., a previously
wholly-owned subsidiary of the Company, from 1985 through December 1993. Hope
Industries, Inc. filed for reorganization under the Bankruptcy Code in April
1993 and its Plan of Reorganization was confirmed on May 6, 1994.
Barry Huret was elected a Director of the Company on December 21, 1998. Mr.
Huret is the President and CEO of Huret Associates, Inc., Yardley, PA, a
management and battery consulting company. Previously, from 1982-1997, he served
as the Assistant General Manager, Division Head - OEM Battery Sales Group for
the Panasonic Industrial Company, Secaucus, New Jersey. He holds an MBA with
Distinction from the New York University, Graduate School of Business and a B.A.
with Honors in Economics from Cornell University, Ithaca, New York.
Ralph D. Ketchum was elected a director of the Company, effective July 1, 1994.
He has been President of RDK Capital, Inc. ("RDK Capital") since January 1987.
RDK Capital is a general partner of RDK Capital Limited Partnership, an
investment limited partnership. Mr. Ketchum served as Chief Executive Officer
and Chairman of the Board of Heintz Corporation ("Heintz"), a majority owned
subsidiary of RDK Capital Limited Partnership. In August 1993, Heintz filed for
protection under Chapter 11 of the United States Bankruptcy Code in the
Bankruptcy Court of the Eastern District of Pennsylvania. Mr. Ketchum was Senior
Vice President and Group Executive of the Lighting Group, General Electric
Company from 1980 to 1987. He also serves as a director of Metropolitan Savings
Bank, Oglebay-Norton Corporation, Thomas Industries and Pacific Scientific, Inc.
Arif Maskatia was elected a director of the Company, effective February 23,
1999. Mr. Maskatia has over 26 years of experience in the computer industry. He
presently is Vice President of the Advanced Technology & Portable Development
Group for Acer Advanced Labs in San Jose, California, responsible for
development of new notebook computer platforms. Prior to joining Acer, he held
senior technology development positions with Zenith Data Systems and Alcatel/ITT
Information Systems. Mr. Maskatia holds Bachelors and Masters degrees in
electrical engineering from Cornell University.
Dr. John McFeeley was elected a Director of the Company on December 21, 1998.
Dr. McFeeley has been with the Polaroid Corporation, Cambridge, Massachusetts
from 1971 to the present, where he served as Senior Program Manager from 1989 -
1997 and became Distinguished Engineer in 1997. Dr. McFeeley holds a B.S., M.S.
and Ph. D. in Chemical Engineering from the Polytechnic Institute of Brooklyn.
John D. McKey, Jr. was elected a director of the Company, effective September 8,
1995. He has since September 1993, been a partner at the law firm of McCarthy,
Summers, Bobko & McKey, P.A., and, from June 1986 to September 1993, was a
partner at Kohn, Bobko, McKey & Higgins, P.A. Mr. McKey formerly served as a
director of Publishing Company of North America and currently serves as a
director of Consolidated Capital of North America, Inc.
William D. Walker was elected Treasurer and Chief Financial Officer of the
Company, effective September 8, 1995. Mr. Walker was Vice President of Finance
of Simon LG Industries, Inc., a manufacturer of machinery for the paper
18
<PAGE> 22
industry, from October 9, 1990 to March 31, 1994. Mr. Walker was, from May 1994
until September 1995, an independent financial consultant, including to the
Company (from August, 1994 to his election as Treasurer and Chief Financial
Officer). On October 6, 1995, Mr. Walker was elected Chairman of LG Industries,
Inc., the successor of Simon LG Industries, Inc.
William H. Chu, formerly a director of the Company, resigned from the Board
effective December 1, 1998.
Gerald Labush, formerly a director of the Company, resigned from the Board
effective February 23, 1999.
The Company's directors hold office until the next annual meeting of the
Company's stockholders and until their successors have been duly elected and
qualified. The Company's directors do not receive compensation for their
services in that capacity.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who beneficially own, directly or
indirectly, more than ten percent (10%) of the registered class of the Company's
equity securities to file reports of ownership and changes in ownership on Forms
3, 4 and 5 with the Securities and Exchange Commission ("SEC") and the National
Association of Securities Dealers. Officers, directors and greater than ten
percent (10%) beneficial owners are required by SEC regulation to furnish the
Company with copies of all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms and any
amendments, if any, it has received, the Company believes that all of its
officers, directors and greater than ten percent (10%) beneficial owners
complied with all filing requirements applicable to them with respect to
transactions during the fiscal year ended December 31, 1998, except as follows:
each of Thomas R. Thomsen, the Company's Chairman and Chief Executive Officer,
David J. Cade, the Company's President and Chief Operating Officer, George R.
Ferment, the Company's Executive Vice President of Operations and Chief
Technical Officer, Stephen F. Hope, Ralph D. Ketchum, Gerald M. Labush and John
D. McKey, Jr., each a Director of the Company, and William D. Walker, the
Company's Chief Financial Officer, and Gretchen N. Deming, the Company's
Secretary, filed, in February, 1999, a Form 5 disclosing one late Form 4 with
respect to one transaction. William H. Chu, a former Director, filed one late
Form 5.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid by
the Company during the three years ended on December 31, 1998 to (i) the Chief
Executive Officer of the Company and (ii) all other executive officers of the
Company, or any of its subsidiaries, who were serving in such capacity on
December 31, 1998 and received total salary and bonus in excess of $100,000
during fiscal year 1998 (collectively, "Named Executive Officers"). Unless
otherwise noted, the figures used in this "Executive Compensation" section have
been adjusted to reflect the effect of the Company's one-for-thirty reverse
stock split on February 8, 1996.
19
<PAGE> 23
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL COMPENSATION OPTIONS/SARS (#)
POSITION YEAR SALARY BONUS
<S> <C> <C> <C> <C>
Thomas R. Thomsen, 1998 $185,000 (2) $ 0 310,000 (4)
Chairman of the Board of 1997 $185,000 (2) $ 0 413,334 (3)
Directors and Chief 1996 $118,708 (2) $ 0 13,334
Executive Officer (1)
David J. Cade, President and 1998 $148,750 $ 0 528,029 (8)
Chief Operating Officer (5) 1997 $140,000 $15,000 189,314 (6)(7)
1996 $134,711 $ 0 266,667
George R. Ferment, 1998 $138,750 $ 0 528,029 (12)
Executive Vice President of 1997 $130,000 $15,000 221,370 (10)(11)
Operations and Chief 1996 $126,474 $ 0 200,001
Technical Officer (9)
</TABLE>
(1) Thomas R. Thomsen was appointed Chief Executive Officer of the Company on
May 9, 1996.
(2) Based on Mr. Thomsen's annual salary of $185,000 as provided for in his
employment agreement dated May 5, 1996. Mr. Thomsen volunteered to defer
his annual salary until October 1997 and again in October 1998. The
Company has been accruing the full amount of his annual salary during
this period. In 1997, the Board of Directors approved the issuance of
246,623 shares of the Company's common stock to Mr. Thomsen in
satisfaction of $100,000 of accrued but unpaid salary.
(3) Mr. Thomsen was granted 13,334 (post-split) stock options on February 22,
1995 exercisable at $3.00 per share (post-split). These 13,334 stock
options were cancelled on February 8, 1996 and replaced the same day with
a grant of 13,334 stock options exercisable at $0.90 per share in
connection with the repricing of directors' options. (See "Executive
Compensation - Stock Option Repricing" for details). On May 9, 1996, Mr.
Thomsen was granted 400,000 stock options exercisable at $2.5625 per
share pursuant to Mr. Thomsen's employment agreement. These 400,000 stock
options were cancelled on November 1, 1997 and replaced the same day with
a grant of 400,000 stock options exercisable of $0.58 per share in
connection with the repricing of employees' options. (See "Executive
Compensation - Stock Option Repricing" for details).
(4) Mr. Thomsen was granted 310,000 stock options on December 18, 1998 at an
exercise price of $0.28 per share.
(5) David J. Cade was appointed the Company's President and Chief Operating
Officer on May 9, 1996. Mr. Cade was also elected a Director of the
Company on August 5, 1997.
(6) Mr. Cade was granted 133,333 stock options on July 24, 1996 at an
exercise price of $1.33 and 55,981 stock options on December 11, 1996 at
an exercise price of $0.78. These 189,314 stock options and 166, 667
stock options granted in 1994 and 1995 were cancelled on November 1, 1997
and replaced the same day with a grant of 355,981 stock options
exercisable at $0.58 per share in connection with the repricing of
employees' options. (See "Executive Compensation - Stock Option
Repricing" for details).
(7) Mr. Cade was granted 316,001 stock options on December 2, 1997 at an
exercise price of $1.00.
(8) Mr. Cade was granted 528,029 stock options on December 18, 1998 at an
exercise price of $0.28 per share.
(9) George R. Ferment was appointed the Company's Executive Vice President of
Operations and Chief Technical Officer on May 9, 1996. Dr. Ferment was
also elected a Director of the Company on August 5, 1997.
(10) Dr. Ferment was granted 133,333 stock options on July 24, 1996 at an
exercise price of $1.33 and 88,037 stock options on December 11, 1996 at
an exercise price of $0.78. These 221,370 stock options and 166,668 stock
options granted in 1994 and 1995 were cancelled on November 1, 1997 and
replaced the same day with a grant of 388,038 stock options exercisable
at $0.58 per share in connection with the repricing of employees'
options. (See "Executive Compensation - Stock Option Repricing" for
details).
20
<PAGE> 24
(11) Dr. Ferment was granted 316,000 stock options on December 2, 1997 at an
exercise price of $1.00.
(12) Dr. Ferment was granted 528,029 stock options on December 18, 1998 at an
exercise price of $0.28 per share.
OPTION GRANTS IN FISCAL YEAR 1998
The following table sets forth stock options granted to each of the Named
Executive Officers during fiscal year 1998 to purchase shares of Common Stock.
<TABLE>
<CAPTION>
NAME NUMBER OF % OF TOTAL EXERCISE EXPIRATION
SECURITIES OPTIONS/ OR BASE DATE
UNDERLYING SARS GRANTED PRICE
OPTIONS/ TO EMPLOYEES ($/SH.)
SARS IN FISCAL
GRANTED (#) (1) YEAR (2)
<S> <C> <C> <C> <C>
Thomas R. Thomsen 310,000 (3) 15.6% $0.28 12/18/09
David J. Cade (4) 528,029(4) 26.6% $0.28 12/18/09
George R. Ferment (5) 528,029(5) 26.6% $0.28 12/18/09
</TABLE>
(1) The Company's stock option plans contain provisions for the acceleration
of vesting rights upon the occurrence of certain events.
(2) The percentage of total options granted to each of the Named Executive
Officers takes into account stock options issued to directors as well as
those issued to employees. (See "Executive Compensation --Directors Stock
Option Plan" for details).
(3) Mr. Thomsen was granted 310,000 stock options on December 18, 1998 at an
exercise price of $0.28 (exercisable in equal amounts on December 18,
1998, December 18, 1999 and December 18, 2000).
(4) Mr. Cade was granted 528,029 stock options on December 18, 1998 at an
exercise price of $0.28 (exercisable in equal amounts on December 18,
1998, December 18, 1999, and December 18, 2000).
(5) Dr. Ferment was granted 528,029 stock options on December 18, 1998 at an
exercise price of $0.28 (exercisable in equal amounts on December 18,
1998, December 18, 1999, and December 18, 2000).
OPTIONS EXERCISED AND OPTIONS OUTSTANDING
The following table sets forth information with respect to (i) options exercised
by each of the Named Executive Officers in fiscal year 1998 (none) and (ii) the
number and value of options held by each of the Named Executive Officers at the
end of fiscal year 1998. The calculations to determine the unexercised value of
options held at December 31, 1998 are based on the closing "bid" price of $.37
per share of Common Stock on December 31, 1998.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1998 AND
DECEMBER 31, 1998 OPTION/SAR VALUES
<TABLE>
<CAPTION>
NAME SHARES VALUE NUMBER OF VALUE OF
ACQUIRED ON REALIZED ($) SECURITIES UNEXERCISED IN
EXERCISE (#) UNDERLYING THE MONEY
UNEXERCISED OPTIONS/SARS
OPTIONS/SARS AT FY-END ($)
AT FY-END (#) EXERCISABLE/
EXERCISABLE/ UNEXERCISABLE
UNEXERCISABLE
<S> <C> <C> <C> <C>
Thomas R. Thomsen 0 0 513,333/210,001 $189,933/ 77,700
David J. Cade 0 0 689,992/510,019 $255,297/188,707
George R. Ferment 0 0 722,048/510,019 $267,158/188,707
</TABLE>
1994 STOCK INCENTIVE PLAN
In February 1994 the Board of Directors of the Company established the 1994
Stock Incentive Plan (the "1994
21
<PAGE> 25
Stock Plan") to aid the Company in attracting, retaining and motivating officers
and key employees, whether or not they are directors of the Company, and
consultants and other advisors to the Company by providing them with incentives
for making significant contributions to the growth and profitability of the
Company. In February 1994, Majestic Hopes, LLC, as the majority stockholder of
the Company at that time, approved the adoption of the 1994 Stock Plan and on
February 8, 1996 ratified an amendment to the 1994 Stock Plan, increasing from
1,333,333 to 2,666,667 (after giving effect to the 1 for 30 reverse stock split
on February 8, 1996) the number of shares available for issuance of awards
granted under the 1994 Stock Plan. On December 2, 1997, the Board of Directors
approved an increase of the number of shares available for issuance of awards
granted under the 1994 Stock Plan to 5,333,334 subject to approval by the
Company's shareholders. The 1994 Stock Plan terminates in February 2004.
Set forth below is a brief description of the principal features of the 1994
Stock Plan.
The 1994 Stock Plan authorizes the Company to grant stock options, both
incentive stock options (within the meaning of Section 422 of the Internal
Revenue Code) and non-qualified stock options, SARs and awards payable in stock,
restricted stock or cash. All of such awards may be granted singly, in
combination or in tandem, or in substitution for awards granted previously under
the 1994 Stock Plan or any other stock plan of the Company. In addition, the
1994 Stock Plan permits the Company to extend dividend equivalency rights to
awards made thereunder. The payment or exercise of any awards, including stock
options, under the 1994 Stock Plan may be conditioned on the satisfaction of
various criteria, such as the achievement of specific business objectives,
attainment of growth rates and other comparable measurements of the Company's
performance. It is expected that, while some or all of the awards referred to
above may be made from time to time, the Company will principally grant stock
options pursuant to the 1994 Stock Plan.
The 1994 Stock Plan makes available a maximum of 5,333,334 shares of the
Company's Common Stock for issuance for awards granted under the 1994 Stock
Plan. The aggregate number of shares of Common Stock which may be the subject of
an award for any participant may not exceed 666,667 shares in any fiscal year.
Shares related to awards (or portions thereof) that are forfeited, canceled,
terminated, expire unexercised, surrendered in exchange for other awards, or
settled in cash in lieu of shares or in any other manner such that shares
covered by an award are not and will not be issued, shall be restored to the
total number of shares available for issuance pursuant to awards granted under
the 1994 Stock Plan. As of December 31, 1998, there were outstanding options
with respect to 2,470,023 shares of Common Stock under the 1994 Stock Plan. As
of December 31, 1998, options with respect to 1,893,690 shares of Common Stock
were fully vested.
The 1994 Stock Plan provides that, in the event of a stock split, stock
dividend, combination or reclassification of shares, recapitalization, merger or
similar event, proportional adjustments will be made in (a) the number of shares
of the Company's Common Stock (i) reserved for issuance under the 1994 Stock
Plan, (ii) available for options or other awards and (iii) covered by
outstanding awards, (b) the prices related to outstanding awards, and (c) the
appropriate fair market value and other price determinations for such awards. In
addition, equitable adjustments will be made in the event of any other change
affecting the Company's Common Stock or any distribution (other than normal cash
dividends) to stockholders of the Company.
The 1994 Stock Plan provides that it shall be administered by a committee
designated by the Board of Directors, and consist of at least two directors who
are not officers or employees of the Company or any of its subsidiaries. The
committee that administers the 1994 Stock Plan (the "1994 Stock Plan Committee")
currently consists of Ralph Ketchum and Gerald Labush. The 1994 Stock Plan
Committee has the sole authority, among other things, to grant awards; determine
the term, conditions and limitations of awards; establish rules, procedures,
regulations and guidelines relating to the 1994 Stock Plan generally and to
interpret the 1994 Stock Plan and award agreements entered into pursuant to the
1994 Stock Plan. The 1994 Stock Plan Committee may also effect the continuation,
acceleration or modification of awards under the 1994 Stock Plan in certain
circumstances including events that might constitute a change in control of the
Company.
Generally, a 1994 Stock Plan participant may exercise or receive payment of an
award only while employed by or associated with the Company or a subsidiary of
the Company, except that, under some circumstances, and subject to restrictions
and limitations imposed by the 1994 Stock Plan Committee, the 1994 Stock Plan
Committee may permit exercise by, or payment to, participants who have retired
or become disabled, or who otherwise have had their employment or association
terminated. In addition, if a participant dies while still employed or
associated with the Company or a subsidiary thereof, the estate, and heirs or
beneficiaries of the deceased participant may, subject to restrictions and
limitations imposed by the 1994 Stock Plan Committee, exercise or receive
payment in respect to awards held by the participant at the time of death. In
general, awards granted under the 1994 Stock Plan are not assignable or
transferable by a participant, except under the limited circumstances
contemplated by the 1994 Stock Plan.
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<PAGE> 26
The exercise price of an option granted under the 1994 Stock Plan will be not
less than the fair market value of the Company's Common Stock on the date of
grant. The exercise price of an option must be paid in full in cash at the time
of exercise, or, if permitted by the 1994 Stock Plan Committee, may be paid in
whole or in part by (a) tendering shares of Common Stock or surrendering another
award granted under the 1994 Stock Plan or another benefit stock plan of the
Company, (b) delivering a promissory note issued by the participant to the
Company containing terms and conditions determined by the 1994 Stock Plan
Committee or (c) any other means acceptable to the 1994 Stock Plan Committee. In
order to enable the Company to satisfy any tax payment obligations resulting
from any exercise of, or other payment on, an award under the 1994 Stock Plan,
the Company has the right, among other things, to withhold an appropriate amount
from such payment or to withhold an appropriate number of shares of the
Company's Common Stock receivable by the participant for payment thereof.
The 1994 Stock Plan may not, without the approval of the stockholders as set
forth therein, be amended to (i) materially increase the aggregate number shares
of the Company's Common Stock that may be issued under the 1994 Stock Plan
(except for adjustment pursuant to Section 14 of the 1994 Stock Plan, as
described above) (ii) materially increase the benefits accruing to participants
or (iii) materially modify the eligibility requirements of the 1994 Stock Plan.
The 1994 Stock Plan may not be changed in such a way as to alter, impair, amend,
modify, suspend or terminate any rights of a participant or any obligation of
the Company under any award theretofore granted in any manner adverse to such
participant without the consent of such participant.
STOCK OPTION REPRICING
In June, 1997, the Board of Directors approved the exchange of options held by
each employee (including executive officers) under the Company's 1994 Stock Plan
for new options. The new options provide for an exercise price of $0.58 per
share, the then estimated fair market value of the common stock as of the
repricing. The Board of Directors determined such exchange to be appropriate in
order to sustain the incentivization of all of its employees. As a condition for
such repricing, the Company imposed the requirement that such new options would
not become exercisable until the later of (i) the closing of the Senior Secured
Convertible Note Purchase Agreement between Lithium Link, LLC and the Company or
(ii) November 1, 1997. As a result of this stock option repricing, the Company
cancelled a total of 1,529,357 stock options and granted the same number of new
stock options at the aforementioned $0.58 exercise price per share.
In connection with the 1997 repricing of certain stock options under the 1994
Stock Plan, the 1994 Stock Plan Committee concluded repricing was advisable and
in the best interests of the Company in order to, among other things, provide
incentive to management and employees in the absence of salary raises in 1997.
The 1994 Stock Plan Committee based its conclusion, on several factors including
the following: (i) all of options that were repriced were exercisable at various
strike prices that were greater than the current fair market value of the
Company's common stock as of the repricing date; (ii) the Company is in a very
competitive industry and must compete for personnel with several companies that
have substantially greater financial and other resources than those of the
Company; and (iii) the Company, in order to gain and maintain its competitive
advantage, must attract, motivate and retain its key personnel in an effort to
develop, refine, market and exploit its technology. Accordingly, the Company
cancelled the specified existing stock options, and granted new stock options,
with an exercise price of $.58 per share, the fair market value of the Company's
common stock as of June 5, 1997. Other than a change in vesting terms ( See
"Stock Option Repricing" above), the repriced options are identical to the
cancelled options.
COMPENSATION OF DIRECTORS
Directors receive no cash compensation for serving on the Company's Board of
Directors. Each Non-Employee Director receives an option to purchase 13,334
shares of Common Stock as described below under the caption "Directors Stock
Option Plan" upon election to the Board. Other arrangements pursuant to which
certain directors were compensated in 1998 pursuant to the Company's Directors
Stock Option Plan are set forth below under "Directors Stock Option Plan".
DIRECTORS STOCK OPTION PLAN
In August 1995, the Board of Directors adopted the Directors Stock Option Plan
(the "Directors Plan") and on February 8, 1996, Majestic Hopes, LLC, as the
majority stockholder, ratified the adoption of the Directors Plan. The Directors
Plan authorizes the granting of up to 333,333 options. The members of the
Committee administering the Directors Plan are Thomas R. Thomsen, David Cade and
Ralph Ketchum. The purpose of the Directors Plan is to aid the Company in
attracting, retaining and motivating independent directors by providing them
with incentives for making significant contributions to the growth and
profitability of the Company. The Directors Plan is designed to accomplish this
goal by the granting of stock options, thereby providing participants with a
proprietary interest in
23
<PAGE> 27
the growth, profitability and success of the Company.
Directors of the Company who are not officers or employees of the Company or any
subsidiary thereof ("Non-Employee Directors") are eligible to receive grants of
stock options pursuant to the Directors Plan. Under the Directors Plan,
non-qualified stock options to purchase shares of the Company's Common Stock
shall be granted automatically to Non-Employee Directors at the times specified
in the Directors Plan. Each Non-Employee Director receives an initial option to
purchase 13,334 shares of the Common Stock on the date on which such director
first becomes eligible to participate in the Directors Plan. Thereafter, as long
as a Non-Employee Director remains eligible to participate in the Directors
Plan, such director will receive on the date the Company consummates a joint
venture agreement with an investment in the Company of at least $3,000,000,
options to acquire up to an additional 20,000 shares. On December 2, 1997,
options to purchase an additional 20,000 shares were awarded each to Messrs.
Hope, Ketchum, Labush and McKey, Jr. recognizing consummation of the sale of
$5.5 million of the Company's Senior Secured Convertible Notes. Notwithstanding
the foregoing, no stock option shall be granted to any person whose service as a
director of the Company has ceased. Mr. Thomsen received 13,334 stock options
under the Directors Plan, prior to his employment with the Company. Mr. Thomsen,
as Chief Executive Officer, will no longer receive options under the Directors
Plan.
During the fiscal year ended December 31, 1996, Harry Edelson and L. Wayne
Harber, upon their election to the Company's Board of Directors, each were
granted 13,334 stock options, which vest in equal increments over four years. In
addition, the 13,334 options held by Paul Bagley, David H. Hughes, Ralph D.
Ketchum, Gerald M. Labush, John D. McKey and Thomas R. Thomsen under the
Directors Plan were repriced on February 8, 1996 to $.90. Messrs. Edelson,
Harber, Bagley, and Hughes no longer serve as members of the Company's Board of
Directors. See "Stock Option Repricing" for details.
During the fiscal year ended December 31, 1997, Dr. William H. Chu, upon his
election to the Company's Board of Directors on December 1, 1997, was granted
13,334 stock options, which vest in equal increments over four years.
During the fiscal year ended December 31, 1998, Dr. John McFeeley, upon his
election to the Company's Board of Directors on December 21, 1998, was granted
13,334 stock options, which vest in equal increments over four years and Barry
Huret, upon his election to the Company's Board of Directors on December 21,
1998, was granted 13,334 stock options which vest in equal increments over four
years.
The exercise price of any stock option granted pursuant to the Directors Plan is
the fair market value of the Common Stock on the date of grant. As of December
31, 1998, there were outstanding options under the Directors Plan with respect
to 163,338 shares of Common Stock, which have exercise prices ranging from $0.25
per share to $1.00 per share and options with respect to 66,667 shares of Common
Stock are fully vested as of December 31, 1998.
STOCK OPTION REPRICING
In February 1996, stock options which had previously been granted to then
directors of the Company were cancelled and new options were reissued at $.90
per option, the fair market value of the Common Stock as of the effective date
pursuant to the terms and conditions of the Directors Plan. The stock options
were repriced in order to sustain the incentivization of the directors since the
stock options held by the directors had exercise prices well in excess of the
then market price of the Company's common stock (ranging from $2.40 to $9.30).
As a result of this stock option repricing, the Company cancelled a total of
106,672 stock options and granted the same number of new stock options at the
aforementioned exercise price of $.90 per share.
1998 PLAN
In December, 1998 the Board of Directors of the Company established the 1998
Stock Incentive Plan (the "1998 Plan") to aid the Company in attracting,
retaining and motivating officers and key employees, whether or not they are
directors of the Company, and consultants and other advisors to the Company by
providing them with incentives for making significant contributions to the
growth and profitability of the Company. The Board has recommended that the Plan
be submitted for shareholder approval at the next shareholder meeting. The 1998
Plan terminates in December 2008.
Set forth below is a brief description of the principal features of the 1998
Plan.
The 1998 Stock Plan makes available a maximum of 3,000,000 shares of the
Company's Common Stock for issuance for awards granted under the 1998 Plan.
Shares related to awards (or portions thereof) that are forfeited, canceled,
terminated, expire unexercised, surrendered in exchange for other awards, or
settled in cash in lieu of
24
<PAGE> 28
shares or in any other manner such that shares covered by an award are not and
will not be issued, shall be restored to the total number of shares available
for issuance pursuant to awards granted under the 1998 Plan. As of December 31,
1998 there were outstanding options with respect to 1,964,059 shares of Common
Stock under the 1998 Plan. As of December 31, 1998, options with respect to
654,686 shares of Common Stock were fully vested.
The 1998 Plan provides that, in the event of a stock split, stock dividend,
combination or reclassification of shares, recapitalization, merger or similar
event, proportional adjustments will be made in (a) the number of shares of the
Company's Common Stock (i) reserved for issuance under the 1998 Plan, (ii)
available for options or other awards and (iii) covered by outstanding awards,
(b) the prices related to outstanding awards, and (c) the appropriate fair
market value and other price determinations for such awards. In addition,
equitable adjustments will be made in the event of any other change affecting
the Company's Common Stock or any distribution (other than normal cash
dividends) to stockholders of the Company.
The 1998 Plan provides that it shall be administered by a Committee of the Board
of Directors or in the absence of a Committee by the entire Board. For purposes
of any Awards made pursuant to the 1998 Plan to any non-employee directors, the
term Committee shall mean the "Non-Employee Directors Compensation Committee"
which shall initially as of December 18, 1998 be comprised of the then current
members of the Company's Directors' Stock Option Plan Committee and for purposes
of any other Award made pursuant to the 1998 Plan, the term Committee shall mean
the "1998 Plan Compensation Committee" which shall initially as of December 18,
1998 be comprised of the then current members of the Company's Compensation
Committee of the 1994 Stock Incentive Plan.
Generally, a 1998 Plan participant may exercise or receive payment of an award
only while employed by or associated with the Company or a subsidiary of the
Company, except that, under some circumstances, and subject to restrictions and
limitations imposed by the Committee, the Committee may permit exercise by, or
payment to, participants who have retired or become disabled, or who otherwise
have had their employment or association terminated. In addition, if a
participant dies while still employed or associated with the Company or a
subsidiary thereof, the estate, and heirs or beneficiaries of the deceased
participant may, subject to restrictions and limitations imposed by the
Committee, exercise or receive payment in respect to awards held by the
participant at the time of death. In general, awards granted under the 1998 Plan
are not assignable or transferable by a participant, except that non-qualified
stock options are freely transferable, subject, however to compliance with
applicable federal and state securities laws and regulations.
The exercise price of an option granted under the Stock Plan will be not less
than the fair market value of the Company's Common Stock on the date of grant;
however, for any non-qualified Stock Option the option price per share of Common
Stock, may alternatively, be fixed at any price deemed to be fair and
reasonable, as of the date of grant, by the Committee. The exercise price of an
option must be paid in full in cash at the time of exercise, or, if permitted by
the Committee, may be paid in whole or in part by tendering shares of Common
Stock or surrendering another award granted under the 1998 Plan or another
benefit stock plan of the Company or any other means acceptable to the 1998 Plan
Committee. In order to enable the Company to satisfy any tax payment obligations
resulting from any exercise of, or other payment on, an award under the 1998
Plan, the Company has the right, among other things, to withhold an appropriate
amount from such payment or to withhold an appropriate number of shares of the
Company's Common Stock receivable by the participant for payment thereof. The
Board may amend, alter or discontinue the 1998 Plan to the extent it deems
appropriate in the best interest of the Company, but no amendment may be made
which would impair the rights of a participant without the participant's
consent, except in limited circumstances set forth in the 1998 Plan, and no
amendment may be made which would disqualify any award or transaction under the
1998 Plan from the exemption provided by Rule 16b-3.
EMPLOYMENT AGREEMENTS AND CERTAIN EMPLOYEE MATTERS
On May 9, 1996, the Company entered into a one-year employment agreement with
Thomas R. Thomsen pursuant to which Mr. Thomsen is employed as the Company's
Chief Executive Officer at an annual salary of $185,000. The agreement was
extended through May 8, 1998 and in June 1998, the Company extended his
employment agreement, as of May 1, 1998, through December 31, 1998. Mr. Thomsen
voluntarily elected to defer his compensation in the best interests of the
Company until October 1997. In 1997, the Board of Directors approved the
issuance of 246,623 shares of the Company's Common Stock to Mr. Thomsen in
satisfaction of $100,000 of accrued but unpaid salary. Mr. Thomsen shall be
eligible to receive a target bonus of up to 40% of his annual salary, the exact
amount of such bonus to be determined by the Board of Directors in accordance
with performance thresholds to be agreed upon by the Board of Directors and Mr.
Thomsen. Mr. Thomsen's employment also provides for the issuance of a ten (10)
year non-qualified option to purchase 400,000 shares of the Company's common
stock at an exercise price of $2.5625 per share. In June 1997, the Board of
Directors approved the exchange of options held by each employee (including
executive officers) under the Company's Stock Plan for new options. The new
options provide for an exercise price of $0.58 per share and became exercisable
on November 1, 1997. If Mr. Thomsen's
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<PAGE> 29
employment is terminated without cause and other than due to disability or
death, the Company will be obligated to (i) continue Mr. Thomsen's salary for an
additional six (6) months or the remainder of the term on the contract,
whichever is longer ("severance period"), (ii) continue for such "severance
period" all of Mr. Thomsen's benefits under the Company's medical insurance,
disability insurance, life insurance and other benefit plans as are then in
effect for executives of the Company, and (iii) accelerate the vesting of all
unexercisable options such that upon termination all then exercisable and
unexercisable options immediately become exercisable on the date of termination,
and all the same shall remain exercisable for a period of three (3) years
commencing on the date of termination. Mr. Thomsen was granted 310,000 options
on December 18, 1998 at an exercise price of $.28.
On July 24, 1996, the Company entered into a one-year employment agreement with
David J. Cade pursuant to which Mr. Cade is employed as the Company's President
and Chief Operating Officer at an annual salary of $140,000. In May 1997, this
agreement was extended for one year on the same terms and conditions except that
no new options were granted. In June, 1998, the Company extended this employment
agreement for two years on the same terms and conditions except that no new
options were granted, and Mr. Cade's salary was increased to $155,000 per year.
Mr. Cade is also eligible to receive a target bonus of up to 20% of his annual
salary in the event certain specified milestones are achieved. Mr. Cade's
employment agreement also provides for the issuance of a ten (10) year incentive
option to purchase 133,333 shares of the Company's common stock at an exercise
price of $1.33 per share. In June 1997, the Board of Directors approved the
exchange of options held by each employee (including executive officers) under
the Company's Stock Plan for new options. The new options provide for an
exercise price of $0.58 per share and became exercisable on November 1, 1997. In
addition, Mr. Cade was granted 316,001 stock options on December 2, 1997 at an
exercise price of $1.00 and was granted 528,029 options on December 18, 1998 at
an exercise price of $.28. Mr. Cade's employment agreement also provides for
certain severance payment benefits in the event of a change in control (as
defined in the employment extension agreement) combined with his employment
termination resulting from his resignation or the Company's termination of his
employment without cause, and the vesting provisions relating to certain of his
stock options were modified in the event of specified employment termination
events, disability or death.
On July 24, 1996, the Company entered into a one-year employment agreement with
George R. Ferment pursuant to which Mr. Ferment is employed as the Company's
Executive Vice President of Operations and Chief Technical Officer at an annual
salary of $130,000. In May 1997, this agreement was extended for one year on the
same terms and conditions except that no new options were granted. In June,
1998, the Company extended this employment agreement for two years on the same
terms and conditions except that no new options were granted and Dr. Ferment's
salary was increased to $145,000 per year. Dr. Ferment shall also be eligible to
receive a target bonus of up to 20% of his annual salary, in the event certain
specified milestones are achieved. Dr. Ferment's employment agreement also
provides for the issuance of a ten (10) year incentive option to purchase
133,333 shares of the Company's common stock at an exercise price of $1.33 per
share. In June 1997, the Board of Directors approved the exchange of options
held by each employee (including executive officers) under the Company's Stock
Plan for new options. The new options provide for an exercise price of $0.58 per
share and became exercisable on November 1, 1997. In addition, Dr. Ferment was
granted 316,000 stock options on December 2, 1997 at an exercise price of $1.00
and was granted 528,029 options on December 18, 1998 at an exercise price of
$.28. Dr. Ferment's employment agreement also provides for certain severance
payment benefits in the event of a change in control (as defined in the
employment extension agreement) combined with his employment termination
resulting from his resignation or the Company's termination of his employment
without cause, and the vesting provisions relating to his stock options were
modified in the event of specified employment termination events disability or
death.
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<PAGE> 30
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information as of December 31, 1998 with respect
to the equity securities of the Company known by the Company to be beneficially
owned by each beneficial owner of more than five percent of the Company's Common
Stock, by each current director and Named Executive Officer (as defined in
applicable SEC regulations), and by all current directors and executive officers
as a group.
<TABLE>
<CAPTION>
Name and Address Number of Shares
of Beneficial Owner(1) Beneficially Owned(2) Percent of Class(2)
- ---------------------- --------------------- -------------------
<S> <C> <C>
Thomas R. Thomsen 1,020,744 (3) 4.33%
Stephen F. Hope 1,254,607 (4) 5.44%
Ralph D. Ketchum 489,263 (5) 2.09%
Gerald M. Labush 218,319 (6) 1.05%
John D. McKey, Jr. 587,534 (7) 2.55%
David J. Cade 689,992 (8) 2.91%
George R. Ferment 722,048 (9) 3.04%
William D. Walker 449,571 (10) 1.92%
William H. Chu 3,334 (11) *
Barry Huret 0 (12) *
John J. McFeeley 0 (13) *
Donald C. Taylor 1,732,500 (14) 7.09%
Group III Capital, Inc. 1,492,500 (15) 6.10%
Lithium Link, LLC 21,875,138 (16) 50.57%
Interlink Management Corporation 21,875,138 (17) 50.57%
All Directors and Officers as a 5,435,412 22.28%
Group (11 persons)+
</TABLE>
* Less than 1%.
+ Includes the Company's directors and officers as of December 31, 1998
(also includes William H. Chu, who resigned on December 1, 1998).
(1) The address of each beneficial owner is c/o Lithium Technology
Corporation, 5115 Campus Drive, Plymouth Meeting, PA 19462 except for
Edelson Technology Partners III: Whiteweld Centre, 300 Tice Boulevard,
Woodcliff Lake, NJ 07065; Group III Capital Ventures, Inc. and Donald C.
Taylor: 475 Park Avenue South, Suite 330, New York, NY 10016; and Lithium
Link, LLC and Interlink Management Corporation: 10,000 Memorial Drive,
Suite 920, Houston, Texas 77024.
(2) Includes shares of Common Stock underlying outstanding warrants, options
and convertible securities which are exercisable by the beneficial owner
with respect to whom the calculation is made, but does not include shares
of common stock that may not be acquired within 60 days after December
31, 1998 upon the exercise or conversion of warrants, options or
convertible securities.
(3) Includes 257,454 shares of Common Stock which are covered by a voting
proxy granted by a shareholder to Mr. Thomsen and options to acquire
510,334 shares of common stock.
(4) Includes 90,328 shares of Common Stock held by Hazel Hope, the Executrix
of the Estate of Henry Hope, and options to acquire shares of Common
Stock.
(5) Includes options to acquire 31,667 shares of Common Stock, 7,999 shares
held by Mr. Ketchum's spouse, a convertible note giving Mr. Ketchum, as a
member of Lithium Link, LLC, the right to acquire 178,571 shares of the
Company's Common Stock and a convertible note giving Mrs. Ketchum, as a
member of Lithium Link, LLC, the right to acquire 178,571 shares of the
Company's Common Stock.
(6) Includes options to acquire 28,333 shares of Common Stock. Mr. Labush
resigned from the Board effective February 23, 1999.
(7) Includes options to acquire 28,333 shares of Common Stock.
(8) Consists of options to acquire 689,992 shares of Common Stock.
27
<PAGE> 31
(9) Consists of options to acquire 722,048 shares of Common Stock.
(10) Includes options to acquire 158,335 shares of Common Stock and a
convertible note giving Mr. Walker, as a member of Lithium Link, LLC, the
right to acquire 178,571 shares of the Company's Common Stock.
(11) Mr. Chu resigned from the Board effective December 1, 1998. Mr. Chu is
the Chairman, Chief Executive Officer, and a shareholder of Elite
Material Co., Ltd. ("Elite Material"). Elite Material is a member of
Lithium Link LLC ("Lithium Link"). Lithium Link may be deemed a
beneficial owner of more than ten percent of the shares of Common Stock
of the Company. Elite Material has advised that it is neither a
controlling member nor has or shares investment control over Lithium
Link's portfolio securities. Mr. Chu disclaims beneficial ownership of
any of the derivative securities beneficially owned by Lithium Link
except to the extent (if any) of his indirect pecuniary interest arising
out of his shareholdings in Elite Material.
(12) Options held by Mr. Huret will not vest within 60 days of January 31,
1999.
(13) Options held by Dr. McFeeley will not vest within 60 days of January 31,
1999.
(14) Includes approximately 47,500 shares of Common Stock held by Mr. Taylor
directly, 192,500 shares of Common Stock held directly by, and 1,400,000
shares of Common Stock underlying a warrant beneficially owned by, Group
III Capital, Inc., an entity controlled by Mr. Taylor, and 92,500 shares
of Common Stock held by a limited partnership controlled by Mr. Taylor.
Excludes 1,100,000 warrants owned by Group III Capital, Inc. which have
not vested pursuant to the terms thereof and are not expected to vest
within 60 days of March 31, 1999.
(15) Includes 92,500 shares of Common Stock and 1,400,000 shares of Common
Stock underlying a warrant. Excludes 1,100,000 warrants which have not
vested pursuant to the terms thereof and are not expected to vest within
60 days of March 31, 1999.
(16) Consists of 19,642,857 shares issuable to Lithium Link, LLC within 60
days of December 31, 1998 upon conversion of the $5.5 million Notes,
1,669,634 shares issued in December, 1998 upon the conversion of $467,500
interest, and 562,647 shares which were issued in January 1999 upon
conversion of interest that accrued from September 23, 1998 through
January 22, 1999 and which were issuable as of December 31, 1998. The
managing member of Lithium Link, LLC is Interlink Management Corporation.
The shares referred to in this note are the same shares referred to in
note 17 to this table.
(17) Consists of 19,642,857 shares issuable to Lithium Link, LLC within 60
days of December 31, 1998 upon conversion of the $5.5 million Notes,
1,669,634 shares issued in December, 1998 upon the conversion of
$467,500 interest, and 562,647 shares which were issued in January 1999
upon conversion of interest that accrued from September 23, 1998 through
January 22, 1999 and which were issuable as of December 31, 1998.
Interlink Management Corporation is the managing member of Lithium Link,
LLC and, therefore, may be deemed to have indirect beneficial ownership
of, and shared voting and dispositive power with respect to, such
shares. The shares referred to in this note are the same shares referred
to in note 16 to this table. Does not include shares of Common Stock
that may be acquired by the two controlling persons of Interlink
Management Corporation pursuant to the exercise of 450,000 warrants.
CHANGES IN CONTROL
On September 22, 1997, the Company entered into a Senior Secured Convertible
Note Purchase Agreement (the "1997 Note Purchase Agreement") with Lithium Link
LLC (the "Lender") for the sale of $5.5 million of the Company's Senior Secured
Convertible Notes (the "1997 Notes"). The 1997 Notes were convertible into the
Company's Common Stock at a conversion price of $.28 per share. As of December
31, 1998, the Company had 23,052,185 shares of common stock outstanding. In
January 1999, the Notes were converted into 19,642,857 shares of the Company's
Common Stock and 562,647 shares of the Company's Common Stock were issued to pay
accrued interest to the conversion date. In addition, as a result of the Note
conversion, the Consulting Agreement with Interlink Management Corporation
("IMC") and all security interests and licenses held by IMC were cancelled and
terminated.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1997, the Company issued and sold to certain private investors an
aggregate principal amount of $5,500,000 8.5% Senior Secured Convertible
Promissory Notes (the "1997 Notes"). Mr. Ketchum, a director of the Company, and
Mr. Walker, the Treasurer and Chief Financial Officer of the Company, purchased
a portion of such convertible notes offering. See "Security Ownership of
Directors and Officers". In July and August 1997, the Company obtained a bridge
loan of $500,000 from certain private investors, including Mr. Ketchum and his
wife, who each loaned the Company $50,000, for an aggregate of $100,000. In
connection with the $500,000 loan, the Company issued an aggregate of 100,000
warrants to the bridge lenders of which 5,000 warrants were granted to each of
Mr. and Mrs. Ketchum. Subsequently Mr. and Mrs. Ketchum exercised such warrants
in full and Mr. and Mrs. Ketchum were each issued 5,000 shares.
28
<PAGE> 32
In exchange for assistance in placing the 1997 Notes, the Company paid $150,000
and issued warrants to Interlink Management Corporation ("IMC"). IMC is the
managing member of Lithium Link, LLC, the purchaser of the 1997 Notes.
IMC's warrants allow it to purchase 500,000 shares of the Company's Common Stock
at an exercise price of $.40 share. In addition, the Company entered into a
Consulting Agreement with IMC whereby IMC will be paid $5,000 per month for one
year, with the Company having an option to renew the Consulting Agreement for
another one year term.
As of December 31, 1998, the Company has issued and outstanding stock options to
purchase 4,597,420 shares of the Company's Common Stock, comprised of (a)
options to acquire 163,338 shares pursuant to the Directors Stock Option Plan
(the "Directors Plan") (See "Executive Compensation -- Directors Stock Option
Plan" for details), (b) options to acquire 2,470,023 shares pursuant to the 1994
Stock Incentive Plan" (See "Executive Compensation Stock Incentive Plan" for
details), (c) options to acquire 1,964,059 shares pursuant to the 1998 Stock
Incentive Plan" (See "Executive Compensation - 1998 Plan" for details) and (d)
3,750 options granted to consultants.
In 1997, the Board of Directors approved the exchange by each employee,
including executive officers holding options under the Company's 1994 Stock
Incentive Plan of such outstanding options for new options with an exercise
price of $0.58 per share. The Board of Directors determined such exchange to be
appropriate in order to sustain the incentivization of all of its employees
since the outstanding options has exercise prices well in excess of the then
market price of the Company's Common Stock. As a condition for such repricing,
such new options (including such options which has been exchanged for vested
options) do not become exercisable until the later of November 1, 1997 (with
respect to options which had been vested previously) or the original vesting
schedule of such options. As a result of this stock option repricing, the
Company cancelled a total of 1,529,357 stock options having exercise prices in
excess of the then market price of the Company's Common Stock and granted the
same number of new stock options at the aforementioned $0.58 exercise price per
share. Also in 1997, the Board of Directors approved the issuance of 246,623
shares of the Company's Common Stock to Mr. Thomsen in satisfaction of $100,000
of accrued but unpaid salary and in December 1997, options to purchase an
additional 20,000 shares were awarded each to Messrs. Hope, Ketchum, Labush and
McKey, Jr. recognizing consummation of the sale of $5.5 million of the Company's
Senior Secured Convertible Notes. In 1998, the Board of Directors approved the
implementation of the 1998 Stock Incentive Plan, the terms of such plan being
summarized in "Executive Compensation - 1998 Plan". All employees and directors
of the Company as of December 18, 1998 were awarded common stock options
pursuant to the Plan, such options totaling 1,954,059.
Dr. William Chu, upon his election to the Company's Board of Directors on
December 1, 1997, was granted 13,334 stock options. Dr. Chu is the chairman,
chief executive officer, and a shareholder of Elite Material Co., Ltd. ("Elite
Material"). Elite Material is a member of Lithium Link, LLC. Dr. Chu has
resigned from the Board effective December 1, 1998.
On December 2, 1997, Mr. Cade was granted 316,001 stock options at an exercise
price of $1.00 per share, Dr. Ferment was granted 316,000 stock options at an
exercise price of $1.00 per share and Mr. Walker was granted 100,000 stock
options at an exercise price of $1.00 per share.
On December 18, 1998, Mr. Cade was granted 528,029 stock options at an exercise
price of $.28 per share, Dr. Ferment was granted 528,029 stock options at an
exercise price of $.28 per share, Mr. Hope was granted 15,000 stock options at
an exercise price of $.28 per share, Mr. Ketchum was granted 25,000 stock
options at an exercise price of $.28 per share, Mr. Labush was granted 25,000
stock options at an exercise price of $.28 per share, Mr. McKey was granted
25,000 stock options at an exercise price of $.28 per share, Mr. Thomsen was
granted 300,000 stock options at an exercise price of $.28 per share, and Mr.
Walker was granted 125,001 stock options at an exercise price of $.28 per share.
Barry Huret, upon his election to the Company's Board of Directors on December
21, 1998, was granted 13,334 stock options. Dr. John J. McFeeley, upon his
election to the Company's Board of Directors on December 21, 1998, was granted
13,334 stock options. Arif Maskatia, upon his election to the Company's Board of
Directors on February 23, 1999, was granted 13,334 stock options.
During 1997 and 1998, the Company issued options to purchase its Common Stock to
the following executive officers in the amounts listed in parenthesis next to
each executive officer's name: Thomas R. Thomsen (310,000); David J. Cade
(844,030); Dr. George R. Ferment (844,029); and William D. Walker (225,001).
During 1997, the Company granted an aggregate of 93,334 Common Stock options
pursuant to the Director's Stock
29
<PAGE> 33
Option Plan and an aggregate of 1,017,500 Common Stock options pursuant to the
1994 Stock Incentive Plan.
During 1998, the Company granted an aggregate of 26,668 Common Stock options
pursuant to the Director's Stock Option Plan, an aggregate of 112,000 Common
Stock options pursuant to the 1994 Stock Incentive Plan, and an aggregate of
1,964,059 Common Stock options pursuant to the 1998 Stock Incentive Plan.
CONSULTING AGREEMENTS
In December 1997, the Company and Donald C. Taylor, a former director of the
Company, agreed to terminate the Consulting Agreement which the Company and Mr.
Taylor had entered into in May 1996 providing for investment advisory services,
shareholder relations and related consulting services to the Company. Mr. Taylor
served as a director of the Company from August 1995 to May 1996. Pursuant to
the Consulting Agreement the Company paid consulting fees to Mr. Taylor in the
amount of $56,000 in 1996 and $77,000 in 1997. The Consulting Agreement was
terminated except for Mr. Taylor's non-competition and confidentiality
covenants. In consideration for past and prospective services provided to the
Company by Group III Capital, Inc., of which Mr. Taylor is the President and a
director, the Company had issued in 1996 to Group III Capital, Inc. a warrant to
purchase 1,500,000 shares of the Company's Common Stock at an exercise price of
$1.54 per share. The warrant also included certain anti-dilution provisions
which as of September 22, 1997 entitled the warrant holder to purchase
approximately 2,400,000 shares of the Company's Common Stock at an exercise
price of $0.96 per share. In December 1997, in consideration for removing all
anti-dilution provisions from the warrant, except for those activated by a stock
split, reverse stock split or a stock dividend and for other consideration, the
Company and Group III amended the warrant to entitle the warrant holder to
purchase 2,800,000 shares of the Company's Common Stock at an exercise price of
$0.85 per share and to reduce the warrant's exercise period from ten years to
five years. In connection with the termination of the Consulting Agreement the
Company agreed in 1997 to pay an additional $126,000 to Mr.
Taylor, which payment was completed in 1998.
In 1998 and 1997, the Company paid $73,781 and $70,237, respectively to William
D. Walker for services rendered to the Company as Treasurer and Chief Financial
Officer. Mr. Walker does not receive a salary from the Company.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibits are filed as part of this Report:
3.1 Certificate of Incorporation.(3)
3.2 By-Laws, as amended.(3)
4.1 Specimen Common Stock Certificate.(3)
4.2 Credit Agreement dated August 3, 1995 between the Company
and various Note Holders specified therein.(6)
4.3 Credit Agreement dated December 1, 1995 between the Company
and various Note Holders specified therein.(6)
10.1 Memorandum of Agreement dated February 9, 1989, among
Trinity American Corporation, Lithion, Industries, Coastal
Leasing and Investments, Inc., Hope Lithographic
Enterprises, Inc., Henry F. Hope and Stephen F. Hope, with
Amendment dated May 24, 1989.(3)
10.2 Stock for Debt Exchange Agreement dated as of October 10,
1991 among the Company, Stephen F. Hope and Hazel Hope as
Executrix of the Estate of Henry Hope.(4)
10.3 Exchange Agreement and Patent Assignment among Industries,
Henry Hope and Stephen F. Hope.(3)
10.4 Exchange Agreement and Patent Assignment among Lithion,
Stephen F. Hope and Henry Hope, dated July 20, 1989.(3)
30
<PAGE> 34
10.5 Stock Purchase Agreement, dated as of November 17, 1993, by
and among Stephen F. Hope, the Estate of Henry Hope, and
Majestic Hopes, L.L.C., as amended on December 10, 1993.(3)
10.6 Stockholders Agreement, dated as of December 10, 1993,
among Stephen F. Hope, Hope Technologies, Inc., and
Majestic Hopes, L.L.C.(3)
10.7 Reserved.
10.8 1994 Stock Incentive Plan, as amended.(1)
10.9 Directors Stock Option Plan.(1)
10.10 Agreement, dated as of May 31, 1994, by and among Stephen
F. Hope, Hope Industries, Inc., Hope Technologies, Inc.,
and Majestic Hopes, L.L.C.(3)
10.11 Consulting Letter Agreement, dated December 10, 1993,
between Majestic Hopes, L.L.C. and Stephen F. Hope.(3)
10.12 Employment Agreement, dated July 24, 1996, between David
Cade and the Company.(8)
10.13 Employment Agreement, dated July 24, 1996, between George
Ferment and the Company.(8)
10.14* Technology Development Agreement, dated March 29, 1996,
between Mitsubishi Materials Corporation, Mitsui & Co.,
Ltd. and the Company.(6)
10.15 Stock Purchase Agreement, dated March 29, 1996, between
Mitsubishi Materials Corporation, Mitsui & Co., Ltd. and
the Company.(6) (without exhibits)
10.16 Form of Stock Option Agreement relating to the Company's
1994 Stock Incentive Plan, as amended.(6)
10.17 Form of Stock Option Agreement relating to the Company's
Directors Stock Option Plan.(6)
10.18 Lease Agreement, dated July 22, 1994, between PMP
Whitemarsh Associates and the Company and Addendum thereto
dated July 22, 1994.(6)
10.19 Consulting Agreement, dated January 18, 1995, between
Mitsubishi Trust and Banking Corporation and the
Company.(6)
10.20 Agreement between the Company and Coastal Leasing &
Investment, Inc. dated November 1, 1994.(6)
10.21 Agreement dated June 6, 1994, by and among Stephen F. Hope,
Hope Industries, Inc., Lithion Corporation, Hope
Technologies, Inc., Trinity American Corporation, with
amendments dated November 1, 1994.(6)
10.22 Separation Agreement, dated August 7, 1995 between James A.
Elsner and the Company.(6)
10.23 Agreement and Plan of Merger of Lithium Technology
Corporation (a Nevada corporation) and Lithium Technology
Corporation (a Delaware corporation) dated February 28,
1996.(1)
31
<PAGE> 35
10.24 Warrant to Purchase Common Stock issued to Robert Pfeffer
dated June 20, 1996.(6)
10.25 Agreement of Settlement and Release, dated June 20, 1996,
by and between Matthew Stuart & Co., Inc., Robert Pfeffer
and the Company.(7)
10.26 Employment Agreement, dated May 9, 1996, between Thomas R.
Thomsen and the Company.(7)
10.27 Stock Option Agreement, dated May 9, 1996, between Thomas
R. Thomsen and the Company.(7)
10.28 Consulting Agreement, dated May 9, 1996, between Donald
Taylor and the Company.(7)
10.29 Warrant to Purchase Common Stock issued to Group III
Capital, Inc. dated May 9, 1996.(7)
10.30 Warrant to Purchase Common Stock issued to Nanele Services,
Inc., dated May 9, 1996.(7)
10.31 Stock Option Agreement, dated July 24, 1996, between David
Cade and the Company.(8)
10.32 Stock Option Agreement, dated July 24, 1996, between George
Ferment and the Company.(8)
10.33 Form of Restricted Stock Agreement relating to the
Company's 1994 Stock Incentive Plan.(7)
10.34 Form of Convertible Note Purchase Agreement dated October
23, 1996 between the Company and the Purchasers.(9)
10.35 Form of Convertible Note dated October 23, 1996 issued by
the Company.(10)
10.36 Form of Stock Purchase Agreement dated October 23, 1996
between the Company and the Purchasers.(11)
10.37 Form of Stock Purchase Agreement dated October 23, 1996
between the Company and the Placement Agent.(12)
10.38 Form of Warrant Agreement dated October 23, 1996 between
the Company and the Placement Agent.(13)
10.39 Form of Registration Rights Agreement dated October 23,
1996 between the Company and the Placement Agent.(14)
10.40 Letter Agreement dated February 5, 1997 between the Company
and Chase Manhattan Bank.(15)
10.41 Form of Senior Secured Convertible Note Purchase Agreement
dated September 22, 1997, between the Company and Lithium
Link LLC.(16)
10.42 Form of Convertible Promissory Note dated September 22,
1997 issued by the Company.(17)
10.43 Form of Consulting Agreement dated September 22, 1997
between the Company in favor of Interlink Management
Corporation.(18)
32
<PAGE> 36
10.44 Form of Common Stock Warrant dated September 22, 1997
issued by the Company in favor of Interlink Management
Corporation.(19)
10.45 Form of License Agreement dated September 22, 1997 between
the Company and Lithium Link LLC.(20)
10.46 Employment Agreement Extension, dated June 1, 1998,
between David Cade and the Company.+
10.47 Employment Agreement Extension, dated June 1, 1998,
between George Ferment and the Company.+
10.48 1998 Stock Incentive Plan.+
10.49 Form of Stock Option Agreements relating to the Company's
1998 Stock Incentive Plan.+
16.1 Letter from Wiss & Company, LLP.(21)
21.1 List of Subsidiaries.(2)
27.1 Financial Data Schedule+
(1) Incorporated herein by reference to the exhibits contained in the
Company's Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934, dated January 19, 1996.
(2) Incorporated herein by reference to the exhibits contained in the
Company's Post-Effective Amendment No. 9 to the Registration Statement on
Form SB-2, File No. 33-9323 N.Y., which was filed with the Securities and
Exchange Commission on January 6, 1995.
(3) Incorporated herein by reference to the exhibits contained in the
Company's Annual Report on Form 10-K for the fiscal year ended October
31, 1989.
(4) Incorporated herein by reference to the exhibits contained in the
Company's Annual Report on Form 10-K for the fiscal year ended October
31, 1991.
(5) Incorporated herein by reference to the exhibits contained in the
Company's Report on Form 8-K, dated November 23, 1994.
(6) Incorporated herein by reference to the exhibits contained in the
Company's Form 10-KSB for the fiscal year ended December 31, 1995.
(7) Incorporated herein by reference to the exhibits contained in the
Company's Registration Statement on Form SB-2, File No. 333-08143, which
was filed with the Securities and Exchange Commission on July 15, 1996.
(8) Incorporated herein by reference to the exhibits contained in the
Company's Quarterly Report on Form 10- QSB for the quarter ended June 30,
1996.
(9) Incorporated herein by reference to Exhibit 10.29 contained in the
Company's Report on Form 8-K, dated October 25, 1996.
33
<PAGE> 37
(10) Incorporated herein by reference to Exhibit 10.30 contained in the
Company's Report on Form 8-K, dated October 25, 1996.
(11) Incorporated herein by reference to Exhibit 10.31 contained in the
Company's Report on Form 8-K, dated October 25, 1996.
(12) Incorporated herein by reference to Exhibit 10.32 contained in the
Company's Report on Form 8-K, dated October 25, 1996.
(13) Incorporated herein by reference to Exhibit 10.33 contained in the
Company's Report on Form 8-K, dated October 25, 1996.
(14) Incorporated herein by reference to Exhibit 10.34 contained in the
Company's Report on Form 8-K, dated October 25, 1996.
(15) Incorporated herein by reference to exhibits contained in the Company's
Annual Report on Form 10-KSB, for the year ended December 31, 1996.
(16) Incorporated herein by reference to Exhibit 10.36 contained in the
Company's Report on Form 8-K, dated September 22, 1997.
(17) Incorporated herein by reference to Exhibit 10.37 contained in the
Company's Report on Form 8-K, dated September 22, 1997.
(18) Incorporated herein by reference to Exhibit 10.38 contained in the
Company's Report on Form 8-K, dated September 22, 1997.
(19) Incorporated herein by reference to Exhibit 10.39 contained in the
Company's Report on Form 8-K, dated September 22, 1997.
(20) Incorporated herein by reference to Exhibit 10.40 contained in the
Company's Report on Form 8-K, dated September 22, 1997.
(21) Incorporated herein by reference to Exhibit 16.1 contained in the
Company's Report on Form 8-K, dated December 18, 1997.
(b) Reports on Form 8-K during the quarter ended December 31, 1998:
None
* Subject to order for confidential treatment as to certain portions
thereof.
+ Exhibit filed herewith in this Report.
34
<PAGE> 38
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
LITHIUM TECHNOLOGY CORPORATION
Date: March 12, 1999 By: /s/ THOMAS R. THOMSEN
------------------------------
Thomas R. Thomsen
Principal Executive Officer
and Chairman of the Board
By: /s/ WILLIAM D. WALKER
------------------------------
William D. Walker
Principal Financial Officer
and Treasurer
In accordance with the Securities Exchange Act of 1934, this report has been
signed by the following persons and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Thomas R. Thomsen Chairman of the Board, Director March 12, 1999
- ---------------------------
Thomas R. Thomsen
/s/ David J. Cade Director March 12, 1999
- ---------------------------
David J. Cade
/s/ George R. Ferment Director March 12, 1999
- ---------------------------
George R. Ferment
/s/ Stephen F. Hope Director March 12, 1999
- ---------------------------
Stephen F. Hope
/s/ Barry Huret Director March 12, 1999
- ---------------------------
Barry Huret
Director
- ---------------------------
Ralph D. Ketchum
Director
- ---------------------------
Arif Mastakia
/s/John J. McFeeley Director March 12, 1999
- ---------------------------
John J. McFeeley
/s/ John D. McKey, Jr. Director March 12, 1999
- ---------------------------
John D. McKey, Jr.
</TABLE>
35
<PAGE> 39
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
DECEMBER 31, 1998
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Reports F-2 to F-3
Consolidated Financial Statements:
Consolidated Balance Sheet at December 31, 1998 and December 31, 1998 (Pro Forma) F-4
Consolidated Statements of Operations for the Years Ended December 31,
1998 and 1997 and the Period from July 21, 1989 (Date of Inception)
to December 31, 1998 F-5
Consolidated Statements of Changes in Stockholders' Deficiency for the
Period from July 31, 1989 (Date of Inception) to December 31, 1998 F-6 to F-10
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998 and 1997 F-11 to F-12
Notes to Consolidated Financial Statements F-13 to F-23
</TABLE>
F-1
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Lithium Technology Corporation and Subsidiary
(Development Stage Companies)
We have audited the accompanying consolidated balance sheet of Lithium
Technology Corporation and subsidiary (development stage companies) as of
December 31, 1998, and the related consolidated statements of operations,
changes in stockholders' deficiency and cash flows for each of the two years in
the period ended December 31, 1998, and for the period from July 21, 1989 (date
of inception) to December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The Company's
financial statements for the period July 21, 1989 (date of inception) through
December 31, 1996, were audited by other auditors whose report, dated January
27, 1997, expressed an unqualified opinion on those statements and included
explanatory paragraphs that described the uncertainty concerning the Company's
ability to continue as a going concern. The financial statements for the period
July 21, 1989 (date of inception) through December 31, 1996 reflect a cumulative
net loss of $18,877,000, of the total net loss of $36,302,000. The other
auditors' report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for such prior periods, is based solely on the
report of such other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of other auditors, such
consolidated financial statements present fairly in all material respects, the
financial position of Lithium Technology Corporation and subsidiary (development
stage companies) as of December 31, 1998, and the results of their operations
and their cash flows for each of the two years in the period ended December 31,
1998, and for the period from July 21, 1989 (date of inception) through December
31, 1998, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
enterprise engaged in developing and marketing lithium-polymer rechargeable
batteries. As discussed in Note 2 to the financial statements, the Company's
operating losses since inception and lack of adequate financing to fund its
operations beyond May 1999 raise substantial doubt about its ability to continue
as a going concern. Management's plans concerning these matters are also
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
DELOITTE & TOUCHE, LLP
Philadelphia, PA
February 5, 1999
F-2
<PAGE> 41
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Lithium Technology Corporation and Subsidiary
(Development Stage Companies)
We have audited the consolidated statements of operations, changes in
stockholders' equity (deficit) and cash flows of Lithium Technology Corporation
and subsidiary (Development Stage Companies) for the period July 21, 1989 (date
of inception) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Lithium
Technology Corporation and subsidiary (Development Stage Companies) for the
period July 21, 1989 (date of inception) to December 31, 1996, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes 1 and 2 of the
financial statements, the Company is a development stage company, has suffered
recurring losses from operations and needs significant additional financing to
repay existing indebtedness and to continue the development of its technology.
These factors raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Wiss & Company, LLP
WISS & COMPANY, LLP
Woodbridge, New Jersey
January 22, 1997
F-3
<PAGE> 42
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
Pro Forma
(Unaudited
CURRENT ASSETS: Note 8)
------
<S> <C> <C>
Cash and cash equivalents $1,073,000 $ 1,073,000
Accounts receivable 77,000 77,000
Other current assets 17,000 17,000
---------- -----------
Total Current Assets 1,167,000 1,167,000
---------- -----------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED 463,000 463,000
DEPRECIATION OF $799,000
OTHER ASSETS:
Debt issue costs, less accumulated amortization of $187,000 496,000 ---
Security and equipment deposits 95,000 95,000
---------- -----------
591,000 95,000
---------- -----------
Total assets $2,221,000 $ 1,725,000
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 213,000 $ 213,000
Accrued salaries 212,000 212,000
Other accrued expenses 229,000 100,000
---------- -----------
Total current liabilities 654,000 525,000
---------- -----------
LONG-TERM LIABILITIES:
Senior Secured Convertible Notes, due July 1, 2002 5,500,000 ---
---------- -----------
Total liabilities 6,154,000 525,000
---------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, par value $.01 per share:
Authorized - 50,000,000 shares
Issued and outstanding - 23,052,185 and 42,695,042 shares 231,000 432,000
Additional paid-in capital 39,003,000 43,935,000
Accumulated deficit (6,865,000) (6,865,000)
Deficit accumulated during development stage (36,302,000) (36,302,000)
---------- -----------
Total stockholders' equity (deficiency) (3,933,000) 1,200,000
---------- -----------
$2,221,000 $ 1,725,000
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 43
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From
July 21, 1989
(Date of
Year Ended Inception) to
December 31, December 31,
-------------------------- -------------
1998 1997 1998
<S> <C> <C> <C>
REVENUES:
Development contracts $ 99,000 $ -- $ 99,000
------------ ---------- ------------
COSTS AND EXPENSES:
Engineering, research and development 1,899,000 1,399,000 7,011,000
General and administrative 1,770,000 1,654,000 10,383,000
------------ ------------ ------------
3,669,000 3,053,000 17,394,000
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense, net of interest income (341,000) (1,290,000) (1,816,000)
Interest expense related to beneficial
conversion feature -- (9,821,000) (17,841,000)
Other non-operating income - Note 6 650,000 -- 650,000
------------ ------------ ------------
309,000 (11,111,000) (19,007,000)
------------ ------------ ------------
NET LOSS ($ 3,261,000) ($14,164,000) ($36,302,000)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING: 21,697,000 18,005,000
=========== ============
BASIC AND DILUTED NET LOSS PER SHARE: $ (.15) $ (.79)
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 44
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIENCY)
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Stock Convertible Preferred Stock Convertible Preferred Stock
----------------------- --------------------------- ---------------------------
Shares Amount Shares Amount Shares Amount
---------- ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JULY 21, 1989
PERIOD ENDED OCTOBER 31, 1989:
Net assets received in reverse
acquisition (Note 1) -- --
Change in par value -- --
Exchange for debt owed to officer 23,000 2,300,000 -- -- -- --
Shares sold to financial consultant
in conjunction with financing -- -- -- -- -- --
Expenses paid by principal shareholder
on behalf of Lithium Corporation -- -- -- -- -- --
Net income (loss) for the year -- -- -- -- -- --
---------- ------------ ------------ ------------ ------------ -----------
BALANCES AT OCTOBER 31, 1989 23,000 2,300,000
YEAR ENDED OCTOBER 31, 1990
Issuance of Class B common stock for
cash to Investors -- -- -- -- -- --
Exercise of Class B common stock
warrants, net of offering costs -- -- -- -- -- --
NET INCOME (LOSS) FOR THE YEAR -- -- -- -- -- --
---------- ------------
BALANCE AT OCTOBER 31, 1990 23,000 $2,300,000 -- -- -- --
YEAR ENDED OCTOBER 31, 1991:
Conversion of debt due stockholder 10,000 1,000,000 -- -- -- --
Exercise of Class B common stock
warrants, net of offering costs
of $520,000 -- -- -- -- -- --
Fair value of warrants issued in
connection with financial
consulting services -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ------------ ------------ ------------ ------------ -----------
BALANCES AT OCTOBER 31, 1991 33,000 3,300,000
YEAR ENDED OCTOBER 31, 1992:
Issuance of common stock to certain
employees for services rendered -- --
Net loss -- --
---------- ------------
BALANCES AT OCTOBER 31, 1992 33,000 3,300,000 -- -- -- --
YEAR ENDED OCTOBER 31, 1993:
Net loss -- -- -- -- -- --
---------- ------------
BALANCES AT OCTOBER 31, 1993 33,000 $3,300,000 -- -- -- --
========== ============
<CAPTION>
Deficit
Class A Class B Accumulated
Common Stock Common Stock Common Stock Additional During
--------------- ------------- -------------- Paid-in Accumulated Development
Shares Amount Shares Amount Shares Amount Capital Deficit Stage
--------- ------- --------- ------- ------ ------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT JULY 21, 1989 2,333,000 1,000 -- -- -- (6,465,000) --
PERIOD YEAR ENDED OCTOBER 31, 1989:
Net assets received in reverse
acquisition (Note 1) -- -- 210,000 1,000 36,000 --
Change in par value -- 6,000 (6,000) --
Exchange for debt owed to officer -- -- -- --
Shares sold to financial consultant
in conjunction with financing -- -- 697,000 1,000 7,000 --
Expenses paid by principal shareholder
on behalf of Lithium Corporation -- -- -- -- 79,000 --
Net income (loss) for the year -- -- -- -- -- 844,000 (502,000)
--------- ------- --------- ------- --------- --------- ---------
BALANCES AT OCTOBER 31, 1989 2,333,000 7,000 907,000 2,000 116,000 (5,621,000) (502,000)
YEAR ENDED OCTOBER 31, 1990
Issuance of Class B common stock for
cash to Investors -- -- 57,000 -- 50,000 -- --
Exercise of Class B common stock
warrants, net of offering costs -- -- 15,000 -- -- -- --
NET INCOME (LOSS) FOR THE YEAR -- -- -- -- -- 569,000 (498,000)
--------- ------- --------- ------- --------- --------- ---------
BALANCE AT OCTOBER 31, 1990 2,333,333 $7,000 979,000 $ 2,000 $166,000 $(5,052,000) (1,000,000)
YEAR ENDED OCTOBER 31, 1991:
Conversion of debt due stockholder -- -- -- -- -- -- --
Exercise of Class B common stock
warrants, net of offering costs
of $520,000 -- -- 145,000 -- 121,000 -- --
Fair value of warrants issued in
connection with financial
consulting services -- -- -- -- 30,000 -- --
Net loss -- -- -- -- -- (84,000) (560,000)
--------- ------- --------- ------- --------- --------- ---------
BALANCES AT OCTOBER 31, 1991 2,333,000 7,000 1,124,000 2,000 317,000 (5,136,000) (1,560,000)
YEAR ENDED OCTOBER 31, 1992:
Issuance of common stock to certain
employees for services rendered -- -- 96,000 -- 106,000
Net loss -- -- -- -- -- (23,000) (175,000)
--------- ------- --------- ------- --------- --------- ---------
BALANCES AT OCTOBER 31, 1992 2,333,000 7,000 1,220,000 2,000 423,000 (5,159,000) (1,735,000)
YEAR ENDED OCTOBER 31, 1993:
Net loss -- -- -- -- -- (1,706,000) (66,000)
--------- ------- --------- ------- --------- --------- ---------
BALANCES AT OCTOBER 31, 1993 2,333,000 $ 7,000 1,220,000 $2,000 $ 423,000 $(6,865,000) (1,801,000)
========= ======= ========= ======= ========= =========== ==========
</TABLE>
F-6
<PAGE> 45
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Stock Convertible Preferred Stock Convertible Preferred Stock
----------------------- --------------------------- ---------------------------
Shares Amount Shares Amount Shares Amount
---------- ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT OCTOBER 31, 1993 33,000 3,300,000 -- -- -- --
------------ ------------ ------------ -----------
TWO MONTHS ENDED
DECEMBER 31, 1993.
Contribution to capital of Industries
accumulated losses in excess of
Company's Investment -- -- -- -- -- --
Conversion of preferred stock to
common stock (33,000) (3,300,000) -- -- -- --
Fair value of option issued in
exchange for certain legal services -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ------------ ------------ ------------ ------------ -----------
BALANCE AT DECEMBER 31, 1993 -- -- -- -- -- --
YEAR ENDED DECEMBER 13, 1994:
Change in par value of Class B
common stock to $.0001 -- -- -- -- -- --
Issuance of common stock:
For services relating to warrants
exercised in 1995 -- -- -- -- -- --
Upon cancellation of Indebtedness -- -- -- -- -- --
In exchange for advances repayable
only out or proceeds of public
offering -- -- -- -- -- --
Upon exercise of option -- -- -- -- -- --
For cash, less related costs of
$152,000 -- -- -- -- -- --
Upon conversion of $162,000 of 7%
convertible promissory notes and
accrued interest thereon -- -- -- -- -- --
Upon exercise of option to acquire
laboratory equipment and
forgiveness of related accrued
rent -- -- -- -- -- --
Upon conversion of preferred stock -- -- (815) -- -- --
Issuance of convertible preferred stock
in exchange for convertible
promissory notes -- -- 14,151 -- -- --
For cash -- -- -- -- 10,000 --
Issuance of 7% convertible
promissory notes -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ------------ ------------ ------------ ------------ -----------
BALANCES AT DECEMBER 31, 1994
-- $ -- 13,336 -- 10,000 --
========== ============
YEAR ENDED DECEMBER 31, 1995
Issuance of common stock
Upon conversion of convertible
preferred stock (6,394) -- -- --
Upon conversion of 7% convertible
promissory notes and accrued
interest thereon -- -- -- --
Upon exercise of warrants -- -- -- --
Recapitalization of common stock -- -- -- --
Issuance of 12% convertible
promissory notes -- -- -- --
Net loss -- -- -- --
------------ ------------ ------------ -----------
BALANCES AT DECEMBER 31, 1995
6,942 $ -- 10,000 $ --
------------ ------------ ------------ -----------
<CAPTION>
Deficit
Class A Class B Accumulated
Common Stock Common Stock Common Stock Additional During
--------------- ------------- -------------- Paid-in Accumulated Development
Shares Amount Shares Amount Shares Amount Capital Deficit Stage
--------- ------- --------- ------- ------ ------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT OCTOBER 31, 1993 2,333,000 7,000 1,220,000 2,000 423,000 (6,865,000) (1,801,000)
TWO MONTHS ENDED
DECEMBER 31, 1993.
Contribution to capital of Industries
accumulated losses in excess of
Company's Investment -- -- -- --
Conversion of preferred stock to 3,659,000 -- --
common stock 1,000,000 3,000 667,000 1,000 3,296,000 -- --
Fair value of option issued in
exchange for certain legal services -- -- -- -- 8,000 -- --
Net loss -- -- -- -- -- -- (67,000)
--------- ------- --------- ------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1993 3,533,000 10,000 1,887,000 3,000 7,386,000 (6,865,000) (1,868,000)
YEAR ENDED DECEMBER 13, 1994:
Change in par value of Class B
common stock to $.0001 -- -- -- 3,000 (3,000) -- --
Issuance of common stock:
For services relating to warrants
exercised in 1995 -- -- 22,000 -- 88,000 -- --
Upon cancellation of Indebtedness -- -- 78,000 -- 445,000 -- --
In exchange for advances repayable
only out or proceeds of public
offering -- -- 133,000 -- 471,000 -- --
Upon exercise of option -- -- 17,000 -- 8,000 -- --
For cash, less related costs of
$152,000 -- -- 907,000 3,000 933,000 -- --
Upon conversion of $162,000 of 7%
convertible promissory notes and
accrued interest thereon -- -- 79,000 -- 165,000 -- --
Upon exercise of option to acquire
laboratory equipment and
forgiveness of related accrued
rent -- -- 83,000 1,000 271,000 -- --
Upon conversion of preferred stock -- -- 43,000 -- -- -- --
Issuance of convertible preferred stock
in exchange for convertible
promissory notes -- -- -- -- 356,000 -- --
For cash -- -- -- -- 100,000 -- --
Issuance of 7% convertible
promissory notes -- -- -- -- 1,643,000 -- --
Net loss -- -- -- -- -- -- (3,776,000)
--------- ------- --------- ------- --------- --------- ---------
3,333,000 10,000 3,249,000 10,000 -- -- 11,863,000 (6,865,000) (5,644,000)
BALANCES AT DECEMBER 31, 1994
YEAR ENDED DECEMBER 31, 1995
Issuance of common stock
Upon conversion of convertible
preferred stock -- -- 341,000 1,000 -- -- (1,000) -- --
Upon conversion of 7% convertible
promissory notes and accrued
interest thereon -- -- 500,000 1,000 -- -- 1,050,000 -- --
Upon exercise of warrants -- -- 120,000 1,000 -- -- 254,000 -- --
Recapitalization of common stock
(3,333,000)(10,000)(4,210,000)(13,000) 7,543,000 75,000 (52,000) --
Issuance of 12% convertible
promissory notes -- -- -- -- 6,377,000 -- --
Net loss -- -- -- -- -- -- (8,849,000)
--------- ------- --------- ------- --------- ------ --------- --------- ---------
BALANCES AT DECEMBER 31, 1995 -- $ -- -- $ -- 7,543,000 $75,000 19,491,000 $(6,865,000)$(14,493,000)
--------- ------- --------- ------- --------- ------ --------- --------- ---------
</TABLE>
F-7
<PAGE> 46
<TABLE>
<CAPTION>
Common Stock
------------
Shares Amount
------ ------
<S> <C> <C>
BALANCES AT DECEMBER 31, 1995 7,543,000 75,000
YEAR ENDED DECEMBER 31, 1996:
Issuance of Common stock:
Upon conversion of convertible preferred stock 454,000 4,000
Upon conversion of 7% convertible promissory notes and
accrued interest ($20,000) and related costs of $41,000 152,000 2,000
Upon conversion of 12% convertible promissory notes and
accrued interest thereon of $100,000 net of related costs
of $218,000 7,004,000 70,000
For cash -
From consortium, net of placement costs of $212,000 632,000 7,000
Upon exercise of stock options 193,000 2,000
Other 38,000 --
In payment of accrued salaries and accounts payable 434,000 4,000
Upon exercise of warrants 196,000 2,000
In connection with costs relating to the issuance of 10%
convertible notes 462,000 5,000
Issuance of warrants for services rendered -- --
Issuance of warrants in settlement of litigation -- --
Net loss -- --
---------- --------
BALANCES AT DECEMBER 31, 1996 17,108,000 $171,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 47
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During
Paid-In Accumulated Development
Capital Deficit Stage
------- ------- -----
<S> <C> <C> <C>
BALANCES AT DECEMBER 31, 1995 $ 19,491,000 $(6,865,000) $(14,493,000)
YEAR ENDED DECEMBER 31, 1996:
Issuance of common stock:
Upon conversion of convertible
preferred stock (4,000) -- --
Upon conversion of 7% convertible
promissory notes and accrued interest
($20,000) and related costs of $41,000 277,000 -- --
Upon conversion of 12% convertible
promissory notes and accrued interest
thereon of $100,000 net of related costs
of $218,000 1,612,000 -- --
For cash:
From consortium, net of placement costs
of $212,000 2,181,000 -- --
Upon exercise of stock options 95,000 -- --
Other 19,000 -- --
In payment of accrued salaries and accounts
payable 260,000 -- --
Upon exercise of warrants 98,000 -- --
In connection with costs relating to the
issuance of 10% convertible notes 520,000 -- --
Issuance of warrants for services rendered 175,000 -- --
Issuance of warrants in settlement of
litigation 68,000 -- --
Net loss -- -- (4,384,000)
------------ ----------- ------------
BALANCES AT DECEMBER 31, 1996 $ 24,792,000 $(6,865,000) $(18,877,000)
</TABLE>
F-9
<PAGE> 48
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During
Common Stock Paid-In Accumulated Development
Shares Amount Capital Deficit Stages
------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Balances At December 31, 1996 17,108,000 $171,000 $24,792,000 $(6,865,000) $(18,877,000)
YEAR ENDED DECEMBER 31, 1997:
Issuance of common stock:
In connection with costs relating to the issuance 493,000 5,000 575,000
of 10% convertible notes
In connection with the sale of Escrowed Shares by 2,669,000 27,000 2,219,000
the Convertible Note Purchasers
Upon exercise of warrant 100,000 1,000 13,000
In payment of accrued salaries and accounts 646,000 6,000 369,000
payable
Issuance of warrants:
For services rendered 88,000
In connection with the sale of the 8.5% senior 400,000
secured convertible notes
Issuance of the 8.5% senior secured convertible 9,821,000
notes
Net loss: (14,164,000)
---------- -------- ----------- ----------- ------------
BALANCES AT DECEMBER 31, 1997 21,016,000 210,000 38,277,000 (6,865,000) (33,041,000)
YEAR ENDED DECEMBER 31, 1998:
Issuance of common stock:
In connection with settlement of litigation 125,000 1,000 124,000
Upon exercise of stock options 98,000 1,000 53,000
For cash 143,000 2,000 98,000
In lieu of interest 1,670,000 17,000 451,000
Net loss: (3,261,000)
---------- -------- ----------- ----------- ------------
BALANCES AT DECEMBER 31, 1998 23,052,000 $231,000 $39,003,000 $(6,865,000) $(36,302,000)
========== ======== =========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 49
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Period From
December 31, July 21, 1989
--------------------------- (Date of Inception)
Dec. 31, 1998
1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,261,000) $(14,164,000) $(36,302,000)
Adjustments to reconcile net loss to net cash flows from operating
activities:
Interest expense relating to the beneficial conversion feature of the
Senior Secured Convertible Note 9,821,000 17,841,000
Depreciation 232,000 205,000 799,000
Amortization of debt issue costs 142,000 181,000 1,062,000
Reduction of accrued expenses (270,000) -- (270,000)
Common stock issued in lieu of interest 468,000 1,176,000 1,756,000
Fair value of warrants and option granted for services rendered -- 88,000 209,000
Common stock issued for services provided -- -- 206,000
Common stock issued upon settlement of litigation 125,000 -- 125,000
Expenses paid by shareholder on behalf of Company -- -- 79,000
Changes in operating assets and liabilities:
Accounts receivable (77,000) -- (77,000)
Other current assets (2,000) (5,000) (1,000)
Security and equipment deposits (46,000) (29,000) (95,000)
Accounts payable, accrued expenses and customer deposits 45,000 (24,000) 2,033,000
Due to related parties -- -- (118,000)
------------ ------------ ------------
Net cash used in operating activities (2,644,000) (2,751,000) (12,764,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (273,000) (3,000) (1,012,000)
Restricted cash -- 65,000 --
Other -- -- 94,000
------------
Net cash provided by (used in) investing activities (273,000) 62,000 (918,000)
------------ ------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Net advance repayable only out of proceeds of public offering -- -- 471,000
Proceeds received upon issuance of common stock 100,000 -- 3,339,000
Proceeds received from issuance of preferred stock, net of related costs -- -- 100,000
Proceeds received upon exercise of options and warrants, net of costs 54,000 14,000 637,000
Net advances by former principal stockholder -- -- 321,000
Proceeds from sale of convertible debt 3,330,000 2,170,000 10,874,000
Debt issue costs -- (277,000) (887,000)
Repayment of convertible debt -- (100,000) (100,000)
------------ ------------ ------------
Net cash provided by financing activities 3,484,000 1,807,000 14,755,000
------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 567,000 (882,000) 1,073,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 506,000 1,388,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,073,000 $ 506,000 $ 1,073,000
============ ============ ============
</TABLE>
F-11
<PAGE> 50
<TABLE>
<CAPTION>
Period From
Year Ended July 21, 1989 (Date
December 31 of Inception) to
1998 1997 Dec. 31, 1998
---- ---- -------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Contribution to capital by former principal $--- $--- $3,659,000
stockholder
Related party debt exchanged for convertible debt $--- $--- $ 321,000
Exchange of indebtedness to former principal $--- $--- $ 445,000
stockholder for common stock
Issuance of common stock for services and accrued $--- $--- $ 352,000
salaries
Exchange of equipment and accrued rent for $--- $--- $ 271,000
common stock
Subordinated notes and related accrued interest $--- $--- $3,300,000
exchanged for Series A preferred stock
Exchange of convertible debt for convertible $--- $--- $ 356,000
preferred stock
Conversion of convertible debt and accrued interest into common $--- $1,508,000 $4,776,000
stock, net of unamortized debt discount
Exchange of advances repayable only out of proceeds of $--- $--- $ 471,000
public offering for common stock
Deferred offering costs on warrants exercised $--- $--- $ 88,000
Issuance of warrants in settlement of litigation for debt issue $--- $488,000 $ 364,000
costs and for services rendered
Common stock issued for costs related to 10% promissory notes $--- $--- $ 525,000
</TABLE>
See accompanying notes to consolidated financial statements
F-12
<PAGE> 51
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - HISTORY OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Lithium Technology Corporation ("LTC") and its wholly-owned subsidiary,
Lithion Corporation ("Lithion"), collectively referred to as the
"Company", are development stage companies in the process of
commercializing a unique, solid-state, lithium-polymer rechargeable
battery. The Company is engaged in research and development activities to
further develop and exploit this battery technology and also holds
various patents relating to such batteries. The Company's
commercialization focus is on the rapidly growing portable electronics
market segment (notebook and palmtop computers and wireless
communications devices).
The date of inception of the Company's development stage is July 21,
1989. At that time, the Company exchanged its capital stock for all of
the capital stock of Lithion and an operating company in a reverse
acquisition. The operating company was divested in November 1993. The
accumulated deficit associated with the operating company of $6,865,000
has been segregated from the Company's deficit accumulated during the
development stage in the accompanying consolidated financial statements.
ESTIMATES AND UNCERTAINTIES - 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, as determined at a later date, could differ from those
estimates.
FINANCIAL INSTRUMENTS - Financial instruments include cash and cash
equivalents, other assets, accounts payable and convertible promissory
notes payable. With the exception of convertible promissory notes
payable, management believes that the amounts reported for financial
instruments are reasonable approximations of their fair values due to
their short-term nature.
The convertible promissory notes payable outstanding at December 31, 1998
are payable July 1, 2002, bear interest at 8.5% and are convertible into
the Company's Common Stock at a conversion price of $.28 per share. The
conversion price represented a discount from the quoted market price of
the Company's Common Stock and as a result during 1997, the Company
recorded interest expense of $9,821,000 for the intrinsic value of this
"beneficial conversion feature" (see Note 7). It is not practicable to
estimate the fair value of this financial instrument due to a lack of
existing comparable financial instruments. In January 1999, these
promissory notes were converted into 19,642,857 shares of the Company's
Common Stock and 562,647 shares of the Company's Common Stock were issued
to pay accrued interest to the conversion date (see Note 8).
CONSOLIDATION - As indicated above, the consolidated financial statements
include the accounts of LTC and Lithion. All significant intercompany
accounts and transactions have been eliminated.
F-13
<PAGE> 52
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Furniture and fixtures, computer equipment and software and laboratory
equipment are depreciated primarily using the straight-line method over
their estimated useful lives of 3 to 7 years. Leasehold improvements are
amortized over the period of the respective lease using the straight-line
method.
DEBT ISSUE COSTS - Costs related to the issuance of convertible
promissory notes are capitalized. Such costs are amortized over the term
of the related debt using the straight-line method.
INCOME TAXES - Deferred tax assets and liabilities are computed for
temporary differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible amounts
in the future based on enacted tax laws and rates applicable to the
periods in which the temporary differences are expected to affect taxable
income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
STOCK OPTIONS - Effective January 1, 1996, the Company adopted Statement
of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). In accordance with SFAS No. 123, the
Company has elected to account for stock option grants using the
intrinsic value based method prescribed by APB Opinion No. 25. Since the
exercise price equaled or exceeded the estimated fair value of the
underlying shares at the date of grant, no compensation was recognized in
1998 and 1997.
NET LOSS PER COMMON SHARE - The Company has presented net loss per common
share pursuant to Statement of Financial Accounting Standards No. 128,
"Earnings Per Share". Net loss per common share is based upon the
weighted average number of outstanding common shares. For the years ended
December 31, 1998 and 1997, the Company's potential common shares have an
anti-dilutive effect on earnings per share and, therefore, have not been
used in determining the total weighted average number of common shares
outstanding. Potential common shares resulting from convertible notes
payable, stock options and warrants that would be used to determine
diluted earnings per share for the years ended December 31, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
POTENTIAL COMMON SHARES
-----------------------
1998 1997
---- ----
<S> <C> <C>
Stock options 4,598,000 2,909,000
Warrants 4,590,000 4,590,000
Convertible debt 19,643,000 19,643,000
Accrued interest on
Convertible debt 462,000 462,000
---------- ----------
Total 29,293,000 27,604,000
========== ==========
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS - Effective January 1, 1998, the Company
adopted Financial Accounting Standards Board Statement No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"). During the periods
presented, the Company had no changes in equity from transactions or
other events and circumstances from non-owner sources. Accordingly, a
statement of comprehensive income has not been provided as comprehensive
loss equals net loss for all periods presented.
Effective January 1, 1998, the Company was required to adopt SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information".
This statement establishes standards for the reporting of information
about operating segments and requires the reporting of selected
information about operating segments in interim financial statements. It
also establishes standards for related disclosures about products,
services, geographic areas and major customers. As a development stage
enterprise, adoption of this standard had no impact on the Company's
financial statement disclosures.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts collectively
referred to as derivatives, and for hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those statements at fair
value. This statement is effective for fiscal years beginning after June
15, 1999, although early adoption is encouraged. The Company is
evaluating the effect that the adoption of SFAS No. 133 will have on its
consolidated financial position and results of operations but does not
expect the effect to be material.
F-14
<PAGE> 53
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - OPERATING AND LIQUIDITY DIFFICULTIES AND MANAGEMENT'S PLANS TO
OVERCOME:
The accompanying consolidated financial statements of the Company have
been prepared on a going concern basis, which contemplates the
continuation of operations, realization of assets and liquidation of
liabilities in the ordinary course of business. Since its inception, the
Company has incurred substantial operating losses and expects to incur
additional operating losses over the next several years. The Company does
not expect to generate any revenues from operations prior to late 1999 or
the first quarter of 2000. Since December 1993, operations have been
financed primarily through the use of proceeds from the sale of
convertible debt and private placements of common and preferred stock.
Continuation of the Company's operations is dependent upon its ability to
raise additional financing. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The
accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
MANAGEMENT'S PLANS - During the last five years, the Company has
recruited a new management team and a core technical staff with
commercialization and battery technology expertise. The staff has
expertise in technology, commercialization, process development, battery
engineering and strategic alliance development. A modern research
facility was leased and product development commenced. The Company's
operating results to date are solely attributable to research and
development activities, general and administrative expenses and interest
expenses.
Management's operating plan seeks to minimize the Company's capital
requirements, but commercialization of the Company's battery technology
will require substantial amounts of additional capital. The Company
expects that research and development expenses will increase
significantly as it continues to advance its battery technology and
develop products for commercial applications. The Company's working
capital and capital requirements will depend upon numerous factors,
including, without limitation, the progress of the Company's research and
development program, the levels and resources that the Company devotes to
the development of manufacturing and marketing capabilities,
technological advances, the status of competitors and the ability of the
Company to establish collaborative arrangements with other companies to
provide research and development funding to the Company and to
manufacture and market the Company's products.
The Company has raised approximately $14,800,000 since inception through
various sales of convertible debt and common and preferred stock.
Management believes that, as of December 31, 1998, the Company only has
capital resources sufficient to meet the Company's obligations through
May 1999, other than financing for the development of manufacturing
capacity. Management's plans include expansion of its strategic
alliances, which would provide capital from joint development programs,
license fees or an additional equity investment. The Company also plans
to raise additional capital by means of private and/or public equity or
debt financings.
There can be no assurance that the incremental capital needed to attain
commercial viability of the Company's battery technology will be
obtained, which the Company currently estimates at approximately $18
million without regard to the capital requirements for the development of
any manufacturing capacity. If the Company is unable to raise sufficient
capital, it will be forced to curtail research and development
expenditures which, in turn, will delay, and could prevent, the
completion of the commercialization process.
NOTE 3 - PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1998 is summarized as follows:
<TABLE>
<S> <C>
Laboratory equipment $1,122,000
Furniture and office equipment 95,000
Leasehold improvements 45,000
-----------
$1,262,000
Less: Accumulated depreciation and amortization 799,000
-----------
$ 463,000
===========
</TABLE>
F-15
<PAGE> 54
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - RELATED PARTY TRANSACTIONS:
CONSULTING AGREEMENTS - In May 1996, the Company entered into a
consulting agreement with a former director to provide investment
advisory services, shareholder relations and related consulting services
to the Company. The agreement was for a period of one year and was
automatically renewable for not more than two additional years. In
addition, in consideration for past and prospective services provided to
the Company by this former director's corporation, the Company issued to
such corporation a warrant to purchase 1,500,000 shares of the Company's
Common Stock at an exercise price of $1.54 per share. The warrant also
included certain anti-dilutive provisions which had entitled the warrant
holder to purchase approximately 2,400,000 shares of the Company's Common
Stock at an exercise price of $0.96 per share.
In December 1997, in consideration for removing the anti-dilution
provisions and reducing the term of the warrant, the Company amended the
warrant to entitle the warrant holder to purchase 2,800,000 shares of the
Company's Common Stock at an exercise price of $0.85 per share. In
addition, the Consulting agreement was terminated upon payment of an
additional $84,000 to the Consultant. Total amounts charged to operations
under the agreement were $203,000 in 1997.
NOTE 5 - INCOME TAXES:
Deferred income taxes reflect the net effects of temporary differences
between the amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The principal
temporary difference arises from the net operating loss carryforwards and
results in a deferred tax asset of approximately $6,900,000 at December
31, 1998.
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax asset will not be realized. The Company
has determined, based on its recurring net losses, lack of a commercially
viable product and limitations under current tax law, that a full
valuation allowance is appropriate at December 31, 1998.
At December 31, 1998, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $16,900,000 expiring in
the years 2004 through 2013 and net operating loss carryforwards of
approximately $11,700,000 for state income tax purposes, expiring in the
years 1999 through 2001.
Current tax law limits the use of net operating loss carryforwards after
there has been a substantial change in ownership (as defined) during a
three year period. Due to changes in ownership between 1993 and 1997, and
the conversion of the Senior Secured Convertible Notes in January 1999
(see Note 8), there exists substantial risk that the Company's use of net
operating losses may be severely limited under the Internal Revenue Code.
F-16
<PAGE> 55
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - COMMITMENTS AND CONTINGENCIES:
LEASES - The Company leases its principal operating facility from an
unrelated party providing for annual rent of $122,400 through November
1999 and contains an option to renew for an additional five years.
EMPLOYMENT AGREEMENTS - The Company has a four-year employment agreement
with its Director of Research providing for annual compensation of
$125,000 through February, 1999.
In May 1996, the Company entered into a one year employment agreement
with its Chief Executive Officer at an annual salary of $185,000 and
other incentives, including performance bonuses and stock options. The
agreement has been extended through December 31, 1998. The officer
voluntarily elected to defer his compensation until October 1997 and
again in October 1998. At December 31, 1998 such deferral ($211,416) has
been included in accrued salaries in the accompanying financial
statements. In 1997, the Board of Directors approved the issuance of
246,623 shares of the Company's Common Stock to the officer in
satisfaction of $100,000 of accrued but unpaid salary. The fair value of
the shares was $125,000. Additional expense of $25,000 was recognized as
a result of the transaction.
In June 1998, the Company extended for two years the employment
agreements with its President/Chief Operating Officer and its Executive
Vice President of Operations/Chief Technical Officer at annual salaries
of $155,000 and $145,000, respectively, plus other incentives, including
performance bonuses and stock options. These employment agreements were
extended on the same terms and conditions except that no new options were
granted.
LEGAL PROCEEDINGS - In May 1998, the Company reached agreements to
settle law suits with a former director of the Company and the Company's
former legal counsel. As a result of the agreements, the Company issued
125,000 shares of its Common Stock, received a cash settlement payment
and eliminated an accrued liability. The net effect of the settlement was
cash proceeds to the Company of $505,000.
F-17
<PAGE> 56
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - STOCKHOLDERS' EQUITY:
PREFERRED STOCK - The Company is authorized to issue up to 100,000 shares
of preferred stock, all of which is currently undesignated and may be
divided and issued from time to time in one or more series as may be
designated by the Board of Directors. In the event of liquidation,
dissolution or winding up of the Company, the holders of the preferred
stock will be entitled to a liquidation preference over the Common Stock.
The preferred stock may be entitled to such dividends, redemption rights,
liquidation rights, conversion rights and voting rights as the Board of
Directors, in its discretion, may determine, in a resolution or
resolutions providing for the issuance of any such stock. Rights granted
by the Board of Directors may be superior to those of existing
shareholders, (including the right to elect a controlling number of
directors as a class). Preferred stock can be issued without the vote of
the holders of Common Stock. No shares of preferred stock are outstanding
at December 31, 1998.
CONVERTIBLE NOTES - In October 1996, the Company issued $1.75 million
principal amount convertible notes (the "Convertible Notes") to two
purchasers (the "Convertible Note Purchasers"). The notes bore interest
at 10% and were convertible into Common Stock of the Company at the
option of the Convertible Note Purchasers in the event of default by the
Company. In connection with the issuance of the Convertible Notes, the
Company issued 267,176 shares of Common Stock to the Convertible Note
Purchasers. As fees to a placement agent, the Company paid $122,500,
issued 66,794 shares of Common Stock, and issued warrants to purchase
87,500 shares of Common Stock at an exercise price of $1.31. The total
fair value of the shares and warrants issued to the Convertible Note
Purchasers and the placement fee consideration was $560,000, which was
capitalized as debt issue costs.
Under the terms of the Convertible Note Agreements, additional interest
was payable by the Company in the form of shares of common stock. Total
shares issued for interest were 127,941 in 1996 and 492,843 from January
to March 1997. The fair value of the common stock charged to interest
expense was $87,500 in 1996 and $580,000 in 1997.
The Company did not repay the $1.75 million principal of the Convertible
Notes on the March 24, 1997 maturity date and, accordingly, pursuant to
the terms of the Convertible Note Agreements, the Company placed in
escrow an additional 6,201,550 shares of the Company's Common Stock (the
"Escrowed Shares"). Based on the terms of an amended agreement with
Convertible Note Purchasers, on September 22, 1997, the Company paid
$100,000 to the Convertible Note Purchasers to reduce the principal
amount of the Convertible Notes. During September 1997 through November
1997, the Convertible Note Purchasers sold 2,163,158 Escrowed Shares
which further reduced the principal amount of the Convertible Notes by
$1,650,000. In addition, 32,350 Escrowed Shares were issued to the
Convertible Note Purchasers to satisfy interest accrued subsequent to
March 1997. Of the remaining Escrowed Shares, 12.5% or 473,160 Escrowed
Shares were issued to the Convertible Note Purchasers and 87.5% or
3,532,882 Escrowed Shares were returned to the Company and subsequently
retired. The fair value of the 473,160 additional shares issued of
$596,000 was charged to interest expense in 1997.
BRIDGE FINANCING - In July and August 1997, the Company obtained bridge
financing for an aggregate $500,000 by issuing convertible notes to five
lenders and an aggregate of 100,000 warrants to these lenders. The terms
of this bridge financing, as amended, included, among other things,
interest of 8% on the bridge notes, maturity of the bridge notes on
September 30, 1997, the convertibility of the bridge notes into the
Company's Common Stock at $.28 per share, and an exercise price of $.14
per share for the bridge lenders' warrants. On September 22, 1997, these
convertible notes were repaid from proceeds of the sale of $5.5 million
of the Company's Senior Secured Convertible Notes. In November 1997,
warrants to purchase 100,000 shares of the Company's Common Stock were
exercised by the bridge lenders at an exercise price of $.14 per share.
The fair value of the warrants of $66,000 was recorded as debt issue
costs and charged to interest expense in 1997.
SENIOR SECURED CONVERTIBLE NOTES DUE JULY 1, 2002 - On September 22,
1997, the Company entered into a Senior Secured Convertible Note Purchase
Agreement (the "Note Purchase Agreement") with Lithium Link LLC (the
"Lender") for the sale of $5.5 million of the Company's Senior Secured
Convertible Notes (the "Notes"). Interest accrues at 8.5% and is payable
annually, at the Company's election in cash or the Company's Common
Stock. The Company issued 1,669,634 shares of Common Stock to the
noteholders in payment of interest from September 22, 1997 to September
21, 1998. The principal of the Notes is payable on or before July 1,
2002. The Notes are convertible into the Company's Common Stock at a
conversion price of $.28 per share. In 1997, the Company recorded the
intrinsic value of the beneficial conversion feature of the Senior
Secured Convertible Notes as a charge to interest expense of $9,821,000.
The holders of the Notes will have two demand registration rights and
"piggyback" registration rights, subject to conditions set forth in the
Note Purchase Agreement.
F-18
<PAGE> 57
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the sale of the Notes, the Company entered into a
Consulting Agreement with Interlink Management Corporation ("IMC")
whereby IMC will be paid $5,000 per month for one year, with the Company
having an option to renew the Consulting Agreement for another one year
term. IMC was also paid $150,000 and granted a warrant to purchase
500,000 shares of the Company's Common Stock at an exercise price of $.40
per share. The estimated fair value of the warrants of $334,000 and the
fee paid were capitalized as debt issue costs. IMC provides consulting
services in connection with strategic planning and the identification of
prospective strategic alliance partners with respect to the manufacture
and distribution of the Company's lithium-ion polymer rechargeable
battery products.
Total debt issue costs incurred in 1997 were $677,000, including $277,000
paid in cash, $66,000 of warrants issued to the bridge lenders (see Note
7) and $334,000 of warrants issued to IMC.
The Notes are secured by a first priority security interest in favor of
the Lender as to substantially all of the Company's assets other than the
Company's intellectual property. The Company's obligations under the
Notes are guaranteed by the Company's subsidiary, Lithion Corporation,
and the Company pledged its interest in the shares of Lithion Corporation
as security for repayment of the Notes.
The Company granted to the Lender a nonexclusive, royalty-free,
assignable, and sublicenseable license to use the Company's
lithium-ion-related patents and other intellectual property for the
manufacture and distribution of lithium-ion polymer batteries in a
defined territory essentially comprised of designated countries in Asia
and Oceania, provided that the agreement expressly excludes the use of
the licensed subject matter for the manufacture of lithium metal polymer
battery products. The License Agreement provides that the Lender may not
exercise the license unless a bankruptcy proceeding is filed by or
against the Company or other bankruptcy-related triggering events
respecting the Company occur.
In January 1999, the Notes were converted into shares of the Company's
Common Stock (see Note 8).
ACCOUNTS PAYABLE - In December 1997, the Company issued 399,652 shares of
its Common Stock in settlement of accounts payable of $200,000. The fair
value of the shares was $250,000. Additional expense of $50,000 was
recognized as a result of the transaction.
STOCK INCENTIVE PLAN - The Company's Board of Directors adopted the 1994
Stock Incentive Plan (the "1994 Stock Plan") in February 1994. The 1994
Stock Plan shall terminate ten years after its initial effective date,
unless terminated earlier by the Board of Directors. A total of 2,666,667
shares of common stock shall be reserved and available for grants. On
December 2, 1997, shares of common stock available for grant was
increased to 5,333,334. Stock options permitting the holder to purchase a
specified number of shares of common stock will be granted at an exercise
price not less than 100% of the fair value of such stock on the date of
grant. The stock options may be in the form of an incentive stock option
or a non-qualified stock option. Options granted generally vest 25% upon
grant and 25% upon each anniversary of the grant date. Options granted
will be cancelled immediately upon termination of the grantee's
employment or association with the Company, except in certain situations
such as retirement, death or disability.
In June, 1997, the Board of Directors approved the exchange of options
held by each employee (including executive officers) under the Company's
Stock Plan for new options. The new options provide for an exercise price
of $0.58 per share, the then estimated fair market value of the common
stock. The Board of Directors determined such change to be appropriate in
order to sustain the incentivization of all of its employees. Such new
options vest according to the same schedule as the original options. As a
result of this stock options repricing, the company cancelled a total of
1,529,357 stock options and granted the same number of new stock options
at the aforementioned $0.58 exercise price per share.
F-19
<PAGE> 58
DIRECTORS STOCK OPTION PLAN - In August 1995, the Board of Directors
adopted the Directors Stock Option Plan (the "Directors Plan"). The
Directors Plan shall terminate ten years after its initial effective
date, unless terminated earlier by the Board of Directors. A total of
333,333 shares of the Company's common stock shall be reserved and
available for grant. Stock options permitting the holder to purchase a
specified number of shares of common stock will be granted at an exercise
price equaling the then fair market value of the common stock on the date
of grant. Options granted generally vest 25% upon each anniversary of the
grant date. Upon the termination of a participant's association with the
Company, options granted will remain exercisable for a period of three
months or until the stated expiration of the stock option, if earlier.
1998 Stock Incentive Plan - The Company's Board of Directors adopted the
1998 Stock Incentive Plan (the "1998 Plan") in December 1998. The 1998
Plan terminates in December 2008. A total of 3,000,000 shares of common
stock shall be reserved and available for grants. The exercise price of
an option granted under the 1998 Plan will not be less than the fair
market value of the Company's Common Stock on the date of grant; however,
for any non-qualified Stock Option the option price per share of Common
Stock, may alternatively, be fixed at any price deemed to be fair and
reasonable, as of the date of grant. Options granted under the 1998 Plan
generally vest one-third at the date of grant and one-third at each of
the first two anniversary dates following the date of grant.
Options under the 1994 Stock Plan, the Directors Plan and the 1998 Plan
as of December 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
Weighted Weighted
Average Average
Options Exercise Price Options Exercise Price
<S> <C> <C> <C> <C>
Outstanding, beginning of year 2,909,000 $ .73 1,851,000 $ 1.35
Granted 2,103,000 $ .32 2,640,000 $ 0.74
Exercised (98,000) $ .55
Cancelled (316,000) $ .65 (1,582,000) $ 1.50
--------- ------- --------- --------
Outstanding, end of year 4,598,000 $ .55 2,909,000 $ 0.73
--------- ------- --------- --------
Options exercisable, end of year 2,615,000 $ .52 1,695,000 $ 0.64
--------- ------- --------- --------
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Weighted Average Weighted
Average Remaining Average
Range of Options Exercise Contractual Options Exercise
Exercise Prices outstanding Price Life Exercisable Price
<S> <C> <C> <C> <C> <C>
$.28 1,991,000 $.28 10 years 655,000 $.28
$.58 1,509,000 $.58 7 years 1,449,000 $.58
$.79-$1.09 !,098,000 $.99 9 years 511,000 $.99
--------- ---------
4,598,000 2,615,000
</TABLE>
F-20
<PAGE> 59
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The per share weighted-average fair value of stock options granted during
1998 and 1997 was $.25 and $.62 on the date of grant. The Company applies
Accounting Principles Board Opinion No. 25 and related Interpretations in
accounting for its stock option plans. Accordingly, no compensation cost
has been recognized for its stock option plans. Had the compensation cost
for the Company's stock option plans been determined based on the fair
value at the grant dates for awards under those plans consistent with the
method of FASB Statement 123, the Company's pro forma net loss for the
years ended December 31, 1998 and 1997 would have been $3,726,000 ($.17
per share) and $14,550,000 ($.81 per share), respectively.
The fair value of options granted under the Company's stock option plans
was estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions used: 1998 - no
dividend yield, expected volatility of 103%, risk-free interest rate of
4.8% and expected life of 5 years; 1997 - no dividend yield, expected
volatility of 114%, risk-free interest rate of 5.5% and expected life of
5 years.
F-21
<PAGE> 60
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
WARRANTS -
Warrants are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average Exercise
Warrants Price
-------- -----
<S> <C> <C>
Outstanding, January 1, 1997 2,360,000 $1.52
Granted in 1997 2,330,000 $0.85
Exercised in 1997 (100,000) $0.14
--------- -----
Outstanding, December 31, 1997 4,590,000 $0.93
--------- -----
Exercisable, December 31, 1997 3,233,000 $0.86
--------- -----
</TABLE>
There was no activity with respect to warrants during 1998. The following table
summarizes information about warrants outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Weighted Weighted Average Weighted
Range of Warrants Average Remaining Warrants Average
Exercise Prices Outstanding Exercise Price Contractual Life Exercisable Exercise Price
- --------------- ----------- -------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$.40 - $.85 3,984,000 $0.76 3 years 2,884,000 $0.72
$1.00 - $1.54 399,000 $1.19 4 years 249,000 $1.30
$3.20 - $4.50 207,000 $3.73 5 years 100,000 $3.60
--------- ---------
4,590,000 3,233,000
</TABLE>
During 1997, the Company issued warrants in exchange for consulting
services and in connection with the sale of convertible debt securities.
The Company accounts for warrants issued to nonemployees based on the
estimated fair market value of the services received or the equity
instruments issued, whichever is more reliably measurable. The fair value
of warrants related to the sale of debt securities are capitalized as
debt issue costs and amortized over the term of the debt using the
straight-line method. For warrants issued in 1997, the Company
capitalized $400,000 in debt issue costs and recorded expense of $88,000
for consulting services received.
F-22
<PAGE> 61
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 1997, in consideration for removing certain anti-dilution
provisions and decreasing the term of the warrants from ten years to five
years, two consultants who held warrants to purchase an aggregate of
2,640,000 shares of the Company's Common Stock at a weighted average
exercise price of $1.02 per share, received amended warrants to purchase
a total of 3,080,000 shares of the Company's common stock at an exercise
price of $.85 per share. Because the estimated fair value of the existing
warrants was in excess of the estimated fair value of the amended
warrants at the transaction date, no additional compensation was
recorded.
NOTE 8 - SUBSEQUENT EVENTS AND PRO FORMA INFORMATION - In January 1999,
the Company's Notes were converted to equity by the Lender in accordance
with the original terms of the Note Purchase Agreement (see Note 7). As a
result of the conversion, the Company issued 19,642,857 shares of its
Common Stock to convert the Notes and 562,647 shares of its Common Stock
to pay accrued interest to the conversion date. In addition, the
Consulting Agreement with IMC expired according to its terms and all
security interests and licenses held by IMC and the Lender were cancelled
and terminated.
The unaudited pro forma balance sheet presented herein reflects the
conversion of the $5,500,000 Notes and accrued interest of $129,000 into
$201,000 of common stock and $5,428,000 of additional paid-in-capital,
and the write-off of related debt issue costs of $496,000 to additional
paid-in capital.
F-23
<PAGE> 1
[LOGO] Exhibit 10.46
June 1, 1998
Mr. David J. Cade
Lithium Technology Corporation
5115 Campus Drive
Plymouth Meeting, Pennsylvania 19462
Dear Mr. Cade:
Reference is made to your employment agreement dated July 24, 1996, as
amended and extended (the "Employment Agreement"), with Lithium Technology
Corporation (the "Company") and your several stock option agreements with the
Company.
This shall confirm that the Employment Agreement is extended as of May 1,
1998 for two years on the same terms as set forth in the Employment Agreement
except as set forth herein, and your stock option agreements are hereby amended
as follows:
(i) The granting of new stock options to you during the two years
commencing May 1, 1998 will be subject to negotiations between the Company and
you.
(ii) Your salary shall be at the rate of $155,000 per year commencing as
of May 1, 1998.
(iii) For calendar year 1998 you will be awarded a bonus of $31,000
payable in one lump sum upon satisfaction of both of the following:
(a) The closing on or before November 13, 1998 of the sale of the
Company's convertible preferred stock with gross proceeds to the Company of
$20,000,000 or more; and
(b) execution and delivery on or before December 1, 1998 of the
definitive joint venture agreement by and between the Company and Elite
Material Co. Ltd., or the acceptance on or before December 1, 1998 of at
least 200 (8Ah/12V) pre-production battery packs by an original equipment
manufacturer.
(iv) In the event of a Change in Control (as defined in your stock option
agreements) with respect to the Company (after the date hereof and including,
without limitation, a Change in Control resulting from the Lithium Link
$5,500,000 Convertible Notes and/or the R&R Capital Convertible Preferred Stock
transaction) followed by the termination of your employment with the Company
resulting from either your resignation or the Company's termination of your
employment without cause (specifically excluding your death, disability, or
termination by the Company for cause), you will be paid the following: (a) if
such termination occurs before July 23, 1999, then you will be paid your salary
as in effect on such termination date (but not less than at the rate of
$155,000 per year) payable in accordance with the Company's payroll practice
in
<PAGE> 2
effect as of such termination; or (b) if such termination occurs on or after
July 23, 1999, then you will be paid one year's salary at the rate in effect as
of such termination (but not less than the rate of $155,000 per year) in one
lump sum within 90 days after such termination.
(v) (a) If your employment by or association with the Company or its
direct or indirect subsidiaries terminates for any reason other than "for
cause" as defined in Paragraph 5(a) of your Employment Agreement, all currently
(i.e. at the time of such termination) exercisable installments of your options
(without regard to when granted or to which of your stock option agreements
otherwise governs) shall be exercisable for a period of sixty (60) months from
the date of termination and, to the extent not exercised, shall terminate at
the end of such 60-month period. All other installments of your options shall
immediately and automatically terminate upon such termination of your
employment or association with the Company.
(b) If your employment by or association with the Company or its direct
or indirect subsidiaries terminates by virtue of a termination for cause as
defined in Paragraph 5(a) of your Employment Agreement, the Company's Stock
Incentive Plan Committee (the "Committee") shall have the continuing option to
continue or terminate the options, whether vested or not, in the Committee's
sole discretion, without prior notice to you; provided, however, that you (if
permitted by the Committee) must exercise the options for all remaining shares
within three (3) months after the date you ceased to be an employee of or
associated with the Company. To the extent the options are not exercised within
said three (3) month period, the options shall terminate. If you are not
employed pursuant to an employment agreement or consulting agreement as of the
date of such termination, cause shall mean the substantial breach or continuous
neglect by you of your employment obligations, or willful misconduct by you in
the performance of such obligations which occurs or persists after notice and an
opportunity to cure.
(vi) If you are unable to continue your employment or association with the
Company as a result of your disability (as such condition is defined in the
Company's Stock Incentive Plan) you may, but only within thirty-six (36) months
from the date of disability, exercise such portion of the options which have
vested to the extent you were entitled to exercise it at the date of such
disability, and such portion of the options which you were not entitled to
exercise at the date of such disability shall terminate as of the date of such
disability. If you do not exercise such portion of the options which have
vested and which you were entitled to exercise within the 36 months specified,
these options
2
<PAGE> 3
shall terminate at the end of such 36-month period. Notwithstanding the above,
with respect to Incentive Stock Options, the time period for exercising
Incentive Stock Options in the case of disability shall be (60) sixty months
from the date of such disability.
(vii) In the event of your death during the term of the options and while
an employee or consultant of the Company and having been employed continuously
as an employee or consultant since the date of grant of the options, the
options may be exercised, at any time within thirty-six (36) months following
the date of death, by your estate or by a person who acquired the right to
exercise the options by bequest or inheritance but only to the extent of the
right to exercise that had accrued at the date of death. If your estate or a
person who acquired the right to exercise the options by bequest or inheritance
does not exercise such portion of your options which have vested and which you
were entitled to exercise in the time specified herein, the options shall
terminate at the end of such 36-month period. Notwithstanding the above, with
respect to Incentive Stock Options, the time period for exercising Incentive
Stock Options in the case of death shall be sixty (60) months from date of
death.
This letter also confirms, in summary, you outstanding options as follows:
Exercisable @ $0.58 = 355,981
Exercisable @ $1.00 = 79,001
Future Vesting @ $1.00 = 237,000
Total = 671,982
By signing below, you agree to and accept the two-year extension ending on
July 23, 2000. The terms of your Employment Agreement and stock option
agreements are hereby ratified, approved, and confirmed except as modified
herein.
Very truly yours,
/s/ THOMAS R. THOMSEN
-----------------------------
Thomas R. Thomsen, Chairman &
Chief Executive Officer
Accepted and agreed to:
/s/ DAVID J. CADE
- -----------------
David J. Cade
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[LOGO] Exhibit 10.47
June 1, 1998
Dr. George R. Ferment
Lithium Technology Corporation
5115 Campus Drive
Plymouth Meeting, Pennsylvania 19462
Dear Mr. Ferment:
Reference is made to your employment agreement dated July 24, 1996, as
amended and extended (the "Employment Agreement"), with Lithium Technology
Corporation (the "Company") and your several stock option agreements with the
Company.
This shall confirm that the Employment Agreement is extended as of May 1,
1998 for two years on the same terms as set forth in the Employment Agreement
except as set forth herein, and your stock option agreements are hereby amended
as follows:
(i) The granting of new stock options to you during the two years
commencing May 1, 1998 will be subject to negotiations between the Company and
you.
(ii) Your salary shall be at the rate of $145,000 per year commencing as
of May 1, 1998.
(iii) For calendar year 1998 you will be awarded a bonus of $29,000
payable in one lump sum upon satisfaction of both of the following:
(a) The closing on or before November 13, 1998 of the sale of the
Company's convertible preferred stock with gross proceeds to the Company of
$20,000,000 or more; and
(b) execution and delivery on or before December 1, 1998 of the
definitive joint venture agreement by and between the Company and Elite
Material Co. Ltd., or the acceptance on or before December 1, 1998 of at
least 200 (8Ah/12V) pre-production battery packs by an original equipment
manufacturer.
(iv) In the event of a Change in Control (as defined in your stock option
agreements) with respect to the Company (after the date hereof and including,
without limitation, a Change in Control resulting from the Lithium Link
$5,500,000 Convertible Notes and/or the R&R Capital Convertible Preferred Stock
transaction) followed by the termination of your employment with the Company
resulting
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from either your resignation or the Company's termination of your employment
without cause (specifically excluding your death, disability, or termination by
the Company for cause), you will be paid the following: (a) if such termination
occurs before July 23, 1999, then you will be paid your salary as in effect on
such termination date (but not less than at the rate of $155,000 per year)
payable in accordance with the Company's payroll practice in effect as of such
termination; or (b) if such termination occurs on or after July 23, 1999, then
you will be paid one year's salary at the rate in effect as of such termination
(but not less than the rate of $155,000 per year) in one lump sum within 90 days
after such termination.
(v) (a) If your employment by or association with the Company or its
direct or indirect subsidiaries terminates for any reason other than "for
cause" as defined in Paragraph 5(a) of your Employment Agreement, all currently
(i.e. at the time of such termination) exercisable installments of your options
(without regard to when granted or to which of your stock option agreements
otherwise governs) shall be exercisable for a period of sixty (60) months from
the date of termination and, to the extent not exercised, shall terminate at
the end of such 60-month period. All other installments of your options shall
immediately and automatically terminate upon such termination of your
employment or association with the Company.
(b) If your employment by or association with the Company or its direct
or indirect subsidiaries terminates by virtue of a termination for cause as
defined in Paragraph 5(a) of your Employment Agreement, the Company's Stock
Incentive Plan Committee (the "Committee") shall have the continuing option to
continue or terminate the options, whether vested or not, in the Committee's
sole discretion, without prior notice to you; provided, however, that you (if
permitted by the Committee) must exercise the options for all remaining shares
within three (3) months after the date you ceased to be an employee of or
associated with the Company. To the extent the options are not exercised within
said three (3) month period, the options shall terminate. If you are not
employed pursuant to an employment agreement or consulting agreement as of the
date of such termination, cause shall mean the substantial breach or continuous
neglect by you of your employment obligations, or willful misconduct by you in
the performance of such obligations which occurs or persists after notice and an
opportunity to cure.
(vi) If you are unable to continue your employment or association with the
Company as a result of your disability (as such condition is defined in the
Company's Stock Incentive Plan) you may, but only within thirty-six (36) months
from the date of
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disability, exercise such portion of the options which have vested to the extent
you were entitled to exercise it at the date of such disability, and such
portion of the options which you were not entitled to exercise at the date of
such disability shall terminate as of the date of such disability. If you do not
exercise such portion of the options which have vested and which you were
entitled to exercise within the 36 months specified, these options shall
terminate at the end of such 36-month period. Notwithstanding the above, with
respect to Incentive Stock Options, the time period for exercising Incentive
Stock Options in the case of disability shall be (60) sixty months from the date
of such disability.
(vii) In the event of your death during the term of the options and while
an employee or consultant of the Company and having been employed continuously
as an employee or consultant since the date of grant of the options, the
options may be exercised, at any time within thirty-six (36) months following
the date of death, by your estate or by a person who acquired the right to
exercise the options by bequest or inheritance but only to the extent of the
right to exercise that had accrued at the date of death. If your estate or a
person who acquired the right to exercise the options by bequest or inheritance
does not exercise such portion of your options which have vested and which you
were entitled to exercise in the time specified herein, the options shall
terminate at the end of such 36-month period. Notwithstanding the above, with
respect to Incentive Stock Options, the time period for exercising Incentive
Stock Options in the case of death shall be sixty (60) months from date of
death.
This letter also confirms, in summary, you outstanding options as follows:
Exercisable @ $0.58 = 388,038
Exercisable @ $1.00 = 79,000
Future Vesting @ $1.00 = 237,000
Total = 704,038
By signing below, you agree to and accept the two-year extension ending on
July 23, 2000. The terms of your Employment Agreement and stock option
agreements are hereby ratified, approved, and confirmed except as modified
herein.
Very truly yours,
/s/ THOMAS R. THOMSEN
-----------------------------
Thomas R. Thomsen, Chairman &
Chief Executive Officer
Accepted and agreed to:
/s/ DR. GEORGE R. FERMENT
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Dr. George R. Ferment
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EXHIBIT 10.48
LITHIUM TECHNOLOGY CORPORATION
1998 STOCK INCENTIVE PLAN
1. Objectives. The Lithium Technology Corporation (the "Company")
1998 Stock Incentive Plan (the "Plan") is designed to attract, motivate and
retain selected employees and directors of, and other individuals providing
services to, the Company. These objectives are accomplished by making long-term
incentive and other awards under the Plan, thereby providing Participants with a
proprietary interest in the growth and performance of the Company.
2. Definitions.
(a) Affiliate. Any corporation, partnership or other legal entity
in which the Company owns, directly or indirectly, 50% or more of
the total combined voting power of all classes of stock of such
corporation or of the capital interest or profits interest of such
partnership or other legal entity.
(b) Award. The grant of any form of stock option, stock
appreciation right or stock award, whether granted singly, in
combination or in tandem, to a Participant pursuant to such terms,
conditions, performance requirements, and limitations and
restrictions as the Committee may establish in order to fulfill
the objectives of the Plan.
(c) Award Agreement. An agreement between the Company and a
Participant setting forth the terms, conditions, performance
requirements, limitations and restrictions applicable to an Award.
(d) Board. The Board of Directors of Lithium Technology
Corporation.
(e) Change in Control. A change in control shall be deemed to have
occurred if (i) any "person", including a "group" (as such terms
are used in Sections 13(d) and 14(d)(2) of the Exchange Act, but
excluding the Company, any Affiliate, or any employee benefit plan
of the Company, or any Affiliate) is or becomes the "beneficial
owner" (as defined in Rule 13(d)(3) under the Exchange Act),
directly or indirectly, of securities the Company representing 30%
or more of the combined voting power of the Company's then
outstanding securities; (ii) a change of more than 25% in the
composition of the Board of Directors occurs within a two-year
period unless such change was approved in advance by at least
two-thirds of the previous directors; or (iii) the stockholders of
the Company shall approve a definitive agreement for the sale or
other disposition of all or substantially all of the assets of the
Company to any other entity.
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Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to occur in the event the Company files for bankruptcy,
liquidation or reorganization under the United States Bankruptcy
Code.
(f) Change in Control Price. The higher of (i) the highest price
per share of Stock offered in conjunction with any transaction
resulting in a Change in Control (as determined in good faith by
the Committee if any part of the offered price is payable other
than cash) or, (ii) the highest Fair Market Value of the Stock on
any of the 30 trading days immediately preceding the date on which
a Change in Control occurs.
(g) Code. The Internal Revenue Code of 1986, as amended from time
to time.
(h) Committee. The committee of the Board as may be designated
from time to time by the Board to administer the Plan. If at any
time no Committee shall be in office, then the functions of the
Committee specified in the Plan shall be exercised by the Board.
For purposes of any Awards made pursuant to the Plan to any
non-employee directors, the term Committee shall mean the
"Non-Employee Directors Compensation Committee" which shall
initially as of December 18, 1998 be comprised of the then current
members of the Lithium Technology Corporation Directors' Stock
Option Plan Committee and for purposes of any other Awards made
pursuant to the Plan, the term Committee shall mean the "1998 Plan
Compensation Committee" which shall initially as of December 18,
1998 be comprised of the then current members of the Compensation
Committee of the 1994 Stock Incentive Plan of Lithium Technology
Corporation.
(i) Company. Lithium Technology Corporation and its direct and
indirect subsidiaries.
(j) Disabled or Disability. Permanent and total disability as
determined under the Company's long-term disability program or, if
no such program has been adopted, the continuous absence of an
employee for 187 consecutive days or more due to physical or
mental illness or incapacity.
(k) Exchange Act. Securities Exchange Act of 1934, as amended,
together with the rules and regulations thereunder.
(l) Fair Market Value. The value of a share of Stock on a
particular date, determined as follows: (i) if the Stock is not
listed on such date on any national securities exchange but is
traded in the over-the-counter market, the closing "bid"
quotations of a share of Stock on such date (or if none, on the
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most recent date on which there were bid quotations of a share of
Stock), as reported on the National Association of Securities
Dealers, Inc. Automated Quotation System, or, if not so reported,
as reported by the National Quotation Bureau, Incorporated, or any
other similar service selected by the Board; or (ii) if the Stock
is listed on such date on one or more national securities
exchanges, the last reported sale price of a share of Stock on
such date as recorded on the composite tape system, or, if such
system does not cover the Stock, the last reported sale price of a
share of Stock on such date on the principal national securities
exchange on which the Stock is listed, or if no sale of Stock took
place on such date, the last reported sale price of a share of
Stock on the most recent day on which a sale of a share of Stock
took place as recorded by such system or on such exchange, as the
case may be; or (iii) if the Stock is neither listed on such date
on a national securities exchange nor traded in the
over-the-counter market, as determined by the Committee on an
annual basis, within 45 days after the completion of the audit of
the Company's annual financial statements.
(m) Participant. An individual to whom an Award has been made
under the Plan. Awards may be made to any employee, director,
officer or consultant to the Company, or any other individual
providing services to, the Company. However, incentive stock
options may be granted only to individuals who are employed by the
Company or by a subsidiary corporation (within the meaning of
Section 424(f) of the Code) of the Company, including a subsidiary
that becomes such after the adoption of the Plan.
(n) Stock. Authorized and issued or unissued shares of Common
Stock of the Company or any security issued in exchange or
substitution therefor.
3. Stock Available for Awards. Subject to Section 11 hereof, a total
of 3,000,000 shares of Stock shall be available for issuance pursuant to Awards
granted under the Plan. Shares of Stock may be made available from the
authorized but unissued shares of the Company or from shares held in the
Company's treasury and not reserved for some other purpose. For purposes of
determining the number of shares of Stock issued under the Plan, no shares shall
be deemed issued until they are actually delivered to a Participant, or such
other person in accordance with Section 7 hereof. Shares of Stock related to
Awards, or portions of Awards, that are forfeited, cancelled or terminated,
expire unexercised, are surrendered in exchange for other Awards, or are settled
in such manner that all or some of the shares of Stock covered by an Award are
not and will not be issued to a Participant, shall be restored to the total
number of shares of Stock available for issuance pursuant to Awards. Further,
shares tendered to or withheld by the Company in connection with the exercise of
stock options, or the payment of tax withholding on any Award, shall also be
available for future issuance under Awards.
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4. Administration. The Plan shall be administered by two committees
(the "1998 Plan Compensation Committee" and the "Non-Employee Directors
Committee" as defined above), which Committees shall have full power with
respect to their respective specified subject matters to select Participants, to
grant Awards to interpret the Plan, to grant waivers of Award restrictions to
whom Awards may be granted from time to time, to continue, accelerate or suspend
exercisability, vesting or payment of an Award and to adopt such rules,
regulations and guidelines for carrying out the Plan as it may deem necessary or
proper. The interpretation and construction by the Committee of any provision of
this Plan or of any agreement or document evidencing the grant of any Award and
any determination by the Committee pursuant to any provision of this Plan or any
such agreement, notification or document, shall be final and conclusive. No
member of the Committee shall be liable to any person for any such action taken
or determination made in good faith.
5. Awards. The Committee shall determine the types and timing of
Awards to be made to each Participant and shall set forth in the related Award
Agreement the terms, conditions, performance requirements, and limitations
applicable to each Award. Awards may include those listed below in this Section
5. Awards may be granted singly, in combination or in tandem, or in substitution
for, or as alternatives to, grants or rights under any other benefit plan of the
Company, including any plan of any entity acquired by, or merged with or into,
the Company. Awards shall be effected through Award Agreements executed by the
Company in such forms as are approved by the Committee from time to time.
The Committee may determine to make any or all of the following
Awards:
(a) Stock Options. A grant of a right to purchase a specified
number of shares of Stock at an exercise price not less than 100%
of the Option Price of the Stock on the date of grant, in
accordance with Subsection (i) below, provided that, in the case
of a stock option granted retroactively in tandem with or as
substitution for another award granted under any plan of the
Company or plan of any entity acquired by, or merged with or into
the Company, the exercise price may be the same as the purchase or
designated price of such other award. If the optionee is an owner
of stock (as determined under Section 424(d) of the Internal
Revenue Code) that possesses more than 10% of the total combined
voting power of all classes of stock of the Company or a parent or
subsidiary corporation ("Ten Percent Stockholder"), the option
price per share in the case of an incentive stock option shall not
be less than 110% of the fair market value of a share of Common
Stock on the date of the option grant. A stock option may be in
the form of (i) an incentive stock option ("Incentive Stock
Option" or "ISO") which, in addition to being subject to such
terms, conditions and limitations as are established by the
Committee, complies with Section 422 of the Code or (ii) a
non-qualified stock option subject to such terms, conditions and
limitations as are established by the Committee. The aggregate
Fair Market Value (as determined as of the time
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of grant) of the Stock with respect to which incentive stock
options are exercisable for the first time by an employee in any
calendar year under the Plan (and/or any other incentive stock
option plans of the Company) shall not exceed $100,000. To the
extent that any Stock Option is not designated as an Incentive
Stock Option or even if so designated does not qualify as an
Incentive Stock Option, it shall constitute a Nonqualified Stock
Option.
Stock Options granted under the Plan shall be subject to the
following terms and conditions and shall contain such additional
terms and conditions as the Committee shall deem desirable and set
forth on the Award Agreement:
(i) Option Price. The option price per share of Common
Stock shall not be less than the Fair Market Value of the
Common Stock subject to the Stock Option on the date of
grant; provided, however, that for any Nonqualified Stock
Option, the option price per share of Common Stock may,
alternatively, be fixed at any price deemed to be fair and
reasonable, as of the date of grant, by the Committee.
(ii) Option Term. The term of each Stock Option shall be
fixed by the Committee, but no Incentive Stock Option shall
be exercisable more than 10 years after the date the Stock
Option is granted.
(iii) Exercisability. Except as otherwise provided herein,
Stock Options shall be exercisable at such time or times
and subject to such terms and conditions as shall be
determined by the Committee. If the Committee provides that
any Stock Option is exercisable only in installments, the
Committee may at any time waive such installment exercise
provisions, in whole or in part, based on such factors as
the Committee may determine. In addition, the Committee may
at any time accelerate the exercisability of any Stock
Option.
(iv) Payment of Exercise Price. The price at which shares
of Stock may be purchased under a Stock Option shall be
paid in full in cash at the time of the exercise or, if
permitted by the Committee, by means of tendering Stock or
surrendering another Award or any combination thereof. The
Committee shall determine acceptable methods of tendering
Stock or other Awards and may impose such conditions on the
use of Stock or other Awards to exercise a Stock Option as
it deems appropriate.
(b) Stock Appreciation Rights. A right to receive a payment, in
cash or Stock, equal in value to the excess of the Fair Market
Value of a specified number of shares of Stock on the date the
stock appreciation right ("SAR") is
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exercised over the grant price of the SAR, which shall not be less
than 100% of the Fair Market Value on the date of grant of such
SAR, as determined by the Committee, provided that if an SAR is
granted in tandem with or in substitution for another award
granted under any plan of the Company, the grant price may be the
same as the exercise or designated price of such other award.
(c) Stock Awards. An Award made in Stock or denominated in units
of Stock. All or part of any stock award may be subject to
conditions established by the Committee, and set forth in the
Award Agreement, which may include, but are not limited to,
continuous service with the Company, achievement of specific
business objectives, increases in specified indices, attaining
growth rates, and other comparable measurements of the Company
performance.
6. Tax Withholding. Prior to the payment or settlement of any Award,
the Participant must pay, or make arrangements acceptable to the Company for the
payment of, any and all federal, state and local tax withholding that in the
opinion of the Company is required by law. The Company shall have the right to
deduct applicable taxes from any Award payment and withhold, at the time of
delivery or vesting of shares under the Plan, an appropriate number of shares
for payment of taxes required by law or to take such other action as may be
necessary in the opinion of the Company to satisfy all obligations for
withholding of such taxes.
7. Transferability. Nonqualified Stock Options shall be freely
transferable by the Participant, subject, however, to compliance with applicable
federal and state securities laws and regulations. No Award, other than
Nonqualified Stock Options, shall be transferable or assignable, or payable to
or exercisable by, anyone other than the Participant to whom it was granted,
except, (a) by law, will or the laws of descent and distribution, (b) as a
result of the disability of a Participant or (c) that the Committee (in the form
of an Award Agreement or otherwise) may permit transfers of Awards by gift or
otherwise to a member of a Participant's immediate family and/or trusts whose
beneficiaries are members of the Participant's immediate family, or to such
other persons or entities as may be approved by the Committee. Notwithstanding
the foregoing, in no event shall ISOs be transferable or assignable other than
by will or by the laws of descent and distribution.
8. Termination of Employment. If the employment of a Participant
terminates, other than as a result of the death or disability of a Participant,
all unexercised, deferred and unpaid Awards shall be canceled immediately,
unless the Award Agreement provides otherwise. In the event of the death of a
Participant or in the event a Participant is deemed by the Company to be
Disabled, the Participant or the Participant's estate, beneficiaries or
representative, as the case may be, shall have the rights and duties of the
Participant under the applicable Award Agreement.
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9. Change in Control.
(a) Subject to the provisions of Section 9(b) below, in the
event of a Change in Control, each Stock Option shall, at
the discretion of the Committee either be cancelled in
exchange for a payment in cash of an amount equal to the
excess, if any, of the Change in Control Price over the
exercise price for such Stock Option, or be fully
exercisable regardless of the exercise schedule otherwise
applicable to such Stock Option and all restricted shares
of Stock and all SARs shall become nonforfeitable and be
immediately transferable or payable, as the case may be.
(b) Notwithstanding Section 9(a), no cancellation, acceleration
of exercisability, vesting, cash settlement or other
payment shall occur with respect to any Award or any class
of Awards if the Committee reasonably determines in good
faith prior to the occurrence of a Change in Control that
such Award or Awards shall be honored or assumed, or new
rights substituted therefore (such honored, assumed or
substituted award hereinafter called an "Alternative
Award"), by a Participant's employer (or for the parent or
an Affiliate of such employer) immediately following the
Change in Control, provided that any such Alternative Award
must:
(i) be based on stock which is traded on an established
securities market, or which will be so traded within
60 days of the Change in Control;
(ii) provide such Participant (or each Participant in a
class of Participants) with rights and entitlements
substantially equivalent to or be better than the
rights, terms and conditions applicable under such
Award, including, but not limited to, an identical
or better exercise or vesting schedule and identical
or better timing and methods of payment;
(iii) have substantially equivalent economic value to such
Award (determined at the time of Change in Control);
and
(iv) have terms and conditions which provide that in the
event that the Participant's employment is
involuntarily terminated or constructively
terminated, any conditions on a Participant's rights
under, or any restrictions on transfer or
exercisability applicable to, each such Alternative
Award shall be waived or shall lapse, as the case
may be.
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For this purpose, a constructive termination shall mean a termination by a
Participant following a material reduction in the Participant's base salary or a
Participant's incentive compensation opportunity or a material reduction in the
Participant's responsibilities, in either case without the Participant's written
consent.
10. Term, Amendment, and Termination of the Plan. The Plan will
terminate on December 18, 2008. Awards outstanding as of the date of any such
termination shall not be affected or impaired by the termination of the Plan.
The Board may amend, alter, or discontinue the Plan to the extent it deems
appropriate in the best interest of the Company, but no amendment, alteration or
discontinuation shall be made which would (a) impair the rights of an optionee
under a Stock Option or a recipient of a SAR or restricted share of Stock
theretofore granted without the optionee's or recipient's consent, except such
an amendment which is necessary to cause any Award or transaction under the Plan
to qualify, or continue to qualify, for the exemption provided by Rule 16b-3 or
(b) disqualify any Award or transaction under the Plan from the exemption
provided by Rule 16b-3. In addition, no such amendment shall be made without the
approval of the Company's stockholders to the extent such approval is required
by law or agreement.
The Committee may amend the terms of any Award Agreement, but no such amendment
shall impair the rights of any participant without the participant's consent
except such an amendment which is necessary to cause any Award or transaction
under the Plan to qualify, or to continue to qualify, for the exemption provided
by Rule 16b-3.
Subject to the above provisions, the Board shall have authority to amend the
Plan to take into account changes in law and tax and accounting rules as well as
other developments, and to grant Awards that qualify for beneficial treatment
under such rules without stockholder approval.
11. Adjustments. In the event of any change in the outstanding Stock
of the Company by reason of a stock split, stock dividend, combination or
reclassification of shares, recapitalization, merger or similar event, the
Committee may adjust proportionally (a) the number of shares of Stock (i)
available for issuance under the Plan, and (ii) covered by outstanding Awards
denominated in stock or units of Stock; (b) the exercise and grant prices
related to outstanding Awards; and (c) the appropriate Fair Market Value and
other price determinations for such Awards as the Committee in its sole
discretion may in good faith determine to be equitably required in order to
prevent dilution or enlargement of the rights of Participants. Moreover, in the
event of any such transaction or event, the Committee may provide in
substitution for any or all outstanding Awards under this Plan such alternative
consideration as it may in good faith determine to be equitable under the
circumstances and may require in connection therewith the surrender of all
Awards so replaced. The Committee may also make or provide for such adjustments
in the number of Shares specified in Section
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3 of this Plan as the Committee in its sole discretion may in good faith
determine to be appropriate in order to reflect any transaction or event
described in this Section 11. In the event of any other change affecting the
Stock or any distribution to holders of Stock, such adjustments in the number
and kind of shares and the exercise, grant and conversion prices of the affected
Awards as may be deemed equitable by the Committee, including adjustments to
avoid fractional shares, shall be made to give proper effect to such event.
12. Miscellaneous.
(a) Any notice to the Company required by any of the provisions of
the Plan shall be addressed to the Committee, c/o the Secretary of
the Company, and shall become effective when it is received.
(b) The Plan shall be unfunded and the Company shall not be
required to establish any special account or fund or to otherwise
segregate or encumber assets to ensure payment of any Award.
(c) Nothing contained in the Plan shall prevent the Company from
adopting other or additional compensation arrangements or plans,
subject to shareholder approval if such approval is required, and
such arrangements or plans may be either generally applicable or
applicable only in specific cases.
(d) No Participant shall have any claim or right to be granted an
Award under the Plan and nothing contained in the Plan shall be
deemed or be construed to give any Participant the right to be
retained in the employ of the Company or to interfere with the
right of the Company to discharge any Participant at any time
without regard to the effect such discharge may have upon the
Participant under the Plan. Except to the extent otherwise
provided in any plan or in an Award Agreement, no Award under the
Plan shall be deemed compensation for purposes of computing
benefits or contributions under any other plan of the Company.
(e) The Plan and each Award Agreement shall be governed by the
laws of the State of Delaware, excluding any conflicts or choice
of law rule or principle that might otherwise refer construction
or interpretation of the Plan to the substantive law of another
jurisdiction.
(f) The Committee shall have full power and authority to interpret
the Plan and to make any determinations thereunder and the
Committee's determinations shall be binding and conclusive.
Determinations made by the Committee under the Plan need not be
uniform and may be made selectively among individuals, whether or
not such individuals are similarly situated.
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(g) If any provision of the Plan is or becomes or is deemed
invalid, illegal or unenforceable in any jurisdiction, or would
disqualify the Plan or any Award under any law deemed applicable
by the Committee, such provision shall be construed or deemed
amended or limited in scope to conform to applicable laws or, in
the discretion of the Committee, it shall be stricken and the
remainder of the Plan shall remain in full force and effect.
(h) The Plan shall become effective on the date it is approved by
the Board, subject to approval by the holders of a majority of the
shares of Stock then outstanding. The Committee may grant Awards
subject to the condition that this Plan shall have been approved
by the stockholders of the Company.
(i) With respect to persons subject to Section 16 of the Exchange
Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by
the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the
Committee.
(j) The Committee may grant Awards to employees who are subject to
the tax laws of nations other than the United States, which Awards
may have terms and conditions that differ from other Awards
granted under the Plan for the purposes of complying with foreign
tax laws.
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EXHIBIT 10.49
LITHIUM TECHNOLOGY CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
[FOR GRANTS TO EMPLOYEES]
LITHIUM TECHNOLOGY CORPORATION, a Delaware corporation (the "Company"),
hereby grants to (the "Optionee"), an Incentive Stock Option (the
"Option") to purchase a total of _______ shares of the Company's Common Stock,
at the price set forth herein, and subject to the terms, definitions and
provisions of the 1998 Stock Incentive Plan (the "Plan") adopted by the Company,
which is incorporated herein by reference. The terms defined in the Plan shall
have the same defined meanings herein.
1. NATURE OF THE OPTIONS. The Incentive Stock Option is intended to
qualify as an "incentive stock option" as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). The shares underlying the Option
are hereinafter referred to as the "Shares".
2. EXERCISE PRICE. The exercise price of the Option is $ per
share for each share subject to the Option.
3. TERMS OF OPTIONS. This Option is granted in connection with the
Optionee's employment by the Company. Subject to provisions contained elsewhere
in this Agreement, the Option may be exercised cumulatively as set forth below
after the vesting date set forth below, until the day preceding the tenth
anniversary of the date hereof (the "Termination Date"):
<TABLE>
<CAPTION>
VESTING DATE NUMBER OF OPTIONS
------------ -----------------
<S> <C>
12/18/98 [1/3 number of shares]
12/18/99 [1/3 number of shares]
12/18/00 [1/3 number of shares]
</TABLE>
4. ADMINISTRATION. The Plan is administered by committees of the Board,
one such committee serving in the event of a grant of an Award to a non-employee
director, and the other such committee serving in the event of any other grant
of an Award (collectively the "Committee" as defined in the Plan). This second
committee is to be composed solely of two or more Non-Employee Directors and if
there shall not be at least two Non-Employee Directors, shall be composed of the
entire Board. All determinations and acts of the Committee as to any matters
concerning the Plan, including interpretations or constructions of this Option
and of the Plan, shall be conclusive and binding on the Optionee and any parties
claiming through the Optionee.
1
<PAGE> 2
5. EXERCISE. Unless the Optionee ceases to be employed by the Company
or a direct or indirect subsidiary thereof, the right of the Optionee to
purchase Shares hereunder, subject to any installment requirements set forth
above, may be exercised in whole or in part at any time after the accrual of
such respective installment and prior to the Termination Date, except as
otherwise provided herein. The Option may not be exercised for a fraction of a
share. Notwithstanding the foregoing, the Optionee's right to exercise the
Option shall be subject to Shareholder approval of the Plan and shall be limited
by the number of shares of Company Common Stock available for issuance pursuant
to Awards granted under the Plan. Notwithstanding any provision to the contrary
contained in this Option Agreement, if any of the following events shall occur,
the Options shall become immediately exercisable upon the earlier to occur of:
(1) the happening of a Change in Control, as defined in the Plan; 2) the
Company's revenues from product sales, as reported in the Company's most recent
quarterly or annual report filed with the United States Securities and Exchange
Commission, equals or exceeds $1,000,000.00; or 3) the average of the closing
bid prices for the Company's Common Stock has been equal to or greater than
$5.00 for thirty (30) consecutive business days.
6. NOTICE OF EXERCISE. The Option shall be exercisable by written
notice (the "Notice") which shall state the election to exercise the Option and
the number of Shares in respect of which the Option is being exercised, and such
other representations and agreements as to the Optionee's investment intent with
respect to such Shares as may be required by the Company pursuant to the
provisions of the Plan. Such written notice shall be signed by the Optionee and
shall be delivered in person or by certified mail to the President of the
Company. The written notice shall be accompanied by payment in full of the
exercise price in cash, or in any other manner approved by the Committee,
including payment by surrender of shares of Common Stock of the Company at their
fair market value on the date of delivery.
7. DELIVERY OF CERTIFICATES. As soon as practicable after receipt of
the Notice and payment, and subject to the next two paragraphs, the Company
shall, without transfer or issue tax or other incidental expense to the
Optionee, deliver to the Optionee a certificate or certificates for the shares
of Common Stock so purchased. Such delivery shall be made (a) at the offices of
the Company at 5115 Campus Drive, Plymouth Meeting, Pennsylvania 19462, (b) at
such other place as may be mutually acceptable to the Company and the Optionee,
or (c) by certified mail addressed to the Optionee at the Optionee's address
shown in the records of the Company.
8. WITHHOLDING. The Company shall have the right to withhold an
appropriate number of shares of Common Stock (based on the fair market value
thereof on the date of exercise) for payment of taxes required by law or to take
such other action as may be necessary in the opinion of the Company to satisfy
all tax withholding obligations.
9. COMPLIANCE WITH LAWS. The Company may postpone the time of delivery
of certificate(s) for shares of Common Stock for such additional time as the
Company shall deem necessary or desirable to enable it to comply with the
requirements of any securities exchange upon
2
<PAGE> 3
which the Common Stock may be listed, or the requirements of the Securities Act
of 1933, as amended, the Securities Exchange Act of 1934, as amended, any rules
or regulations of the Securities and Exchange Commission promulgated thereunder,
or any applicable state laws relating to the authorization, issuance or sale of
securities.
10. NON-TRANSFERABLE OPTIONS. During the Optionee's lifetime, this
Option shall be exercisable only by the Optionee and neither this Option nor any
right hereunder may be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner otherwise than by will or by the laws of descent or
distribution on the terms set forth in Section 13. The terms of this Option
Agreement shall be binding upon the executors, administrator, heirs, successors
and assigns of Optionee.
11. DEATH OF OPTIONEE. In the event of the death of Optionee during the
term of the Option and while an employee of the Company and having been employed
continuously as an employee since the date of grant of the Option, the Option
may be exercised, at any time within sixty (60) months following the date of
death, by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance but only to the extent of the
right to exercise that had accrued at the date of death. If Optionee's estate or
a person who acquired the right to exercise the Option by bequest or inheritance
does not exercise such portion of Optionee's Option which has vested and which
the Optionee was entitled to exercise in the time specified herein, the Option
shall terminate.
12. TERMINATION OF EMPLOYMENT.
(a) If Optionee's employment by the Company or its direct or indirect
subsidiaries terminates for any reason other than by reason of death or
disability or "for cause" as defined in Section 12(b) below, all currently
exercisable installments of this Option shall remain exercisable for a period of
sixty (60) months from the date of termination and, to the extent not exercised,
shall terminate. All other non-vested installments of this Option shall
immediately and automatically terminate.
(b) If Optionee's employment by the Company or its direct or indirect
subsidiaries terminates by virtue of a termination for cause (as defined in
Optionee's Employment Agreement, if applicable or as set forth below) the
Committee shall have the right to terminate the Option, upon the date of
termination of employment, whether vested or not, in their sole discretion,
without prior notice to Optionee. If Employee is not employed pursuant to an
Employment Agreement as of the date of termination, cause shall mean the
substantial breach or continuous neglect by Employee of his employment
obligations, or willful misconduct by Employee in the performance of such
obligations which occurs or persists after notice and an opportunity to cure.
13. DISABILITY OF OPTIONEE. If Optionee is unable to continue his
employment or association with the Company as a result of his disability (as
such condition is defined in the Plan) Optionee may, but only within sixty (60)
months from the date of disability, exercise such portion
3
<PAGE> 4
of the Option which has vested to the extent he was entitled to exercise it at
the date of such disability, and such portion of the Option which has not vested
shall terminate. If Optionee does not exercise such portion of the Option which
has vested and which Optionee was entitled to exercise within the time specified
herein, this Option shall terminate.
14. NON-DILUTION. In the event of any change in the outstanding Common
Stock by reason of a stock split, stock dividend, combination or
reclassification of shares, recapitalization, merger or similar event, the
Committee shall adjust proportionally (a) the number of Shares of Stock (i)
available for issuance under the Plan and (ii) covered by outstanding Awards
denominated in stock or units of stock; (b) the exercise and grant prices dated
to outstanding Awards; and (c) the appropriate Fair Market Value and other price
determinations for such Awards as the Committee in its sole discretion may in
good faith determine to be equitably required in order to prevent dilution or
enlargement of the rights of Participants. Moreover, in the event of any such
transaction or event, the Committee may provide in substitution for any or all
outstanding Awards under the Plan such alternative consideration as it may in
good faith determine to be equitable under the circumstances and may require in
connection therewith the surrender of all Awards so replaced. The Committee may
also make or provide for such adjustments in the number of Shares specified in
Section 3 of the Plan as the Committee in its sole discretion may in good faith
determine to be appropriate in order to reflect any such transaction or event.
In the event of any other change affecting the Common Stock or any distribution
(other than normal cash dividends) to holders of Common Stock, such adjustments
in the number and kind of shares and the exercise, grant and conversion prices
of the affected Awards as may be deemed equitable by the Committee, including
adjustments to avoid fractional shares, shall be made to give proper effect to
such event. Upon the occurrence of a "change in control", as defined in the
Plan, of the Company, each Option shall at the discretion of the Committee
either be cancelled in exchange for a payment in cash of any amount equal to the
excess, if any, of the Change in Control price over the exercise price for such
Option, or be fully exercisable regardless of the exercise schedule otherwise
applicable to such Option and all restricted shares of Stock and all SARs shall
become nonforfeitable and be immediately transferable or payable, as the case
may be, subject however to Paragraph 9(b) of the Plan. In the event of a
corporate merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation not constituting a change in control, the
Committee may terminate this Option, authorize the assumption of this Option or
substitute a new stock option for this Option, whether or not in a transaction
to which Section 424(a) of the Internal Revenue Code applies. The judgment of
the Committee with respect to any matter referred to in this paragraph shall be
conclusive and binding upon the Optionee and any parties claiming through the
Optionee.
15. REGISTRATION ON FORM S-8. The Company hereby agrees that in the
event that during the term Options are exercisable, the Company causes to be
filed with the Securities and Exchange Commission a registration statement on
Form S-8 (or equivalent form as may be in effect at such time) the Optionee may
include in such registration statement all shares underlying options granted to
Optionee under the Plan. The Company covenants that it will keep such
registration statement current and effective while the Optionee or his guardian
or estate has the right to exercise any of the options granted hereunder. The
Company also hereby agrees that in the event that during
4
<PAGE> 5
the term the Company causes to be filed with the Securities and Exchange
Commission a registration statement on a form other than Form S-8, Optionee
shall have "piggyback" registration rights to include in such registration
statement all the options and shares underlying options granted to Optionee
under the Plan, subject to a reasonable cutback in the inclusion of such options
and shares if the Board or the Company's underwriter determines that such
cutback is necessary to prevent an adverse effect on the Company's offering.
16. NON-COMPETITION.
(a) As consideration in part for the grant of the Options, Optionee
agrees that, for a period commencing on the date hereof and ending one year
after the termination of his employment with the Company for any reason,
Optionee shall not, anywhere in North America, directly or indirectly:
(i) solicit or attempt to solicit business of any customers
of the Company (including prospective customers solicited by the Company) for
products or services the same or similar to those offered, sold, produced or
under development by the Company during the term of this employment therewith or
dealt in by Optionee during his employment with the Company;
(ii) otherwise divert or attempt to divert from the Company
any business whatsoever;
(iii) solicit or attempt to solicit for any business
endeavor any employee of the Company;
(iv) interfere with any employment relationship or other
business relationship between the Company and any other individual, person, or
other entity;
(v) use the name of the Company or a name similar thereto;
or
(vi) render any services as an officer, director, employee,
partner, consultant or otherwise to, or have any interest as a stockholder,
partner, lender or otherwise in, any person which is engaged in activities
which, if performed by an Optionee would violate this Section 16.
(b) Optionee agrees that during the term of Optionee's employment
with the Company, Optionee will not, anywhere in North America, directly or
indirectly, as an independent contractor or otherwise, engage in any activity
for or on behalf of any person or entity in a competitive line of business to
that carried on by the Company, or engage in any manner in the design,
development, manufacturing, assembling, installing and/or marketing of
rechargeable lithium battery technology or other technology competitive with the
business carried on by the Company or dealt in by Optionee during his or her
employment with the Company.
5
<PAGE> 6
(c) If during the one year period commencing on the termination of
Optionee's employment with the Company for any reason, Optionee, directly or
indirectly engages, anywhere in North America, as an independent contractor or
otherwise, in any activity for or on behalf of any person or entity in a
competitive line of business to that carried on by the Company during the term
of Optionee's employment therewith, or engages in any manner in the design,
development, manufacturing, assembling, installing, and/or marketing of
rechargeable lithium battery technology or other technology competitive with the
business carried on by the Company during the term of Optionee's employment
therewith or dealt in by Optionee during Optionee's employment with the Company,
all the non-exercised vested and unvested options held by Optionee shall
terminate immediately, notwithstanding any other provisions to the contrary
contained herein.
(d) The provisions contained in paragraphs (b) and (c) of this
Section 16 shall not prevent Optionee from purchasing or owning up to five
percent (5%) of the voting securities of any corporation, the securities of
which are publicly-traded.
17. CONFIDENTIALITY.
(a) Optionee understands and acknowledges that as a result of
Optionee's employment with the Company, and involvement with the business of the
Company, Optionee is or shall necessarily become informed of, and have access
to, confidential information of the Company including, without limitation,
inventions, patents, patent applications, trade secrets, technical information,
know-how, plans, specifications, marketing plans and information, pricing
information, identity of customers and prospective customers and identity of
suppliers, and that such information, even though it may have been or may be
developed or otherwise acquired by Optionee, is the exclusive property of the
Company to be held by Optionee in trust and solely for the Company's benefit.
Optionee shall not at any time, either during or subsequent to Optionee's
employment hereunder, reveal, report, publish, transfer or otherwise disclose to
any person, corporation or other entity, or use, any of the Company's
confidential information, without the written consent of the Company's Board of
Directors, except for use on behalf of the Company in connection with the
Company's business, and except for such information which legally and
legitimately is or becomes of general public knowledge from authorized sources
other than Optionee.
(b) Upon termination of Optionee's employment with the Company for
any reason, Optionee shall promptly deliver to the Company all drawings,
manuals, letters, notes, notebooks, reports and copies thereof and all other
materials, including, without limitation, those of a secret or confidential
nature, relating to the Company's business which are in Optionee's possession or
control. The Company shall reimburse Optionee for any packing or moving costs
reasonably incurred by Optionee in connection with the foregoing delivery.
For purposes of this Section 17 and Section 16, the term "Company"
includes the Company and other predecessor corporation, and affiliates
(including, without limitation, distributors, licensees, franchisees,
subsidiaries and joint ventures).
6
<PAGE> 7
18. REMEDIES AND SURVIVAL. Because the Company does not have an
adequate remedy at law to protect its interest in its trade secrets, privileged,
proprietary or confidential information and similar commercial assets, or its
business from Optionee's competition, the Company shall be entitled to
injunctive relief, in addition to such other remedies and relief that would, in
the event of a breach or a threatened breach of the provisions of Sections 16
and 17, be available to the Company. The Company shall not be required to plead
or prove the inadequacy of damages. The provisions of Sections 16 and 17 and
this Section 18 shall survive any termination of Optionee's employment with the
Company for any reason whatsoever.
19. FAILURE TO PAY. If, upon tender of delivery thereof, the Optionee
fails to accept delivery of and pay or have paid for all or any part of the
number of shares of Common Stock specified in the Notice, the Optionee's right
to exercise this Option with respect to such undelivered and unpaid for shares
may be terminated by the Company.
20. RESTRICTIONS ON TRANSFER OF SHARES UNDERLYING OPTIONS.
The issuance of the Shares upon the exercise of the Option and the
transfer or resale of such Shares shall be subject to such restrictions as are,
in the opinion of the Company's counsel, required to comply with the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder,
and the certificate(s) representing such shares shall, if it is deemed advisable
by the Company's counsel, bear a legend to such effect.
21. NO RIGHTS OF SHAREHOLDER. Neither the Optionee nor any person or
persons entitled to exercise the Optionee's rights under this Option in
accordance herewith shall have any rights to dividends or to Common Stock
subject to this Option, except to the extent that a certificate for such shares
shall have been issued upon the exercise of this Option as provided herein.
22. NOTICES. Each notice relating to this Option shall be in writing
and delivered in person or by certified mail to the proper address. All notices
to the Company shall be addressed to it at its offices at 5115 Campus Drive,
Plymouth Meeting, Pennsylvania 19462, attention of the Committee, c/o the
Company's Secretary. All notices to the Optionee or other person or persons then
entitled to exercise any rights with respect to this Option shall be addressed
to the Optionee or such other person or persons at the Optionee's address shown
in the records of the Company or the location at which the Optionee is employed
by the Company. Anyone to whom a notice may be given under this Option may
designate a new address by notice to that effect.
23. NO RIGHT TO EMPLOYMENT. Neither the adoption of the Plan nor the
granting of this Option confers on the Optionee any right to continued
employment by the Company (or any of its direct or indirect subsidiaries) or in
any way interferes with or alters any of the Company's (and its direct and
indirect subsidiaries') rights to terminate the employment by the Company of the
Optionee at any time, with or without cause, and without liability therefor.
This Option shall not be deemed a part of the Optionee's regular, recurring
compensation for any purpose,
7
<PAGE> 8
including, without limitation, for the purposes of any termination indemnity or
severance pay law of any jurisdiction.
24. GOVERNING LAW. This Option and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by the Internal
Revenue Code of 1986, as amended from time to time, or the securities laws of
the United States, shall be governed by and construed under the laws of the
State of Delaware.
8
<PAGE> 9
IN WITNESS WHEREOF, LITHIUM TECHNOLOGY CORPORATION has caused this
Option to be executed by its officers as of the _____ day of __________.
LITHIUM TECHNOLOGY CORPORATION
By:__________________________________
Name:
Title:
ACCEPTED AND AGREED:
______________________
9
<PAGE> 10
LITHIUM TECHNOLOGY CORPORATION
NON-QUALIFIED STOCK OPTION AGREEMENT
[FOR GRANTS TO EMPLOYEES]
LITHIUM TECHNOLOGY CORPORATION, a Delaware corporation (the
"Company"), hereby grants to (the "Optionee"), a Non-Qualified Stock
Option (the "Option") to purchase a total of shares of the Company's
Common Stock, at the price set forth herein, and subject to the terms,
definitions and provisions of the 1998 Stock Incentive Plan (the "Plan") adopted
by the Company, which is incorporated herein by reference. The terms defined in
the Plan shall have the same defined meanings herein.
1. NATURE OF THE OPTIONS. The Option is a non-qualified stock
option. The shares underlying the Option are hereinafter referred to as the
"Shares".
2. EXERCISE PRICE. The exercise price of the Option is $ per
share for each share subject to the Option.
3. TERMS OF OPTIONS. This Option is granted in connection with the
Optionee's employment by the Company. Subject to provisions contained elsewhere
in this Agreement, the Option may be exercised cumulatively as set forth below
after the vesting date set forth below, until the day preceding the tenth
anniversary of the date hereof (the "Termination Date"):
<TABLE>
<CAPTION>
VESTING DATE NUMBER OF OPTIONS
------------ -----------------
<S> <C>
12/18/98 [1/3 number of shares]
12/18/99 [1/3 number of shares]
12/18/00 [1/3 number of shares]
</TABLE>
4. ADMINISTRATION. The Plan is administered by committees of the Board,
one such committee serving in the event of a grant of an Award to a non-employee
director, and the other such committee serving in the event of any other grant
of an Award (collectively the "Committee" as defined in the Plan). This second
committee is to be composed solely of two or more Non-Employee Directors and if
there shall not be at least two Non-Employee Directors, shall be composed of the
entire Board. All determinations and acts of the Committee as to any matters
concerning the Plan, including interpretations or constructions of this Option
and of the Plan, shall be conclusive and binding on the Optionee and any parties
claiming through the Optionee.
1
<PAGE> 11
5. EXERCISE. Unless the Optionee ceases to be employed by the Company
or a direct or indirect subsidiary thereof, the right of the Optionee to
purchase Shares hereunder, subject to any installment requirements set forth
above, may be exercised in whole or in part at any time after the accrual of
such respective installment and prior to the Termination Date, except as
otherwise provided herein. The Option may not be exercised for a fraction of a
share. Notwithstanding the foregoing, the Optionee's right to exercise the
Option shall be subject to Shareholder approval of the plan, and shall be
limited by the number of shares of Company Common Stock available for issuance
pursuant to Awards granted under the Plan. Notwithstanding any provision to the
contrary contained in this Option Agreement, if any of the following events
shall occur, the Options shall become immediately exercisable upon the earlier
to occur of: 1) the happening of a Change in Control, as defined in the Plan; 2)
the Company's revenues from product sales, as reported in the Company's most
recent quarterly report or annual report filed with the United States Securities
and Exchange Commission, equals or exceeds $1,000,000.00; or 3) the average of
the closing bid prices for the Company's Common Stock has remained at $5.00 or
higher for thirty (30) consecutive business days.
6. NOTICE OF EXERCISE. The Option shall be exercisable by written
notice (the "Notice") which shall state the election to exercise the Option and
the number of Shares in respect of which the Option is being exercised, and such
other representations and agreements as to the Optionee's investment intent with
respect to such Shares as may be required by the Company pursuant to the
provisions of the Plan. Such written notice shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company. The written notice shall be accompanied by payment in full of the
exercise price in cash, or in any other manner approved by the Committee,
including payment by surrender of shares of Common Stock of the Company at their
fair market value on the date of delivery.
7. DELIVERY OF CERTIFICATES. As soon as practicable after receipt of
the Notice and payment, and subject to the next two paragraphs, the Company
shall, without transfer or issue tax or other incidental expense to the
Optionee, deliver to the Optionee a certificate or certificates for the shares
of Common Stock so purchased. Such delivery shall be made (a) at the offices of
the Company at 5115 Campus Drive, Plymouth Meeting, Pennsylvania 19462, (b) at
such other place as may be mutually acceptable to the Company and the Optionee,
or (c) by certified mail addressed to the Optionee at the Optionee's address
shown in the records of the Company.
8. WITHHOLDING. The Company shall have the right to withhold an
appropriate number of shares of Common Stock (based on the fair market value
thereof on the date of exercise) for payment of taxes required by law or to take
such other action as may be necessary in the opinion of the Company to satisfy
all tax withholding obligations.
9. COMPLIANCE WITH LAWS. The Company may postpone the time of delivery
of certificate(s) for shares of Common Stock for such additional time as the
Company shall deem necessary or desirable to enable it to comply with the
requirements of any securities exchange
2
<PAGE> 12
upon which the Common Stock may be listed, or the requirements of the Securities
Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, any
rules or regulations of the Securities and Exchange Commission promulgated
thereunder, or any applicable state laws relating to the authorization, issuance
or sale of securities.
10. DEATH OF OPTIONEE. The terms of this Option Agreement shall be
binding upon the executors, administrators, heirs, successors and assigns of
Optionee. In the event of the death of Optionee during the term of the Option,
and while an employee of the Company and having been employed continuously as an
employee since the date of grant of the Option, the Option may be exercised, at
any time within thirty-six (36) months following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance but only to the extent of the right to exercise that
had accrued at the date of death. If Optionee's estate or a person who acquired
the right to exercise the Option by bequest or inheritance does not exercise
such portion of Optionee's Option which has vested and which the Optionee was
entitled to exercise in the time specified herein, the Option shall terminate.
11. FAILURE TO PAY. If, upon tender of delivery thereof, the Optionee
fails to accept delivery of and pay or have paid for all or any part of the
number of shares of Common Stock specified in the Notice, the Optionee's right
to exercise this Option with respect to such undelivered and unpaid for shares
may be terminated by the Company.
12. RESTRICTIONS ON TRANSFER OF SHARES UNDERLYING OPTIONS.
The issuance of the Shares subject hereto and upon the exercise of the
Option and the transfer or resale of such Shares shall be subject to such
restrictions as are, in the opinion of the Company's counsel, required to comply
with the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder, and the certificate(s) representing such shares shall,
if it is deemed advisable by the Company's counsel, bear a legend to such
effect.
13. NO RIGHTS OF SHAREHOLDER. Neither the Optionee nor any person or
persons entitled to exercise the Optionee's rights under this Option in
accordance herewith shall have any rights to dividends or to Common Stock
subject to this Option, except to the extent that a certificate for such shares
shall have been issued upon the exercise of this Option as provided herein.
14. TERMINATION OF EMPLOYMENT.
(a) If Optionee's employment by the Company or its direct or indirect
subsidiaries terminates for any reason other than by reason of death or
disability or "for cause" as defined in Paragraph 14 (b) below, all currently
exercisable installments of this Option shall remain exercisable for a period of
sixty (60) months from the date of termination and, to the extent not exercised,
shall terminate. All other non-vested installments of this Option shall
immediately and automatically terminate.
3
<PAGE> 13
(b) If Optionee's employment by the Company or its direct or indirect
subsidiaries terminates by virtue of a termination for cause (as defined in
Optionee's Employment Agreement, if applicable or as set forth below), the
Committee shall have the right to terminate the Option upon the date of
termination of employment, whether vested or not, in their sole discretion,
without prior notice to Optionee. If Employee is not employed pursuant to an
Employment Agreement as of the date of termination, cause shall mean the
substantial breach or continuous neglect by Employee of his employment
obligations, or willful misconduct by Employee in the performance of such
obligations which occurs or persists after notice and an opportunity to cure.
15. DISABILITY OF OPTIONEE. If Optionee is unable to continue his
employment with the Company as a result of his disability (as such condition is
defined in the Plan) Optionee may, but only within thirty-six (36) months from
the date of disability, exercise such portion of the Option which has vested to
the extent he was entitled to exercise it at the date of such disability, and
such portion of the Option which has not vested shall terminate. If Optionee
does not exercise such portion of the Option which has vested and which Optionee
was entitled to exercise within the time specified herein, this Option shall
terminate.
16. NON-DILUTION. In the event of any change in the outstanding Common
Stock by reason of a stock split, stock dividend, combination or
reclassification of shares, recapitalization, merger or similar event, the
Committee may adjust proportionally (a) the number of shares of Stock (i)
available for issuance under the Plan and (ii) covered by outstanding Awards
denominated in stock or units of stock; (b) the exercise and grant prices dated
to outstanding Awards; and (c) the appropriate Fair Market Value and other price
determinations for such Awards as the Committee in its sole discretion may in
good faith determine to be equitably required in order to prevent dilution or
enlargement of the rights of Participants. Moreover, in the event of any such
transaction or event, the Committee may provide in substitution for any or all
outstanding Awards under the Plan such alternative consideration as it may in
good faith determine to be equitable under the circumstances and may require in
connection therewith the surrender of all Awards so replaced. The Committee may
also make or provide for such adjustments in the number of shares specified in
Section 3 of the Plan as the Committee in its sole discretion may in good faith
determine to be appropriate in order to reflect any such transaction or event.
In the event of any other change affecting the Common Stock or any distribution
(other than normal cash dividends) to holders of Common Stock, such adjustments
in the number and kind of shares and the exercise, grant and conversion prices
of the affected Awards as may be deemed equitable by the Committee, including
adjustments to avoid fractional shares, shall be made to give proper effect to
such event. Upon the occurrence of a "change in control", as defined in the
Plan, of the Company, each Option shall at the discretion of the Committee
either be cancelled in exchange for a payment in cash of an amount equal to the
excess, if any of the Change in Control Price over the exercise price for such
Option, or be fully exercisable regardless of the exercise schedule otherwise
applicable to such Option and all restricted shares of Stock and all SARs shall
become nonforfeitable and be immediately transferable or payable, as the case
may be, subject however to Paragraph 9(b) of the Plan. In the event of a
corporate merger,
4
<PAGE> 14
consolidation, acquisition of property or stock, separation, reorganization or
liquidation not constituting a change in control, the Committee may terminate
this Option, authorize the assumption of this Option or substitute a new stock
option for this Option, whether or not in a transaction to which Section 424(a)
of the Internal Revenue Code applies. The judgment of the Committee with respect
to any matter referred to in this paragraph shall be conclusive and binding upon
the Optionee and any parties claiming through the Optionee.
17. REGISTRATION ON FORM S-8. The Company hereby agrees that in the
event that during the term Options are exercisable, the Company causes to be
filed with the Securities and Exchange Commission a registration statement on
Form S-8 (or equivalent form as may be in effect at such time) the Optionee may
include in such registration statement all shares underlying options granted to
Optionee under the Plan. The Company covenants that it will keep such
registration statement current and effective while the Optionee or his guardian
or estate has the right to exercise any of the options granted hereunder. The
Company also hereby agrees that in the event that during the term the Company
causes to be filed with the Securities and Exchange Commission a registration
statement on a form other than Form S-8, Optionee shall have "piggyback"
registration rights to include in such registration statement all the options
and shares underlying options granted to Optionee under the Plan, subject to a
reasonable cutback in the inclusion of such options and shares if the Board or
the Company's underwriter determines that such cutback is necessary to prevent
an adverse effect on the Company's offering.
18. NON-COMPETITION.
(a) As consideration in part for the grant of the Options,
Optionee agrees that, for a period commencing on the date hereof and ending one
year after the termination of his employment with the Company for any reason,
Optionee shall not, anywhere in North America, directly or indirectly:
(i) solicit or attempt to solicit business of any
customers of the Company (including prospective customers solicited by the
Company) for products or services the same or similar to those offered, sold,
produced or under development by the Company during the term of his employment
therewith or dealt in by Optionee during his employment with the Company;
(ii) otherwise divert or attempt to divert from the
Company any business whatsoever;
(iii) solicit or attempt to solicit for any business
endeavor any employee of the Company;
(iv) interfere with any employment relationship or
other business relationship between the Company and any other individual,
person, or other entity;
5
<PAGE> 15
(v) use the name of the Company or a name similar
thereto; or
(vi) render any services as an officer, director,
employee, partner, consultant or otherwise to, or have any interest as a
stockholder, partner, lender or otherwise in, any person which is engaged in
activities which, if performed by Optionee would violate this Section 18.
(b) Optionee agrees that during the term of Optionee's employment
with the Company, Optionee will not, anywhere in North America, directly or
indirectly, as an independent contractor or otherwise, engage in any activity
for or on behalf of any person or entity in a competitive line of business to
that carried on by the Company, or engage in any manner in the design,
development, manufacturing, assembling, installing, and/or marketing of
rechargeable lithium battery technology or other technology competitive with the
business carried on by the Company or dealt in by Optionee during his or her
employment with the Company.
(c) If during the one year period commencing on the termination of
Optionee's employment with the Company for any reason, Optionee, directly or
indirectly engages, anywhere in North America, as an independent contractor or
otherwise, in any activity for or on behalf of any person or entity in a
competitive line of business to that carried on by the Company during the term
of Optionee's employment therewith, or engages in any manner in the design,
development, manufacturing, assembling, installing, and/or marketing of
rechargeable lithium battery technology or other technology competitive with the
business carried on by the Company during the term of Optionee's employment
therewith or dealt in by the Optionee during Optionee's employment with the
Company, all the non-exercised vested and unvested options held by Optionee
shall terminate immediately, notwithstanding any other provisions to the
contrary contained herein.
(d) The provisions contained in paragraphs (b) and (c) of this
Section 18 shall not prevent Optionee from purchasing or owning up to five
percent (5%) of the voting securities of any corporation, the securities of
which are publicly-traded.
19. CONFIDENTIALITY.
(a) Optionee understands and acknowledges that as a result of
Optionee's employment with the Company, and involvement with the business of the
Company, Optionee is or shall necessarily become informed of, and have access
to, confidential information of the Company including, without limitation,
inventions, patents, patent applications, trade secrets, technical information,
know-how, plans, specifications, marketing plans and information, pricing
information, identity of customers and prospective customers and identity of
suppliers, and that such information, even though it may have been or may be
developed or otherwise acquired by Optionee, is the exclusive property of the
Company to be held by Optionee in trust and solely for the Company's benefit.
Optionee shall not at any time, either during or subsequent to Optionee's
employment hereunder, reveal, report, publish, transfer or otherwise disclose to
any person,
6
<PAGE> 16
corporation or other entity, or use, any of the Company's confidential
information, without the written consent of the Company's Board of Directors,
except for use on behalf of the Company in connection with the Company's
business, and except for such information which legally and legitimately is or
becomes of general public knowledge from authorized sources other than Optionee.
(b) Upon the termination of Optionee's employment with the Company
for any reason, Optionee shall promptly deliver to the Company all drawings,
manuals, letters, notes, notebooks, reports and copies thereof and all other
materials, including, without limitation, those of a secret or confidential
nature, relating to the Company's business which are in Optionee's possession or
control. The Company shall reimburse Optionee for any packing or moving costs
reasonably incurred by Optionee in connection with the foregoing delivery.
For purposes of this Section 19 and Section 18, the term "Company" includes the
Company and any other predecessor corporation, and affiliates (including,
without limitation, distributors, licensees, franchisees, subsidiaries and joint
ventures).
20. REMEDIES AND SURVIVAL. Because the Company does not have an
adequate remedy at law to protect its interest in its trade secrets, privileged,
proprietary or confidential information and similar commercial assets, or its
business from Optionee's competition, the Company shall be entitled to
injunctive relief, in addition to such other remedies and relief that would, in
the event of a breach or a threatened breach of the provisions of Sections 18 or
19, be available to the Company. The Company shall not be required to plead or
prove the inadequacy of damages. The provisions of Sections 18 and 19 and this
Section 20 shall survive any termination of Optionee's employment with the
Company for any reason whatsoever.
21. NO RIGHT TO EMPLOYMENT. Neither the adoption of the Plan nor the
granting of this Option confers on the Optionee any right to continued
employment by the Company (or any of its direct or indirect subsidiaries) or in
any way interferes with or alters any of the Company's (and its direct and
indirect subsidiaries') rights to terminate the employment by the Company of the
Optionee at any time, with or without cause, and without liability therefor.
This Option shall not be deemed a part of the Optionee's regular, recurring
compensation for any purpose, including, without limitation, for the purposes of
any termination indemnity or severance pay law of any jurisdiction.
22. NOTICES. Each notice relating to this Option shall be in writing
and delivered in person or by certified mail to the proper address. All notices
to the Company shall be addressed to it at its offices at 5115 Campus Drive,
Plymouth Meeting, Pennsylvania 19462, attention of the Committee, c/o the
Company's Secretary. All notices to the Optionee or other person or persons then
entitled to exercise any rights with respect to this Option shall be addressed
to the Optionee or such other person or persons at the Optionee's address shown
in the records of the Company or the location at which the Optionee is employed
by the Company. Anyone to
7
<PAGE> 17
whom a notice may be given under this Option may designate a new address by
notice to that effect.
23. GOVERNING LAW. This Option and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by the Internal
Revenue Code of 1986, as amended from time to time, or the securities laws of
the United States, shall be governed by and construed under the laws of the
State of Delaware.
IN WITNESS WHEREOF, LITHIUM TECHNOLOGY CORPORATION has caused this
Option to be executed by its officers as of the ___ day of ___.
LITHIUM TECHNOLOGY CORPORATION
By:__________________________________
Name:
Title:
ACCEPTED AND AGREED:
____________________________
8
<PAGE> 18
LITHIUM TECHNOLOGY CORPORATION
NON-QUALIFIED STOCK OPTION AGREEMENT
[FOR GRANTS TO NON-EMPLOYEES]
LITHIUM TECHNOLOGY CORPORATION, a Delaware corporation (the "Company"),
hereby grants to (the "Optionee"), a Non-Qualified Stock Option (the
"Option") to purchase a total of shares of the Company's Common Stock,
at the price set forth herein, and subject to the terms, definitions and
provisions of the 1998 Stock Incentive Plan (the "Plan") adopted by the Company,
which is incorporated herein by reference. The terms defined in the Plan shall
have the same defined meanings herein.
1. NATURE OF THE OPTIONS. The Option is a non-qualified stock option.
The shares underlying the Option are hereinafter referred to as the "Shares".
2. EXERCISE PRICE. The exercise price of the Option is $ per share
for each share subject to the Option.
3. TERMS OF OPTIONS. Subject to provisions contained elsewhere in this
Agreement, the Option may be exercised cumulatively as set forth below after the
vesting date set forth below, until the day preceding the tenth anniversary of
the date hereof (the "Termination Date"):
<TABLE>
<CAPTION>
VESTING DATE NUMBER OF OPTIONS
------------ -----------------
<S> <C>
12/18/98 [1/3 number of shares]
12/18/99 [1/3 number of shares]
12/18/00 [1/3 number of shares]
</TABLE>
4. ADMINISTRATION. The Plan is administered by committees of the Board,
one such committee serving in the event of a grant of an Award to a non-employee
director, and the other such committee serving in the event of any other grant
of an Award (collectively the "Committee" as defined in the Plan). This second
committee is to be composed solely of two or more Non-Employee Directors and if
there shall not be at least two Non-Employee Directors, shall be composed of the
entire Board. All determinations and acts of the Committee as to any matters
concerning the Plan, including interpretations or constructions of this Option
and of the Plan, shall be conclusive and binding on the Optionee and any parties
claiming through the Optionee.
1
<PAGE> 19
5. EXERCISE. The right of the Optionee to purchase Shares hereunder,
subject to any installment requirements set forth above, may be exercised in
whole or in part at any time after the accrual of such respective installment
and prior to the Termination Date, except as otherwise provided herein. The
Option may not be exercised for a fraction of a share. Notwithstanding the
foregoing, the Optionee's right to exercise the Option shall be subject to
Shareholder approval of the plan, and shall be limited by the number of shares
of Company Common Stock available for issuance pursuant to Awards granted under
the Plan. Notwithstanding any provision to the contrary contained in this
Agreement, if any of the following events shall occur, the Options shall become
immediately exercisable upon the earlier to occur or: 1) the happening of a
Change in Control, as defined in the Plan; 2) the Company's revenues from
product sales, as reported in the Company's most recent quarterly or annual
report filed with the United States Securities and Exchange Commission, equals
or exceeds $1,000,000.00; or 3) the average of the closing bid prices for the
Company's Common Stock has remained at $5.00 or higher for thirty (30)
consecutive business days.
6. NOTICE OF EXERCISE. The Option shall be exercisable by written
notice (the "Notice") which shall state the election to exercise the Option and
the number of Shares in respect of which the Option is being exercised, and such
other representations and agreements as to the Optionee's investment intent with
respect to such Shares as may be required by the Company pursuant to the
provisions of the Plan. Such written notice shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company. The written notice shall be accompanied by payment in full of the
exercise price in cash, or in any other manner approved by the Committee,
including payment by surrender of shares of Common Stock of the Company at their
fair market value on the date of delivery.
7. DELIVERY OF CERTIFICATES. As soon as practicable after receipt of
the Notice and payment, and subject to the next two paragraphs, the Company
shall, without transfer or issue tax or other incidental expense to the
Optionee, deliver to the Optionee a certificate or certificates for the shares
of Common Stock so purchased. Such delivery shall be made (a) at the offices of
the Company at 5115 Campus Drive, Plymouth Meeting, Pennsylvania 19462, (b) at
such other place as may be mutually acceptable to the Company and the Optionee,
or (c) by certified mail addressed to the Optionee at the Optionee's address
shown in the records of the Company.
8. WITHHOLDING. The Company shall have the right to withhold an
appropriate number of shares of Common Stock (based on the fair market value
thereof on the date of exercise) for payment of taxes required by law or to take
such other action as may be necessary in the opinion of the Company to satisfy
all tax withholding obligations.
9. COMPLIANCE WITH LAWS. The Company may postpone the time of delivery
of certificate(s) for shares of Common Stock for such additional time as the
Company shall deem necessary or desirable to enable it to comply with the
requirements of any securities exchange upon which the Common Stock may be
listed, or the requirements of the Securities Act of 1933,
2
<PAGE> 20
as amended, the Securities Exchange Act of 1934, as amended, any rules or
regulations of the Securities and Exchange Commission promulgated thereunder, or
any applicable state laws relating to the authorization, issuance or sale of
securities.
10. DEATH OF OPTIONEE. The terms of this Option Agreement shall be
binding upon the executors, administrators, heirs, successors and assigns of
Optionee. In the event of the death of Optionee during the term of the Option,
the Option may be exercised, at any time within thirty-six (36) months following
the date of death, by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance but only to the extent of
the right to exercise that had accrued at the date of death. If Optionee's
estate or a person who acquired the right to exercise the Option by bequest or
inheritance does not exercise such portion of Optionee's Option which has vested
and which the Optionee was entitled to exercise in the time specified herein,
the Option shall terminate.
11. FAILURE TO PAY. If, upon tender of delivery thereof, the Optionee
fails to accept delivery of and pay or have paid for all or any part of the
number of shares of Common Stock specified in the Notice, the Optionee's right
to exercise this Option with respect to such undelivered and unpaid for shares
may be terminated by the Company.
12. RESTRICTIONS ON TRANSFER OF SHARES UNDERLYING OPTIONS.
The issuance of the Shares subject hereto and upon the exercise of the
Option and the transfer or resale of such Shares shall be subject to such
restrictions as are, in the opinion of the Company's counsel, required to comply
with the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder, and the certificate(s) representing such shares shall,
if it is deemed advisable by the Company's counsel, bear a legend to such
effect.
13. NO RIGHTS OF SHAREHOLDER. Neither the Optionee nor any person or
persons entitled to exercise the Optionee's rights under this Option in
accordance herewith shall have any rights to dividends or to Common Stock
subject to this Option, except to the extent that a certificate for such shares
shall have been issued upon the exercise of this Option as provided herein.
14. TERMINATION OF ASSOCIATION.
(a) If Optionee's association with the Company or its direct or
indirect subsidiaries terminates for any reason other than by reason of death or
disability or "for cause" as defined in Paragraph 14 (b) below, all currently
exercisable installments of this Option shall remain exercisable for a period of
sixty (60) months from the date of termination and, to the extent not exercised,
shall terminate. All other non-vested installments of this Option shall
immediately and automatically terminate.
3
<PAGE> 21
(b) If Optionee's association with the Company or its direct or
indirect subsidiaries terminates by virtue of a termination for cause (as
defined in Optionee's Consulting Agreement, if applicable or as set forth
below), the Committee shall have the right to terminate the Option, upon the
date of termination of association, whether vested or not, in their sole
discretion, without prior notice to Optionee. If Optionee is not affiliated with
the Company pursuant to a Consulting Agreement as of the date of termination,
cause shall mean the substantial breach or continuous neglect by Optionee of his
obligations, or willful misconduct by Optionee in the performance of such
obligations which occurs or persists after notice and an opportunity to cure.
15. DISABILITY OF OPTIONEE. If Optionee is unable to continue his
association with the Company as a result of his disability (as such condition is
defined in the Plan) Optionee may, but only within thirty-six (36) months from
the date of disability, exercise such portion of the Option which has vested to
the extent he was entitled to exercise it at the date of such disability, and
such portion of the Option which has not vested shall terminate. If Optionee
does not exercise such portion of the Option which has vested and which Optionee
was entitled to exercise within the time specified herein, the Option shall
terminate.
16. NON-DILUTION. In the event of any change in the outstanding Common
Stock by reason of a stock split, stock dividend, combination or
reclassification of shares, recapitalization, merger or similar event, the
Committee may adjust proportionally (a) the number of shares of Stock (i)
available for issuance under the Plan and (ii) covered by outstanding Awards
denominated in stock or units of stock; (b) the exercise and grant prices dated
to outstanding Awards; and (c) the appropriate Fair Market Value and other price
determinations for such Awards as the Committee in its sole discretion may in
good faith determine to be equitably required in order prevent dilution or
enlargement of the rights of Participants. Moreover, in the event of any such
transaction or event, the Committee may provide in substitution for any or all
outstanding Awards under the Plan such alternative consideration as it may in
good faith determine to be equitable under the circumstances and may require in
connection therewith the surrender of all Awards so replaced. The Committee may
also make or provide for such adjustments in the number of Shares specified in
Section 3 of the Plan as the Committee in its sole discretion may in good faith
determine to be appropriate in order to reflect any such transaction or event.
In the event of any other change affecting the Common Stock or any distribution
(other than normal cash dividends) to holders of Common Stock, such adjustments
in the number and kind of shares and the exercise, grant and conversion prices
of the affected Awards as may be deemed equitable by the Committee, including
adjustments to avoid fractional shares, shall be made to give proper effect to
such event. Upon the occurrence of a "change in control", as defined in the
Plan, of the Company, each Option shall at the discretion of the Committee
either be cancelled in exchange for a payment in cash of an amount equal to the
excess, if any, of the Change in Control Price over the exercise price for such
Option, or be fully exercisable regardless of the exercise schedule otherwise
applicable to such Option and all restricted shares of Stock and all SARs shall
become nonforfeitable and be immediately transferable or payable, as the case
may be, subject however to Paragraph 9(b) of the Plan. In the event of a
corporate merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation not
4
<PAGE> 22
constituting a change in control, the Committee may terminate this Option,
authorize the assumption of this Option or substitute a new stock option for
this Option, whether or not in a transaction to which Section 424(a) of the
Internal Revenue Code applies. The judgment of the Committee with respect to any
matter referred to in this paragraph shall be conclusive and binding upon the
Optionee and any parties claiming through the Optionee.
17. REGISTRATION ON FORM S-8. The Company hereby agrees that in the
event that during the term Options are exercisable, the Company causes to be
filed with the Securities and Exchange Commission a registration statement on
Form S-8 (or equivalent form as may be in effect at such time) the Optionee may
include in such registration statement all shares underlying options granted to
Optionee under the Plan. The Company covenants that it will keep such
registration statement current and effective while the Optionee or his guardian
or estate has the right to exercise any of the options granted hereunder. The
Company also hereby agrees that in the event that during the term the Company
causes to be filed with the Securities and Exchange Commission a registration
statement on a form other than Form S-8, Optionee shall have "piggyback"
registration rights to include in such registration statement all the options
and shares underlying options granted to Optionee under the Plan, subject to a
reasonable cutback in the inclusion of such options and shares if the Board or
the Company's underwriter determines that such cutback is necessary to prevent
an adverse effect on the Company's offering.
18. NOTICES. Each notice relating to this Option shall be in writing
and delivered in person or by certified mail to the proper address. All notices
to the Company shall be addressed to it at its offices at 5115 Campus Drive,
Plymouth Meeting, Pennsylvania 19462, attention of the Committee, c/o the
Company's Secretary. All notices to the Optionee or other person or persons then
entitled to exercise any rights with respect to this Option shall be addressed
to the Optionee or such other person or persons at the Optionee's address shown
in the records of the Company or the location at which the Optionee is employed
by the Company. Anyone to whom a notice may be given under this Option may
designate a new address by notice to that effect.
19. GOVERNING LAW. This Option and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by the Internal
Revenue Code of 1986, as amended from time to time, or the securities laws of
the United States, shall be governed by and construed under the laws of the
State of Delaware.
5
<PAGE> 23
IN WITNESS WHEREOF, LITHIUM TECHNOLOGY CORPORATION has caused this
Option to be executed by its officers as of the ___ day of ___.
LITHIUM TECHNOLOGY CORPORATION
By:__________________________________
Name:
Title:
ACCEPTED AND AGREED:
___________________________
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,073
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 77
<INVENTORY> 0
<CURRENT-ASSETS> 1,167
<PP&E> 1,262
<DEPRECIATION> 799
<TOTAL-ASSETS> 2,221
<CURRENT-LIABILITIES> 654
<BONDS> 0
0
0
<COMMON> 231
<OTHER-SE> (4,164)
<TOTAL-LIABILITY-AND-EQUITY> 2,221
<SALES> 99
<TOTAL-REVENUES> 99
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,669
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 341
<INCOME-PRETAX> (3,264)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,261)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,261)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
