<PAGE> 1
As filed with the Securities and Exchange Commission on May 12, 2000
Registration No. 333-________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
<TABLE>
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PACIFIC LITHIUM LIMITED LITHIUM TECHNOLOGY CORPORATION
(Exact name of issuer as specified in its charter) (Exact name of issuer as specified in its charter)
3691 3691
(Primary Standard Industrial Classification Code Number) (Primary Standard Industrial Classification Code Number)
Level 5 5115 Campus Drive
Gosling Chapman Building Plymouth Meeting, PA 19462
63 Albert Street (Address of principal executive offices)
Auckland, New Zealand
(Address of principal executive offices)
N/A 13-3411148
(IRS Employer Identification No.) (IRS Employer Identification No.)
New Zealand Delaware
(State or other Jurisdiction of Incorporation) (State or other Jurisdiction of Incorporation)
DENIS G. FAUTEUX DAVID J. CADE
359 Arlington Street Chairman and Chief Executive Officer
Acton, MA 01720 Lithium Technology Corporation
5115 Campus Drive
(Name and address of agent for service) Plymouth Meeting, PA 19462
(978) 263-4341 (Name and address of agent for service)
(Telephone number, including area code, of agent for service) (215) 830-1392
(Telephone number, including area code, of agent for service)
</TABLE>
<TABLE>
<S> <C> <C>
----------------------
Copies to:
STEVEN D. GUYNN, ESQ. ANDREW S. REILLY, ESQ. BARBARA J. COMLY, ESQ.
Jones, Day, Reavis & Pogue Jones, Day Reavis & Pogue Gallagher, Briody & Butler
599 Lexington Avenue Level 38 212 Carnegie Center, Suite 402
New York, NY 10022 Governor Phillip Tower Princeton, New Jersey 08540
(212) 326-3939 1 Farrer Place (609) 452-6000
Sydney NSW 2000, Australia
011 612 9210 6921
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this registration
statement and the effective time of the merger described in this registration
statement.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [__]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [__]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [__]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================================
Proposed maximum Proposed maximum
Title of securities Amount to be offering price aggregate offering Amount of
to be registered Registered per share price registration fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ilion Technology Common Stock, 4,138,267 shares Not Applicable $44,049,986.52 $11,629.20
par value $.01 per share
===================================================================================================================================
</TABLE>
<PAGE> 2
(1) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act of 1933, as amended (the
"Securities Act") and computed pursuant to Rule 457(f)(1) and Rule 457(c)
thereunder on the basis of the market value of the Lithium Technology
common stock to be exchanged in the merger, as the product of (a) $0.755
(the average of the bid and ask price per share of Lithium Technology
common stock as is quoted by the OTC NASD Electronic Bulletin Board, on
May 5, 2000) and (b) 58,344,353, the sum of the number of shares of
Lithium Technology Corporation common stock outstanding on May 5, 2000
(49,990,835), (ii) the number of shares of Lithium Technology Corporation
common stock issuable pursuant to outstanding stock options through the
date the merger is expected to be consummated (3,763,469), and (iii) the
number of shares of Lithium Technology Corporation common stock issuable
upon exercise at any time of outstanding warrants of Lithium Technology
Corporation (4,590,049).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 3
EXPLANATORY STATEMENT
Pacific Lithium Limited is currently a private New Zealand company.
Pacific Lithium expects to domesticate into Delaware and become a Delaware
corporation on or about May 21, 2000, at which time it will also merge with
Ilion Technology Corporation, its wholly owned non-operating Delaware
subsidiary, and change its name to Ilion Technology Corporation. Ilion
Technology Corporation, the Delaware corporation, will issue up to 4,139,044
shares of its common stock upon the consummation of the merger with Lithium
Technology Corporation described herein. Pacific Lithium will not seek to have
this proxy statement/registration statement declared effective until such time
as it has become a Delaware corporation and its name has been changed to Ilion
Technology Corporation. In this proxy statement/registration statement,
references to "Ilion" or "Ilion Technology Corporation" are to Pacific Lithium
Limited, unless the context shows otherwise.
<PAGE> 4
PRELIMINARY COPY
LITHIUM TECHNOLOGY CORPORATION
5115 CAMPUS DRIVE
PLYMOUTH MEETING, PENNSYLVANIA 19462
Dear Stockholder:
You are cordially invited to attend a special meeting of the stockholders
of Lithium Technology Corporation, to be held at our principal offices located
at 5115 Campus Drive, Plymouth Meeting, Pennsylvania 19462 on Monday, July 31,
2000 at 10:00 a.m., local time, notice of which is enclosed.
At the special meeting you will be asked to consider and vote upon the
following:
(1) To approve LTC's merger with Ilion Technology Corporation; and
(2) To transact such other business as may properly come before the
Special Meeting.
Ilion Technology Corporation (currently known as Pacific Lithium Limited)
was initially formed as a New Zealand corporation and expects to complete its
domestication to Delaware on or about May 21, 2000. Ilion is planning an initial
public offering of its shares in the United States to take place by September
30, 2000, depending upon market and other conditions.
If all the conditions to the merger are satisfied or waived in accordance
with the merger agreement LTC will merge with and into Ilion at the same time
that Ilion has completed its initial public offering. When the merger is
completed, all of the LTC stockholders will receive a total of 3.5 million
shares of Ilion common stock in exchange for all of the outstanding LTC shares,
subject to possible increase of up to 638,267 additional shares of Ilion common
stock under certain circumstances relating to the number of LTC options and
warrants exercised prior to the merger. Assuming that all of the currently
outstanding LTC options and warrants are exercised prior to the merger and a
total of 4,138,267 shares of Ilion common stock will be issued in the merger,
14.10 shares of LTC common stock will be converted into one share of Ilion in
the merger.
The LTC Board of Directors has approved the merger and recommends that you
vote FOR the merger.
We hope that you will be able to join us for the special meeting. Whether
you own a few or many shares of common stock and whether or not you plan to
attend in person, it is important that your shares be voted on the merger. To
make sure your shares are represented, we urge you to complete and mail the
enclosed proxy card promptly.
Sincerely,
David J. Cade, Chairman of the Board
and Chief Executive Officer
<PAGE> 5
LITHIUM TECHNOLOGY CORPORATION
5115 CAMPUS DRIVE
PLYMOUTH MEETING, PENNSYLVANIA 19462
NOTICE OF SPECIAL STOCKHOLDERS' MEETING TO BE HELD
JULY 31, 2000
To the Stockholders of Lithium Technology Corporation:
You are cordially invited to attend a special meeting of the stockholders
of Lithium Technology Corporation, to be held at our principal offices located
at 5115 Campus Drive, Plymouth Meeting, Pennsylvania 19462 on Monday, July 31,
2000 at 10:00 a.m., local time.
At the Special Meeting you will be asked to consider and vote upon the
following:
(1) To consider and vote on a proposal to adopt the Agreement and Plan
of Merger, dated as of January 19, 2000, between Lithium Technology
Corporation and Ilion Technology Corporation as amended, and to
approve the merger described in the merger agreement; and
(2) To transact such other business as may properly come before the
Special Meeting.
Only stockholders of record at the close of business on _______ ___, 2000
are entitled to receive notice of and to vote at the meeting or any adjournment
or postponement thereof. The affirmative vote of a majority of the shares of LTC
common stock outstanding on the record date is required to approve the merger.
Detailed information concerning the merger is contained in the attached proxy
statement/prospectus, which you are urged to read carefully.
The Lithium Board of Directors has approved the merger and recommends that
you vote FOR the merger.
We urge you to sign and return the enclosed proxy as promptly as possible,
whether or not you plan to attend the meeting in person. You may revoke your
proxy by filing an instrument of revocation or a duly executed proxy bearing a
later date or by electing to vote in person at the meeting.
By Order of the Board of Directors
Gretchen Deming, Secretary
<PAGE> 6
PROXY STATEMENT/PROSPECTUS
PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS OF
LITHIUM TECHNOLOGY CORPORATION
TO BE HELD ON JULY 31, 2000
ILION TECHNOLOGY CORPORATION
PROSPECTUS
This proxy statement/prospectus is furnished to the holders of Lithium
Technology Corporation ("LTC") common stock in connection with the solicitation
of proxies by the LTC Board for use at the LTC special meeting to be held on
July 31, 2000.
At the LTC special meeting, LTC stockholders will be asked to consider and
vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of
January 19, 2000, between Lithium Technology Corporation and Ilion Technology
Corporation, as amended. The merger agreement is attached as Appendix A to this
proxy statement/prospectus and described under "The Merger Agreement" beginning
on page 49.
This proxy statement/prospectus is also furnished to LTC stockholders as a
prospectus in connection with the issuance by Ilion of the shares of Ilion
common stock pursuant to the merger.
See "Risk Factors" beginning on page 14 for a description of certain risks
involved in the merger.
Neither the Securities and Exchange Commission nor any state securities
commission has approved the common stock to be issued under this prospectus or
determined if this prospectus is accurate or complete. Any representation to the
contrary is a criminal offense.
This proxy statement/prospectus is dated _________ __, 2000 and is first
being mailed to stockholders on or about __________ __, 2000
<PAGE> 7
TABLE OF CONTENTS
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Page
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CHAPTER ONE: OVERVIEW
Questions and Answers About the Merger ................................................ 1
Summary ............................................................................... 5
The Meeting ........................................................................ 5
The Merger ......................................................................... 6
Risk Factors .......................................................................... 14
Unaudited Pro Forma Financial Information ............................................. 24
Comparative Per Share Information ..................................................... 30
Security Ownership of LTC Shares by Management and Certain Beneficial Owners .......... 31
CHAPTER TWO -- THE MERGER
The Companies ......................................................................... 32
Lithium Technology Corporation ..................................................... 32
Ilion Technology Corporation ....................................................... 32
The Merger ............................................................................ 33
Terms of the Merger ................................................................ 33
Consideration to be Received in the Merger; Ilion Capital Structure after the
Merger ........................................................................... 33
Background of the Merger ........................................................... 34
Information and Factors Considered by the LTC Board of Directors ................... 36
Opinion of LTC's Financial Advisor ................................................. 37
Material Federal Income Tax Consequences ........................................... 38
Accounting Treatment ............................................................... 39
No Appraisal Rights ................................................................ 39
Restrictions on Resales by Affiliates .............................................. 39
Market Prices and Dividend Information ................................................ 40
Interests of Lithium's Directors and Officers in the Merger ........................... 42
Directors and Executive Officers of Ilion Following the Merger ........................ 43
Directors and Executive Officers ................................................... 43
Director Compensation .............................................................. 44
Compensation Committee and Insider Participation Interlocks ........................ 45
Executive Compensation ............................................................. 45
Audit Committee .................................................................... 45
Employee Share Option Plan ......................................................... 45
Ilion's Certain Transactions ....................................................... 46
CHAPTER THREE -- THE MEETING AND VOTING
General ............................................................................... 47
Purpose of the Meeting ................................................................ 47
Date, Place and Time .................................................................. 47
Record Date; Stock Outstanding ........................................................ 47
Votes Required for Approval ........................................................... 47
Quorum Requirement .................................................................... 48
Voting and Revocation of Proxies ...................................................... 48
Solicitation of Proxies ............................................................... 48
Shares Owned by Directors and Officers ................................................ 48
</TABLE>
<PAGE> 8
<TABLE>
<S> <C>
CHAPTER FOUR -- THE MERGER AGREEMENT
Terms of the Merger ................................................................... 49
Exchange of Shares .................................................................... 49
Treatment of LTC Stock Options and Warrants ........................................... 49
Representations and Warranties ........................................................ 50
Conditions to the Merger .............................................................. 50
Principal Covenants ................................................................... 50
No Solicitation of Transactions ....................................................... 53
Line of Business; Non-Compete ......................................................... 53
Ilion Initial Public Offering ......................................................... 53
Consulting Services ................................................................... 54
Employee Matters ...................................................................... 54
Termination ........................................................................... 55
Bridge Financing from Ilion to LTC; Effect of Termination of the Merger ............... 55
Regulatory Approval ................................................................... 56
CHAPTER FIVE -- CERTAIN LEGAL INFORMATION AND EXCHANGE RATES
Description of Ilion Capital Stock Following the Merger ............................... 57
Comparison of Stockholders Rights ..................................................... 58
Exchange Rates ........................................................................ 58
Listing of Ilion; Delisting and Deregistration of LTC Stock ........................... 59
Experts ............................................................................... 59
Legal Matters ......................................................................... 59
CHAPTER SIX -- LITHIUM BATTERY TECHNOLOGY AND MARKET OVERVIEW
Overview of Battery Technology ........................................................ 60
Industry Overview ..................................................................... 61
CHAPTER SEVEN -- LTC'S BUSINESS
Overview .............................................................................. 64
Development and Commercialization Plan ................................................ 64
LTC's Technology ...................................................................... 65
Intellectual Property ................................................................. 66
Technology Development History ........................................................ 68
Competition ........................................................................... 69
Raw Materials ......................................................................... 70
Equipment and Facilities .............................................................. 70
Employees ............................................................................. 70
Government Regulations, Safety, Environmental Compliance .............................. 70
Property .............................................................................. 71
Legal Proceedings ..................................................................... 71
Management's Discussion and Analysis of Financial Condition and Results of Operations
of LTC ................................................................................ 72
Executive Compensation of LTC ......................................................... 74
Certain Relationships and Related Transactions ........................................ 80
CHAPTER EIGHT -- ILION'S BUSINESS
General ............................................................................... 81
Business Strategy ..................................................................... 82
Products .............................................................................. 83
Sales and Marketing ................................................................... 85
Manufacturing ......................................................................... 86
Raw Materials ......................................................................... 86
</TABLE>
<PAGE> 9
<TABLE>
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Intellectual Property ................................................................. 86
Research and Development .............................................................. 89
Competition ........................................................................... 89
Safety and Regulation ................................................................. 90
Employees ............................................................................. 90
Property .............................................................................. 90
Insurance ............................................................................. 91
Legal Proceedings ..................................................................... 91
Ilion's Selected Financial Data ....................................................... 92
Management's Discussion and Analysis of Financial Condition and Results of Operations . 93
Ownership of Ilion by Certain Beneficial Owners and Management ........................ 99
CHAPTER NINE -- ADDITIONAL INFORMATION FOR STOCKHOLDERS
Where You Can Find More Information.................................................... 100
Other Business......................................................................... 101
INDEX TO FINANCIAL STATEMENTS............................................................. F-1
</TABLE>
Appendix A: Agreement and Plan of Merger, dated as of January 19, 2000,
between Lithium Technology Corporation and Ilion Technology
Corporation (currently known as Pacific Lithium Limited) as
amended and restated as of May 13, 2000
Appendix B: Opinion of Schuler Associates, P.C.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements and other information contained in this proxy
statement/prospectus relating to the financial condition, results of operations,
cash flows, business strategies, operating efficiencies or synergies, growth
opportunities, plans and objectives of management and other matters that are not
historical facts are hereby identified as forward-looking statements under the
Private Securities Litigation Reform Act of 1995. The words will, should, could,
anticipate, believe, plan, estimate, expect, intend, project, forecast, and
other similar expressions are intended to identify forward-looking statements.
These forward-looking statements are found at various places throughout this
proxy statement/prospectus and the documents incorporated herein by reference.
Forward-looking statements involve known and unknown risks and uncertainties
that may cause results and conditions to differ materially.
Important factors that could cause actual results to differ materially
from the expectations reflected in the forward-looking statements include those
described in the "Risk Factors" below. In addition, the forward-looking
statements are subject to uncertainties relating to the synergies, charges and
expenses associated with the merger.
*******************************************************************************
Throughout this proxy statement/prospectus when we refer to the "merger,"
we mean the merger of LTC with and into Ilion as described in the merger
agreement. When we refer to "LTC", we mean Lithium Technology Corporation, when
we refer to Ilion, we mean Ilion Technology Corporation (currently known as
Pacific Lithium Limited) and when we refer to us or the "combined company," we
mean Ilion, the company in which you will own shares following the merger of LTC
and Ilion.
<PAGE> 10
CHAPTER ONE
OVERVIEW
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Who is soliciting my proxy?
A: The LTC Board of Directors.
Q: When and where is the special meeting?
A: The special meeting will take place at 5115 Campus Drive, Plymouth
Meeting, Pennsylvania 19462 on Monday, July 31, 2000, at 10:00 a.m., local
time, notice of which is enclosed.
Q: What proposals will I be voting on at the special meeting?
A: You will be asked to consider resolutions:
(1) To approve the merger between LTC and Ilion; and
(2) To transact such other business as may properly come before the
special meeting, including adjourning the meeting to permit, if
necessary, further solicitation of proxies.
Q: Who is Ilion?
A: Ilion (currently known as Pacific Lithium Limited) was initially formed as
a New Zealand company and expects to complete its domestication to
Delaware on or about May 21, 2000, at which time it will merge with Ilion
Technology Corporation, its wholly owned non-operating Delaware
subsidiary, and change its name to Ilion Technology Corporation. Ilion,
which is an unlisted private company in New Zealand, is planning an
initial public offering of its shares in the United States to take place
by September 30, 2000, depending upon market and other conditions.
Q: What will a LTC stockholder receive when the merger occurs?
A: The LTC stockholders will receive a total of 3.5 million shares of Ilion
common stock in exchange for all of the outstanding LTC shares, subject to
possible increase of up to 638,267 additional shares of Ilion common stock
under certain circumstances relating to the number of LTC options and
warrants exercised prior to the merger. This number will not change, even
if the market price of Ilion or LTC shares increases or decreases between
now and the date the merger is completed. Because the merger will be
completed simultaneously with the Ilion initial public offering, the LTC
stockholders cannot be sure of the market value of the Ilion common stock
they will receive or the percentage of Ilion that the merger shares will
represent at the time of the merger at the time they vote their shares.
Ilion will issue between 3,500,000 and 4,138,267 shares of its common
stock to the LTC stockholders in the merger. Upon completion of the merger
based on the following assumed capital structure of Ilion after the Ilion
IPO and the merger, the merger securities will represent approximately
9.80% - 11.39% of Ilion's outstanding common stock and the merger exchange
ratio will be between 14.28 and 14.10 shares of LTC common stock for one
share of Ilion:
1
<PAGE> 11
LTC STOCKHOLDERS ARE ISSUED 3,500,000 ILION SHARES IN
THE MERGER (9.80% OF THE OUTSTANDING STOCK OF ILION)
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<CAPTION>
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NUMBER OF ILION SHARES STOCKHOLDERS
--------------------------------------------------------------------------------------
<S> <C>
24,193,079 Shares owned by current Ilion stockholders (as of May 1,
2000)
--------------------------------------------------------------------------------------
8,000,000 Shares to be issued in the Ilion IPO
--------------------------------------------------------------------------------------
3,500,000 Base number of shares to be issued to LTC shareholders
in the merger
--------------------------------------------------------------------------------------
35,693,079 Total number of outstanding Ilion shares
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</TABLE>
EXCHANGE RATIO BASED ON 3,500,000 MERGER SHARES
Assuming 3,500,000 Ilion shares are issued in exchange for the 49,990,835
currently outstanding shares of LTC common stock, 14.28 shares LTC common
stock would be exchanged for one share of Ilion common stock in the
merger.
LTC STOCKHOLDERS ARE ISSUED 4,138,267 ILION SHARES IN
THE MERGER (11.39% OF THE OUTSTANDING STOCK OF ILION)
<TABLE>
<CAPTION>
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NUMBER OF ILION SHARES STOCKHOLDERS
--------------------------------------------------------------------------------------
<S> <C>
24,193,079 Shares owned by current Ilion stockholders (as of May 1,
2000)
--------------------------------------------------------------------------------------
8,000,000 Shares to be issued in the Ilion IPO
--------------------------------------------------------------------------------------
3,500,000 Base number of shares to be issued to LTC shareholders
in the merger
--------------------------------------------------------------------------------------
638,267 Additional Ilion shares to be issued to LTC
shareholders assuming all LTC options and
warrants are exercised prior to the merger
--------------------------------------------------------------------------------------
36,331,346 Total number of outstanding Ilion shares
--------------------------------------------------------------------------------------
</TABLE>
EXCHANGE RATIO BASED ON 4,138,267 MERGER SHARES
Assuming 4,138,267 Ilion shares are issued in exchange for the 58,344,353
shares of LTC (comprised of the 49,990,835 shares of LTC common stock
outstanding as of May 1, 2000, 3,763,469 shares of LTC to be issued upon
the exercise of LTC options and 4,590,049 shares of LTC to be issued upon
the exercise of LTC warrants), 14.10 shares of LTC common stock would be
exchanged for one share of Ilion common stock in the merger.
Since the final number of shares to be issued in the Ilion IPO may be more
or less than 8 million shares, and Ilion may issue additional shares in
connection with private placement financing prior to the Ilion IPO, the
percentage of Ilion stock that the shares to be issued to the LTC
stockholders represents may decrease or increase from the 9.80%-11.39%
range described above.
Ilion will not issue fractional shares in the merger. The LTC stockholders
will receive cash in lieu of fractional shares based on the fair market
value of such fraction on the merger date (as determined by the Ilion IPO
price).
Q: When do you expect the merger to be completed?
A: If all the conditions to the merger are satisfied or waived in accordance
with the merger agreement LTC will merge with and into Ilion at the same
time that Ilion has completed its initial public offering. Ilion expects
to consummate the Ilion initial public offering by September 30, 2000
depending upon market and other factors.
2
<PAGE> 12
Q: What are the terms of the Ilion IPO?
A: Ilion currently expects to complete an underwritten initial public
offering in the United States by September 30, 2000 of approximately 8
million shares of common stock at approximately $12.00 per share, or
approximately $87.8 million net after expenses. Ilion expects that based
on the number of Ilion shares to be issued to the LTC stockholders in the
merger and the number of currently outstanding Ilion shares, the IPO
shares will represent approximately 22% of the outstanding shares of
Ilion.
The final terms and structure of the Ilion IPO may ultimately be different
from the terms described herein and such final IPO terms and structure may
be less favorable than those contemplated at this time.
LTC will be obligated to proceed with the merger provided that all closing
conditions have been met including the condition set forth in the merger
agreement that provides that Ilion must complete an initial public
offering and sale of its common stock which results in aggregate gross
proceeds to Ilion in an amount which, when added to the aggregate gross
proceeds of all equity funding received by Ilion at any time during the
period from September 29, 1999 until the time of the Ilion IPO equals at
least $25 million.
Q: What risks should I consider?
A: You should review "Risk Factors" beginning on page 14.
Q: What is the required vote to approve the merger with Ilion?
A: The affirmative vote of the holders of a majority of the outstanding
shares of LTC common stock is required to approve the merger.
Q: If I sign and return the proxy without completing it, will that be
considered a "yes" or a "no" vote?
A: If a proxy is executed and returned without instructions as to how it is
to be voted, the proxy will be deemed a vote FOR the proposals.
Q: What if I want to change my vote?
A: To change your vote, just send a written revocation or a later-dated,
completed and signed proxy card before the special meeting or attend the
special meeting in person and vote.
Q: If my shares are held in "street name" by my broker, will my broker vote
my shares for me?
A: If you do not provide your broker with instructions on how to vote your
"street name" shares, your broker cannot vote them. You should therefore
be sure to provide your broker with instructions on how to vote your
shares.
If you do not give voting instructions to your broker, you will, in
effect, be voting against the merger unless you appear in person at the
special meeting with a proxy from your broker authorizing you to vote your
"street name" shares, and vote in favor of the merger.
Q: What are the federal income tax consequences of the merger?
A. In general, LTC stockholders will not be required to pay any federal
income tax as a result of the merger, except for taxes on cash they
receive instead of fractions of a share. The merger will be tax-free
3
<PAGE> 13
to LTC, LTC's stockholders and Ilion and Ilion stockholders for federal
income tax purposes.
Q: Will I have appraisal rights?
A: No.
Q: What do I need to do now?
A: Please complete and mail your signed proxy card in the enclosed return
envelope as soon as possible, so that your shares of common stock may be
represented at the special meeting. In addition, you may attend and vote
at the special meeting in person, whether or not you have completed,
signed and mailed your proxy card.
Q: Should I send in my stock certificates now?
A: No. Soon after the merger is completed, Ilion will mail LTC stockholders
written instructions explaining how to exchange their LTC certificates.
Q: Who should I call with questions?
A: If you have any questions about the merger, please call Gretchen Deming,
LTC's Corporate Secretary, at 610-940-6090.
4
<PAGE> 14
SUMMARY
This section summarizes selected information about the merger from this
proxy statement/prospectus. To understand the merger fully, we strongly
encourage you to read carefully this entire proxy statement/prospectus and the
documents which have been filed with the Securities and Exchange Commission. A
copy of the merger agreement is included in this proxy statement/prospectus as
Appendix A. For information on how to obtain the documents that have been filed
with the Securities and Exchange Commission, see "Where You Can Find More
Information" in Chapter Nine.
THE MEETING
(See Chapter Three)
DATE, TIME AND PLACE
The Special Meeting will take place at LTC's offices, 5115 Campus Drive,
Plymouth Meeting, Pennsylvania 19462, on Monday, July 31, 2000, at 10:00 a.m.,
local time. Copies of this proxy statement/prospectus, the attached Notice of
Special Meeting of Stockholders and the enclosed proxy card are being mailed to
LTC stockholders on or about ____, 2000.
PURPOSES OF THE MEETING
(1) To approve the merger between LTC and Ilion; and
(2) To transact such other business as may properly come before the
Special Meeting.
RECORD DATE; STOCK OUTSTANDING
The LTC Board has fixed the close of business on __________, 2000 as
the record date for determining the holders of LTC common stock that are
entitled to receive notice of and to vote at the LTC special meeting. On the
record date, there were ____ shares of LTC common stock outstanding. Each share
of LTC common stock entitles its holder to one vote.
VOTES REQUIRED FOR APPROVAL
The affirmative vote of a majority of the total votes outstanding as of
the record date is required to approve the adoption of the merger agreement.
Because the adoption of the merger agreement requires the approval of a
majority of the total votes outstanding, abstentions or the failure to vote and
broker non-votes will have the same effect as a negative vote. A broker non-vote
occurs when a nominee holding shares for a beneficial owner does not vote on a
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received instructions from the beneficial
owner.
QUORUM REQUIREMENT
A quorum of LTC stockholders is necessary to hold a valid meeting. The
presence in person or by proxy of holders of shares representing a majority of
the LTC's outstanding common stock on the record date is a quorum. Abstentions
and broker non-votes count as present for establishing a quorum. Shares held by
LTC in its treasury are not counted as outstanding for quorum or voting
purposes.
5
<PAGE> 15
VOTING AND REVOCATION OF PROXIES
LTC common stock represented by a proxy properly signed and received at
or prior to the LTC special meeting, unless subsequently revoked, will be voted
in accordance with the instructions thereon. If a proxy is signed and returned
without indicating any voting instructions, shares represented by the proxy will
be voted "for" the adoption of the merger agreement. If you vote in favor of
adoption of the merger agreement, the proxy holders may, in their discretion,
vote your shares to adjourn the special meeting to solicit additional proxies in
favor of adoption of the merger agreement.
A LTC stockholder who executes a proxy may revoke it any time before it
is exercised by giving written notice of revocation to the corporate secretary
of LTC, by subsequently filing another, later-dated proxy or by attending the
LTC special meeting and voting in person. Attendance at the LTC special meeting
will not in and of itself constitute revocation of a proxy.
SOLICITATION OF PROXIES
The LTC Board is soliciting proxies on behalf of LTC. In addition to
solicitation by mail, directors, officers and employees of LTC, none of whom
will be specifically compensated for such services, may solicit proxies from the
stockholders of LTC, personally or by telephone or other forms of communication.
Brokerage houses, nominees, fiduciaries and other custodians will be requested
to forward soliciting materials to beneficial owners and will be reimbursed for
their reasonable expenses incurred in sending proxy materials to beneficial
owners.
HOW CAN YOU VOTE
You may vote you shares by marking the appropriate box on the enclosed
proxy card. You must sign and return the proxy card promptly in the enclosed
self-addressed envelope. YOUR vote is important. Please return your marked proxy
card promptly so your shares can be represented, even if you plan to attend the
Special Meeting in person.
VOTE NEEDED TO APPROVE THE MERGER
The affirmative vote of the holders of a majority of the outstanding
shares of LTC common stock is required to approve the merger.
SHARES OWNED BY DIRECTORS AND OFFICERS OF LTC
On May 1, 2000, directors and executive officers of LTC owned and were
entitled to vote 1,957,912 shares of LTC common stock, or approximately 4% of
the outstanding shares of LTC common stock.
THE MERGER
(See Chapters Two and Four)
THE MERGER
The merger agreement provides that LTC will merge with and into Ilion and
Ilion will issue to the LTC stockholders a total of 3.5 million shares of Ilion
common stock in exchange for all of the outstanding LTC shares, subject to
possible increase of up to 638,267 additional shares of Ilion common stock under
certain circumstances relating to the number of LTC options and warrants
exercised prior to the merger. Assuming that all of the currently outstanding
LTC options and warrants are exercised prior to the merger and a total of
4,138,267 shares of Ilion common stock will be issued in the merger, 14.10
shares of LTC common stock will be converted into one share of Ilion in the
merger.
6
<PAGE> 16
The completion of the merger is subject to the satisfaction of a number of
conditions, including obtaining the approval of LTC stockholders and the
completion of an initial public offering of Ilion shares in the United States.
For a more detailed description of the merger, see "Appendix A - The Agreement
and Plan of Merger."
LITHIUM TECHNOLOGY CORPORATION
5115 Campus Drive
Plymouth Meeting, PA 19462
(610) 940-6090
LTC is in the late stages of developing and seeking to commercialize a new
generation of high performance, solid state rechargeable LTC ion polymer
batteries for portable electronics devices and other applications such as the
rapidly emerging Hybrid Electric Vehicle (HEV) market. LTC's pilot line
production operations are regularly producing three generic sizes of thin flat
cells, including a large 9 Ah cell (4"x8"x1/4"). LTC's patented and proprietary
technology uses high performance fibers in composite battery structures and low
cost continuous flow fiber web coating and laminating processes for
manufacturing. These new batteries represent a significant benefit to the
end-user in terms of longer run times and thinner, flatter, lighter-weight form
factors.
For additional information about LTC and its business, see "LTC's
Business" in Chapter Seven and "Where You Can Find More Information" in Chapter
Nine.
ILION TECHNOLOGY CORPORATION
Level 5
Gosling Chapman Building
63 Albert Street
Auckland, New Zealand
Ilion (currently known as Pacific Lithium Limited) was formed as a New
Zealand company in 1994 and expects to complete its domestication to Delaware on
or about May 21, 2000, at which time it will merge with Ilion Technology
Corporation, its wholly owned non-operating subsidiary, and change its name to
Ilion Technology Corporation.
Ilion is planning an initial public offering of its shares in the United
States, to take place by September 30, 2000, depending on market and other
conditions.
Ilion started out as a company looking to commercially extract lithium
from sea water. Although Ilion developed the capability to do so, the market
price for technical grade lithium carbonate became substantially cheaper as a
result of a new supplier entering the market, which resulted in the extraction
of lithium from sea water being uneconomic at the then prevailing market
conditions. In 1997, Ilion turned its attention to being a developer and
supplier of advanced materials and enabling technologies in the rapidly growing
lithium battery industry. Ilion has exclusive and non-exclusive worldwide
licenses for advanced materials and patents developed by the Massachusetts
Institute of Technology and the National Research Council of Canada. Ilion has
also developed its own portfolio of patent applications and employs highly
qualified scientists at its advanced research and manufacturing facility in New
Zealand. In addition, Ilion has secured access to the one of the world's largest
known unexploited lithium reserves, located in China, through a joint venture
with a provincial government institute in China.
For additional information about Ilion and its business see "Ilion's
Business" in Chapter Eight.
7
<PAGE> 17
REASONS FOR THE MERGER AND RECOMMENDATION OF THE BOARD OF DIRECTORS
The LTC Board of Directors has determined that the merger is fair to, and
in the best interest of, the LTC stockholders, and has approved the merger
agreement. Accordingly, the Board of Directors unanimously recommends that the
stockholders vote to approve the merger with Ilion. In reaching its conclusion,
the Board of Directors considered a number of factors, including;
- the fact that, despite management's best efforts, LTC continues to
face significant short and long-term liquidity needs which have
impeded achieving LTC's strategic objectives;
- the opinion of Schuler Associates, P.C. that the merger
consideration to be received by the stockholders of LTC in the
merger is fair from a financial point of view (see "Opinion of LTC's
Financial Advisor");
- the impact of the merger on LTC's stockholders;
- the financial condition, results of operations, cash flows and
prospects of LTC, Ilion and the combined company;
- the expectation that the combined company will produce greater
stockholder returns than either LTC or Ilion could produce on its
own;
- the strategic fit of LTC and Ilion, including the technology
synergies and the potential revenue, expenses and capital raising
synergies and the impact of those synergies on the ability of the
combined company to compete in the industry;
- the agreement of Ilion to provide working capital financing in
excess of $1.1 million until the completion of the merger; and
- the agreement by Ilion to offer employment to all of the individuals
employed by LTC at the time of the merger.
After fully considering the matter and the factors described above, as
well as certain additional considerations including those reflected in "Risk
Factors," the LTC Board concluded that, the proposed merger is fair and in the
best interest of LTC and its stockholders.
This discussion of the information and factors considered and given weight
by the LTC Board of Directors is not intended to be exhaustive, but is believed
to include all material factors considered by the LTC Board of Directors. In
reaching the determination to approve and recommend that stockholders approve
the merger, the LTC Board of Directors did not undertake a separate analysis of
each of the factors considered, nor did it find it practical to, and it did not,
assign any relative or specific weight to any of the factors which were
considered, and individual directors may have given differing weights to
different factors.
OPINION OF FINANCIAL ADVISOR
LTC retained Schuler Associates, P.C. to render an opinion as to whether
the consideration to be received by the LTC stockholders in the merger is fair
from a financial point of view. Schuler Associates provided the LTC Board of
Directors with a written opinion on January 4, 2000. The opinion states that the
merger consideration to be received by the stockholders of LTC in the merger is
fair from a financial point of view. The opinion remains in full force and
effect as of the date of this proxy statement/prospectus. The full text of the
Schuler Associates, P.C. opinion, which sets forth the assumptions made, matters
considered and limitations on the review performed, is included in this proxy
statement/prospectus as Appendix B.
TREATMENT OF LTC STOCK OPTIONS AND WARRANTS
In the merger agreement LTC agreed to use its best efforts to cause all of
outstanding warrants and options to be exercised by the holders thereof,
including to reprice and accelerate the vesting of such outstanding of LTC
warrants and options as an inducement to their exercise by the holders thereof.
LTC agreed to terminate all of LTC stock plans and outstanding and unexercised
stock options as of a date not later than immediately prior to the merger. Any
LTC warrants outstanding at the merger that are not terminated, other than
warrants held by Ilion, will be converted and adjusted at the merger into
warrants to purchase shares of Ilion in accordance with their terms.
8
<PAGE> 18
CONDITIONS TO THE CLOSING
The closing of the merger is conditioned upon approval of LTC stockholders
which, under Delaware law, requires the affirmative vote of stockholders owning
a majority of the outstanding common stock of LTC as of ____________ ___, 2000.
In addition, the closing of the merger is subject to the completion of an
initial public offering of Ilion shares in the United States and the
satisfaction of certain customary conditions including, among other things, the
absence of any material adverse change in the operations, properties, assets,
liabilities or financial condition of the business of either LTC or Ilion.
LTC will be obligated to proceed with the merger provided that all closing
conditions have been met including the condition set forth in the merger
agreement that provides that Ilion must complete an initial public offering and
sale of its common stock which results in aggregate gross proceeds to Ilion in
an amount which, when added to the aggregate gross proceeds of all equity
funding received by Ilion at any time during the period from September 29, 1999
until the time of the Ilion IPO equals at least $25 million.
THE CLOSING
If all the conditions to the merger are satisfied or waived in accordance
with the merger agreement LTC will merge with and into Ilion at the same time
that Ilion has completed its initial public offering on the terms described
below. Ilion expects to consummate the Ilion initial public offering by
September 30, 2000 depending upon market and other factors. Because the merger
is subject to the completion of the Ilion initial public offering, LTC cannot
predict the exact timing of the closing of the merger.
ILION'S INITIAL PUBLIC OFFERING
Ilion currently expects to complete an underwritten initial public
offering in the United States by September 30, 2000 of approximately 8 million
shares of common stock at approximately $12.00 per share, or approximately $87.8
million net after expenses. Ilion expects that based on the number of Ilion
shares to be issued to the LTC stockholders in the merger and the number of
currently outstanding Ilion shares, the IPO shares will represent approximately
22% of the outstanding shares of Ilion.
Ilion's current expectation with respect to the Ilion IPO is based on an
offering ranging from approximately $8.00 to $16.00 per share. The structure and
proceeds from Ilion IPO described in this proxy statement/prospectus assumes the
Ilion IPO is at the mid-point of this range or $12.00 per share. However, the
final terms and structure of the Ilion IPO may ultimately be different from the
terms described herein and such final IPO terms and structure may be less
favorable than those contemplated at this time.
OWNERSHIP OF ILION AFTER THE MERGER
Ilion will issue between 3,500,000 and 4,138,267 shares of its common
stock to the LTC stockholders in the merger. Upon completion of the merger based
on the following assumed capital structure of Ilion after the Ilion IPO and the
merger, the merger securities will represent approximately 9.80% - 11.39% of
Ilion's outstanding common stock and the merger exchange ratio will be between
14.28 and 14.10 shares of LTC common stock for one share of LTC:
9
<PAGE> 19
LTC STOCKHOLDERS ARE ISSUED 3,500,000 ILION SHARES IN
THE MERGER (9.80% OF THE OUTSTANDING STOCK OF ILION)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
NUMBER OF ILION SHARES STOCKHOLDERS
- --------------------------------------------------------------------------------------------
<S> <C>
24,193,079 Shares owned by current Ilion stockholders (as of May 1, 2000)
- --------------------------------------------------------------------------------------------
8,000,000 Shares to be issued in the Ilion IPO
- --------------------------------------------------------------------------------------------
3,500,000 Base number of shares to be issued to LTC shareholders in the
merger
- --------------------------------------------------------------------------------------------
35,693,079 Total number of outstanding Ilion shares
- --------------------------------------------------------------------------------------------
</TABLE>
EXCHANGE RATIO BASED ON 3,500,000 MERGER SHARES
Assuming 3,500,000 Ilion shares are issued in exchange for the 49,990,835
currently outstanding shares of LTC common stock, 14.28 shares LTC common stock
would be exchanged for one share of Ilion common stock in the merger.
LTC STOCKHOLDERS ARE ISSUED 4,138,267 ILION SHARES IN
THE MERGER (11.39% OF THE OUTSTANDING STOCK OF ILION)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
NUMBER OF ILION SHARES STOCKHOLDERS
- --------------------------------------------------------------------------------------------
<S> <C>
24,193,079 Shares owned by current Ilion stockholders (as of May 1, 2000)
- --------------------------------------------------------------------------------------------
8,000,000 Shares to be issued in the Ilion IPO
- --------------------------------------------------------------------------------------------
3,500,000 Base number of shares to be issued to LTC shareholders in the
merger
- --------------------------------------------------------------------------------------------
638,267 Additional Ilion shares to be issued to LTC
shareholders assuming all LTC options and warrants
are exercised prior to the merger
- --------------------------------------------------------------------------------------------
36,331,346 Total number of outstanding Ilion shares
- --------------------------------------------------------------------------------------------
</TABLE>
EXCHANGE RATIO BASED ON 4,138,267 MERGER SHARES
Assuming 4,138,267 Ilion shares are issued in exchange for the 58,344,353
shares of LTC (comprised of the 49,990,835 shares of LTC common stock
outstanding as of May 1, 2000, 3,763,469 shares of LTC to be issued upon the
exercise of LTC options and 4,590,049 shares of LTC to be issued upon the
exercise of LTC warrants), 14.10 shares LTC common stock would be exchanged for
one share of Ilion common stock in the merger.
Since the final number of shares to be issued in the Ilion IPO may be more
or less than 8 million shares, and Ilion may issue additional shares in
connection with private placement financing prior to the Ilion IPO, the
percentage of Ilion stock that the shares to be issued to the LTC stockholders
may decrease or increase from the 9.80%-11.39% range described above.
TERMINATION
The merger agreement may be terminated as follows:
- by our mutual written agreement;
- by Ilion, if LTC's stockholders do not approve the merger by July
31, 2000;
10
<PAGE> 20
- by either of us, if there has been a material violation or breach by
the other party of any covenant, representation or warranty
contained in the merger agreement and such violation or breach has
not been waived or cured within 60 days after written notice of such
breach;
- by either of us, if the merger has not been consummated by February
28, 2002; provided, however, that neither party will be entitled to
terminate the merger agreement if such person's breach of the merger
agreement has prevented the merger;
- by Ilion, if there has been a material adverse change in LTC; or
- by LTC, if there has been a material adverse change in Ilion.
BRIDGE FINANCING; EFFECT OF TERMINATION
Pursuant to the terms of a bridge loan financing agreement entered into as
of November 29, 1999, Ilion has provided working capital to LTC. Ilion has
advanced a total of $1,475,000 as of May 1, 2000 for working capital and
$125,000 for the purchase of a packaging machine. In addition, Ilion has agreed
to continue to advance to LTC funds required by LTC for ongoing employee,
operating and administrative expenses excluding capital expenses until the
closing of the merger.
LTC estimates that approximately $250,000 per month will be required by
LTC for working capital. Under the agreements with Ilion, LTC will offset a
portion of the funds received by LTC upon the exercise of options and warrants
against the funding otherwise required to be advanced by Ilion under the bridge
financing agreement. If the merger does not close until February 2002, a total
of approximately $5,250,000 will be required by LTC for working capital from
June 2000 until February 2002.
If the merger is not consummated for any reason any advances from Ilion to
LTC under the bridge loan financing agreement will be converted into LTC common
stock at $0.10 per share, and except in the event of a default by Ilion under
the merger agreement, Ilion will be issued warrants to purchase 7.5 million
shares of LTC common stock exercisable at $0.15 per share until January 19,
2003, and Ilion will have a first option to purchase LTC's technologies and
processes at market value if LTC decides to sell them, goes into receivership,
liquidation or the like. If the merger agreement is terminated other than in the
event of a default by Ilion, Ilion will also have the right and option to
purchase LTC's pilot plant and equipment at book value as of the date of the
merger agreement.
In connection with the bridge loan financing agreement, LTC has granted
Ilion a non-exclusive worldwide license to use LTC's thin film technology and
manufacturing methods solely as it relates to lithium-ion polymer batteries. LTC
has also agreed to enter into a security agreement and assignment of lease in
favor of Ilion upon the approval of the merger by the LTC stockholders pursuant
to which LTC will grant Ilion a first priority security interest in all of the
assets of LTC effective from such time until the closing of the merger. The
security agreement will grant Ilion the right to foreclose on all of LTC's
assets in the event of any bankruptcy of LTC or similar event.
At May 1, 2000, Ilion held $1,600,000 of convertible notes convertible
into 16,000,000 shares of LTC common stock at a conversion price of $.10 (which
are only convertible in the event of a default or if the merger does not close
by February 28, 2002 or is not approved by the LTC stockholders by July 31, 2000
or such later date agreed to by Ilion). LTC may issue up to approximately
$5,250,000 of additional notes to Ilion from June 2000 until February 2002,
convertible into 52,500,000 shares of common stock at a conversion price of $.10
per share, and may issue to Ilion warrants to purchase 7,500,000 shares of LTC
common stock exercisable at $0.15 per share. The notes will not be converted
into LTC common stock and the warrants will not be issued to Ilion if the merger
is closed.
11
<PAGE> 21
The percentage ownership of LTC that Ilion will own if there is a default
under the bridge financing agreement or in the event the merger is not closed
will depend on the amount of funds advanced by Ilion to LTC. If Ilion advances
another $5,250,000 in addition to the $1,600,000 advanced through May 1, 2000,
and the notes were converted, Ilion would own approximately 68,500,000 shares of
LTC common stock, which would represent approximately 58% of LTC's outstanding
common stock on a fully diluted basis. If the merger is completed, the notes
will not be converted into LTC common stock and no warrants will be issued to
Ilion.
The bridge financing agreement does not contain a maximum of the amount of
funding that may be advanced under such agreement. Accordingly, there is no
maximum number of notes that may be issued to Ilion. The amount of the notes
will be related to the working capital requirements of LTC and the length of
time until the merger is completed.
NO REGULATORY APPROVAL
Other than filings to be made and approvals under certain state securities
or "blue-sky" laws and the declaration of effectiveness of the registration
statement relating to this proxy statement/prospectus, there are no federal or
state regulatory requirements that must be compiled with or obtained in
connection with the merger.
ACCOUNTING TREATMENT OF THE SALE
Ilion and LTC anticipate that the merger will be accounted for as a
purchase.
The unaudited pro forma financial information contained in this proxy
statement/prospectus beginning on page 24 has been prepared by accounting for
the merger as a purchase.
FEDERAL TAX CONSEQUENCES OF THE MERGER
In general, LTC stockholders will not be required to pay any federal
income tax as a result of the merger, except for taxes on cash they receive
instead of fractions of a share. The merger will be tax-free to LTC, LTC's
stockholders, Ilion and Ilion stockholders for federal income tax purposes.
NO APPRAISAL RIGHTS
LTC stockholders will not have dissenters' rights under Delaware law in
connection with the merger since the Ilion common stock will be either listed on
a national securities exchange or designated as a national market system
security by the NASD.
EMPLOYEE MATTERS
Upon the closing of the merger, Ilion will offer to each full-time LTC
employee employment with Ilion or an affiliate of Ilion. Each LTC employee will
have a substantially equivalent title and level of responsibility and will
receive substantially equivalent compensation and benefits as such employee had
as a LTC employee, subject to the terms and conditions of Ilion's standard
employment agreements.
Employment Agreements With Ilion
Ilion will offer employment to Mr. David Cade, LTC's Chairman and Chief
Operating Officer as the Chief Operating Officer of Ilion upon the merger
closing and Chief Executive Officer when designated as such by Ilion's Board of
Directors. The employment agreement provides for an annual salary of $165,000
and six
12
<PAGE> 22
month's severance in the event of termination of Mr. Cade by Ilion without cause
or the resignation of Mr. Cade (which requires 30 days notice).
Ilion will offer employment to Dr. George Ferment, LTC's President, Chief
Operating Officer and Chief Technical Officer as the Executive Vice President of
Cell Manufacturing Operations of Ilion upon the closing of the merger. The
employment agreement provides for an annual salary of $155,000 and six month's
severance in the event of termination of Mr. Ferment by Ilion without cause or
the resignation of Mr. Ferment (which requires 30 days notice).
Ilion Options
Ilion will grant a minimum of 300,000 options to the transferred LTC
employees for the purchase of Ilion common stock at an exercise price of $2.25
per share. The Ilion options will be distributed to the transferred LTC
employees on a pro-rata basis based on the number of LTC stock options held on
the date the merger agreement was signed. Based on the formula set forth in the
merger agreement, David Cade, the Chairman and Chief Executive Officer of LTC
will be granted 90,390 of the Ilion options and George Ferment, the President
and Chief Operating Officer of LTC will be granted 92,525 of the Ilion options.
Stock Options of LTC
In the merger agreement, LTC agreed to use its best efforts to cause all
of outstanding warrants and options to be exercised by the holders thereof,
including to re-price and accelerate the vesting of such outstanding of LTC
warrants and options as an inducement to their exercise by the holders thereof
in order to provide working capital to LTC. All of LTC's stock plans and
outstanding and unexercised stock options will be terminated at the time of the
merger.
As of February 2, 2000, the vesting of all outstanding options was
accelerated and all outstanding options became fully exercisable on that date.
13
<PAGE> 23
RISK FACTORS
An investment in shares of Ilion common stock offered hereby involves a
high degree of risk. The following risk factors should be considered carefully
in addition to the other information in this prospectus before purchasing the
common stock offered by this proxy statement/prospectus.
RISKS IF THE MERGER IS NOT CONSUMMATED
LTC WILL NOT HAVE ADEQUATE CAPITAL TO CONTINUE OPERATIONS
LTC has been unprofitable since inception, expects to incur substantial
additional operating losses in the future and needs significant additional
financing to continue the development and commercialization of its technology.
LTC did not generate any significant revenues from operations during the fiscal
year ending December 31, 1999.
If LTC does not consummate the merger, LTC will assess all available
alternatives including the suspension of operations and possibly liquidation,
auction, bankruptcy or other measures.
ILION WILL HAVE RIGHTS AS A CREDITOR
If the merger is not consummated for any reason any advances from Ilion to
LTC under the bridge loan financing agreement will be converted into LTC common
stock at $0.10 per share, and except in the event of the default of Ilion under
the merger agreement Ilion will be issued warrants to purchase 7.5 million
shares of LTC common stock exercisable at $0.15 per share until January 19,
2003, and Ilion will have a first option to purchase LTC's technologies and
processes at market value if LTC decides to sell them, goes into receivership,
liquidation or the like. If the merger agreement is terminated other than in the
event of the default of Ilion, Ilion will also have the right and option to
purchase LTC's pilot plant and equipment at book value as of January 19, 2000.
In connection with the bridge loan financing agreement, LTC has granted
Ilion a non-exclusive worldwide license to use LTC's thin film technology and
manufacturing methods solely as it relates to lithium-ion polymer batteries. LTC
has also agreed to enter into a security agreement and assignment of lease in
favor of Ilion upon the approval of the merger by the LTC stockholders pursuant
to which LTC will grant Ilion a first priority security interest in all of the
assets of LTC effective from such time until the closing of the merger. The
security agreement will grant Ilion the right to foreclose on all of LTC's
assets in the event of any bankruptcy of LTC or similar event.
ILION WILL BE A CONTROLLING STOCKHOLDER OF LTC
The percentage ownership of LTC that Ilion will own if there is a default
under the bridge financing agreement or in the event the merger is not closed
will depend on the amount of funds advanced by Ilion to LTC. If Ilion advances
another $5,250,000 in addition to the $1,600,000 advanced through May 1, 2000,
and the notes were converted, Ilion would own approximately 68,500,000 shares of
LTC common stock, which would represent approximately 58% of LTC's outstanding
common stock. If the merger is completed, the notes will not be converted into
LTC common stock and no warrants will be issued to Ilion.
The bridge financing agreement does not contain a maximum of the amount of
funding that may be advanced under the bridge financing agreement. Accordingly,
there is no maximum number of notes that may be issued to Ilion. The amount of
the notes will be related to the working capital requirements of LTC and the
length of time until the merger is completed.
Since Ilion would control a majority of the voting power of LTC, Ilion
would be able to control the outcome of most matters submitted to the
stockholders for approval, including the election of all of the LTC's directors,
an amendment to LTC's Certificate of Incorporation or a merger, sale of assets
or other significant transaction without the approval of LTC's other
stockholders. Accordingly, Ilion would have an effective veto power over
corporate transactions which non-control stockholders might desire.
14
<PAGE> 24
RISKS IF THE MERGER IS CONSUMMATED
RISKS RELATING TO AN INVESTMENT IN ILION SHARES
LTC stockholders cannot be sure of market value of the Ilion common stock they
will receive in the merger
At the time the merger is completed, all of the outstanding shares of LTC
common stock will be converted into 3.5 million shares of Ilion common stock,
subject to possible increase of up to 638,267 shares of Ilion common stock under
certain circumstances relating to the number of LTC options and warrants
exercised prior to the merger. Assuming that all of the currently outstanding
LTC options and warrants are exercised prior to the merger a total of 4,138,267
shares of Ilion common stock will be issued in the merger, 14.10 shares of LTC
common stock will be converted into one share of Ilion in the merger. This
number will not change, even if the market price of Ilion or LTC shares
increases or decreases between now and the date the merger is completed. Because
the merger will be completed simultaneously with the Ilion initial public
offering, the LTC stockholders cannot be sure of the market value of the Ilion
common stock they will receive or the percentage of Ilion that the merger shares
will represent at the time of the merger at the time they vote their shares.
The price of either the LTC common stock or the Ilion common stock on the
date of the merger may vary from its price on the date of this proxy
statement/prospectus and on the date of the stockholder meeting. The variations
may be the result of:
- changes in the business operations or prospects of LTC or Ilion;
- market assessments of the likelihood that the merger will be
completed and its timing;
- the structure and terms of the Ilion IPO; and
- general market and economic conditions and other factors.
As a result, the value of the Ilion common stock received by LTC
stockholders in the merger may be higher or lower than the market value of the
Ilion common stock at the time you vote or at the date of this proxy
statement/prospectus.
LTC stockholders cannot be sure of the terms of the Ilion IPO
Ilion currently expects to complete an underwritten initial public
offering in the United States by September 30, 2000 of approximately 8 million
shares of common stock at approximately $12.00 per share, or approximately $87.8
million net after expenses. Ilion expects that based on the number of Ilion
shares currently outstanding and the number of Ilion shares to be issued to the
LTC stockholders in the merger and the number of currently outstanding Ilion
shares, the Ilion IPO shares will represent approximately 22% of the outstanding
shares of Ilion.
Ilion's current expectation with respect to the Ilion IPO is based on an
offering ranging from approximately $8.00 to $16.00 per share. The structure and
proceeds from Ilion IPO described in this proxy statement/prospectus assumes the
Ilion IPO is at the mid-point of this range or $12.00 per share. However, the
final terms and structure of the Ilion IPO may ultimately be different from the
terms described herein and such final IPO terms and structure may be less
favorable than those contemplated at this time.
LTC will be obligated to proceed with the merger provided that all closing
conditions have been met, including the condition set forth in the merger
agreement that provides that Ilion must complete an initial public offering and
sale of its common stock that results in aggregate gross proceeds to Ilion in an
amount that when added to the aggregate gross proceeds of all equity funding
received by Ilion at any time during the period from September 29, 1999 until
the time of the Ilion IPO equals at least $25 million.
15
<PAGE> 25
LTC stockholders will likely own less than 12% of Ilion after the merger
Ilion will issue between 3,500,000 and 4,138,267 shares of its
common stock to the LTC stockholders in the merger. Upon completion of the
merger based on the following assumed capital structure of Ilion after the Ilion
IPO and the merger, the merger securities will represent approximately 9.80% -
11.39% of Ilion's outstanding common stock and the merger exchange ratio will be
between 14.28 and 14.10 shares of LTC common stock for one share of LTC:
LTC STOCKHOLDERS ARE ISSUED 3,500,000 ILION SHARES IN
THE MERGER (9.8% OF THE OUTSTANDING STOCK OF ILION)
<TABLE>
- --------------------------------------------------------------------------------------------
NUMBER OF ILION SHARES STOCKHOLDERS
- --------------------------------------------------------------------------------------------
<S> <C>
24,193,079 Shares owned by current Ilion stockholders (as of May 1, 2000)
- --------------------------------------------------------------------------------------------
8,000,000 Shares to be issued in the Ilion IPO
- --------------------------------------------------------------------------------------------
3,500,000 Base number of shares to be issued to LTC shareholders in the
merger
- --------------------------------------------------------------------------------------------
35,693,079 Total number of outstanding Ilion shares
- --------------------------------------------------------------------------------------------
</TABLE>
EXCHANGE RATIO BASED ON 3,500,000 MERGER SHARES
Assuming 3,500,000 Ilion shares are issued in exchange for the 49,990,835
currently outstanding shares of LTC common stock, 14.28 shares LTC common stock
would be exchanged for one share of Ilion common stock in the merger.
LTC STOCKHOLDERS ARE ISSUED 4,138,267 ILION SHARES IN
THE MERGER (11.39% OF THE OUTSTANDING STOCK OF ILION)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
NUMBER OF ILION SHARES STOCKHOLDERS
- --------------------------------------------------------------------------------------------
<S> <C>
24,193,079 Shares owned by current Ilion stockholders (as of May 1, 2000)
- --------------------------------------------------------------------------------------------
8,000,000 Shares to be issued in the Ilion IPO
- --------------------------------------------------------------------------------------------
3,500,000 Base number of shares to be issued to LTC shareholders in the
merger
- --------------------------------------------------------------------------------------------
638,267 Additional Ilion shares to be issued to LTC
shareholders assuming all LTC options and warrants
are exercised prior to the merger
- --------------------------------------------------------------------------------------------
36,331,346 Total number of outstanding Ilion shares
- --------------------------------------------------------------------------------------------
</TABLE>
EXCHANGE RATIO BASED ON 4,138,267 MERGER SHARES
Assuming 4,138,267 Ilion shares are issued in exchange for the 58,344,353
shares of LTC (comprised of the 49,990,835 shares of LTC common stock
outstanding as of May 1, 2000, 3,763,469 shares of LTC to be issued upon the
exercise of LTC options and 4,590,049 shares of LTC to be issued upon the
exercise of LTC warrants), 14.10 shares LTC common stock would be exchanged for
one share of Ilion common stock in the merger.
Since the final number of shares to be issued in the Ilion IPO may be more
or less than 8 million shares, and Ilion may issue additional shares in
connection with private placement financing prior to the Ilion IPO, the
percentage of Ilion stock that the shares to be issued to the LTC stockholders
represents may decrease or increase form the 9.80%-11.39% range described above
and the Ilion management share ownership may decrease or increase from 14.6%.
Ilion's directors and executive officers are expected to beneficially own
approximately 14.6% of the Ilion common stock after the merger and the Ilion IPO
and as a group the Ilion directors and executive officers may be able to control
the outcome of certain matters submitted to the stockholders for approval,
including the election of Ilion's directors and may have an effective veto power
over corporate transactions that the LTC stockholders might desire.
16
<PAGE> 26
Following the merger, LTC stockholders may be adversely affected by future
issuances and sales of Ilion's common stock
Sales of substantial amounts of Ilion common stock in the public market
following the merger and the Ilion initial public offering could adversely
affect the market price of the Ilion common stock.
You should not expect Ilion to pay any dividends to you in the foreseeable
future
Ilion does not anticipate paying cash dividends in the foreseeable future.
RISKS RELATED TO THE MERGER OF THE COMPANIES
There may be changes in the business of both LTC and Ilion
If the LTC stockholders approve the merger, there may be changes in both
LTC and Ilion prior to the closing and LTC will still be obligated to complete
the merger unless there is a material adverse change in the operations or
prospect of Ilion.
Ilion may not be able to successfully integrate LTC's operations
In determining that the merger is fair to and in the best interests of
its stockholders, the LTC Board considered, among other things, the financial
benefits, operating efficiencies and synergies expected to result from the
completion of the merger.
A successful combination of the two companies will require, among other
things, integration of the two companies' respective:
- technologies and technological expertise;
- products and product development efforts;
- sales and manufacturing capabilities; and
- key personnel.
Neither company has been involved in a strategic merger of this size. The
effective integration of corporate cultures may be especially important over the
long term to achieve the benefits of the merger. This integration may not be
successfully accomplished. Moreover, the integration of the operations following
the merger will require the dedication of management and other personnel, which
may distract their attention from the day-to-day business of the combined
companies, the development of new products and the pursuit of other business
acquisition activities. Failure to successfully accomplish the integration of
the two companies' operations and technologies, or a prolonged delay in
accomplishing a reasonable measure of integration, may have a material adverse
effect on the combined company.
RISKS RELATED TO ILION AND OPERATIONS
Ilion has a history of operating losses and is uncertain that it will achieve
profitability in the future
Ilion commenced operations in 1994 and has incurred net operating losses
since its inception. Losses have resulted principally from research and
development, manufacturing and general and administrative costs. No assurance
can be given that Ilion will generate an operating profit or achieve
profitability in the future. For the fiscal years ended March 31, 1998 and 1999
and the nine months ended December 31, 1999, Ilion's net loss was approximately
NZ$3.3 million, NZ$3.8 million (US$2.0 million) and NZ$3.3 million (US$1.7
million), respectively. At December 31, 1999, the accumulated deficit was
NZ$14.2 million (US$7.4 million).
17
<PAGE> 27
Ilion is dependent on a small number of customers for sales of its high grade
lithium carbonate and its premium grade lithium carbonate
Ilion sells its high grade lithium carbonate to a small number of
companies. In fiscal 1999, Ilion distributed approximately 75% of its high grade
lithium carbonate and almost all of its premium grade lithium carbonate through
Nissho Iwai New Zealand Limited, the exclusive wholesaler of its high and
premium grade lithium carbonate through Japan, and approximately 20% of its high
grade lithium carbonate to LithChem, a non-exclusive wholesaler of its high
grade lithium carbonate in North America. Nissho Iwai and LithChem are currently
not required to purchase a minimum amount of product from us. There can be no
assurance that Nissho Iwai or LithChem will remain our customers and the loss of
their business could have a material adverse effect on our business, financial
condition and results of operations.
New customers who wish to use Ilion's high and premium grade lithium carbonate
need to alter their manufacturing facilities
Each company has differing requirements as to the moisture content, raw
material purity and particle size for lithium carbonate and sets up its
manufacturing facilities for its specific requirements for lithium carbonate. In
order for a new customer to use Ilion's lithium carbonate it would need to make
changes to its manufacturing facility to cater for the different characteristics
of Ilion's product. This expense is an impediment to companies switching to
using Ilion's high and premium grade lithium carbonate.
Ilion obtains all of its lithium hydroxide, which it processes into lithium
carbonate, from one supplier whose supply is limited.
Ilion obtains all of its lithium hydroxide for use as a feedstock to
produce high and premium grade lithium carbonate from ToxCo, Inc., a U.S. based
company. ToxCo's stockpile of lithium hydroxide is limited and Ilion expects
ToxCo to run out of lithium hydroxide within eight years. In addition, Ilion
does not currently have a contract with ToxCo that guarantees Ilion a supply of
lithium hydroxide. However, Ilion has not had a problem in obtaining lithium
hydroxide from ToxCo in the past. Ilion is in the process of evaluating other
sources of feedstock and manufacturing processes for its New Zealand
manufacturing facility. There are a small number of raw material suppliers in
the world but there is a significant oversupply in the market and Ilion has
received quotes for supplies of lithium carbonate from some of these suppliers.
There can be no assurance that Ilion will not experience a material interruption
in the supply of lithium hydroxide from ToxCo before it is in a position to use
alternative sources of feedstock and any such interruption could have a material
adverse effect on Ilion's business, financial condition and results of
operations.
Ilion has a limited production capacity at its New Zealand facility
Currently, Ilion's New Zealand facility can produce 750 tonnes per annum
of high grade lithium carbonate. The facility's capacity decreases significantly
when premium grade lithium carbonate is produced, as premium grade lithium
carbonate takes three times as long to produce as high grade lithium carbonate.
Ilion is in the process of increasing the capacity of the facility and by the
end of 2001, Ilion plans on having the capacity to produce 2,000 tonnes of high
grade lithium carbonate per annum.
The lithium products produced by the Chinese joint venture may be not be
competitive
Ilion's joint venture in China, Qinghai Lithium Ltd, may not be successful
in producing lithium products at a competitive price. The joint venture is in
its developmental stage and there can be no assurance that it will be
successful. The failure of the Chinese joint venture to produce lithium products
at a competitive price may have an adverse effect on Ilion's business, financial
condition and results of operations.
18
<PAGE> 28
Ilion operates in a competitive market with a small number of competitors in the
lithium carbonate market.
There are only a small number of competitors in each of the technical,
high and premium grade carbonate markets. Technical grade lithium carbonate is
marketed on the basis of price. High grade and premium grade lithium carbonate
are marketed on the basis of price as well as product characteristics such as
moisture content, raw material purity and particle size. Currently Ilion's high
grade and premium grade lithium carbonate are more expensive than some of its
competitors. However, Ilion's ability to tailor the product for each customer
gives Ilion an advantage over its competitors, who may face significant
difficulties in producing the same quality of material at the same price. There
can be no assurance that its competitors will not develop the ability to tailor
their products to each customer at a cheaper price than Ilion can.
Ilion needs to further develop its manganese cathode materials before they can
be sold in Japan and North America
The major markets for cathode materials are Japan and North America.
Ilion's manganese cathode materials require further development before they will
be suitable for the Japanese and North American market. Ilion has entered into a
collaborative business agreement with a large Japanese cathode manufacturer who
has agreed to help Ilion further develop its cathode materials so that they will
be suitable for the Japanese and North American markets. However, there can be
no assurance that Ilion will successfully develop its manganese cathode
materials so that they are suitable for these markets and the failure to do so
will adversely effect Ilion's goal of being a vertically integrated supplier of
materials and enabling technologies to the lithium battery industry.
Other companies may develop new and better cathode materials
A number of companies, including Sony, many of who have substantially
greater financial, technical, manufacturing, distribution, marketing, sales and
other resources than Ilion, are developing other alternative cathode materials
to that of Ilion. If another company develops a new cathode material that is
less expensive and has better performance than Ilion's cathode material, Ilion
may not be able to successfully commercialize its cathode material and the
failure to do so will adversely effect Ilion's goal of being a vertically
integrated supplier of materials and enabling technologies to the lithium
battery industry.
A significant decrease in the cost of cobalt could adversely effect sales of
Ilion's manganese cathode materials
The two main advantages of Ilion's manganese cathode materials over
lithium cobalt oxide cathode materials, which is the current market leader, are
that Ilion's manganese cathode materials possess greater energy density and will
be potentially less expensive than lithium cobalt oxide cathode materials. The
price of cobalt oxide was in the region of US$30,000 per tonne and the cost of
manganese oxide was in the region of US$3,000 per tonne in 1999. The price of
cobalt is volatile and a significant decrease in its price would increase the
competitiveness of lithium cobalt oxide cathode materials and could have a
material adverse effect on Ilion's business, financial condition and results of
operations.
The development of the large-scale commercial production of hybrid electric
vehicles and electric vehicles and other large-scale applications, such as
energy storage, powered by lithium batteries is instrumental to the growth of
Ilion's business
Ilion's business, results of operations and financial condition would be
materially affected if the markets for both large-scale applications, such as
energy storage, and lithium battery powered hybrid electric or electric vehicles
do not develop or develops at a slower rate than Ilion expects or if Ilion is
unsuccessful in selling its lithium polymer cells in these markets if they do
develop.
19
<PAGE> 29
- Ilion may be unable to significantly reduce the price of lithium
polymer cells, which Ilion believes needs to occur in order to
facilitate the large-scale commercial production of hybrid electric
and electric vehicles and the use of lithium batteries in
large-scale applications, such as energy storage. If the cost of
lithium cells is not reduced significantly, the use of lithium cells
as a power source for these markets may remain uneconomic and this
could have a have a material adverse effect on the long term growth
of Ilion's business, and on its financial condition and results of
operations.
- The performance of the materials and batteries for these lithium
cells may not be competitive with existing materials and batteries.
- A significant amount of Ilion's anticipated growth will depend upon
the success of cars sold by car manufacturers that use Ilion's
lithium polymer battery cells. Therefore, a significant amount of
Ilion's growth is substantially dependent upon the acceptance of
these car manufacturers' cars in the marketplace. Ilion is subject
to many risks beyond its control that influence the success or
failure of a hybrid electric or electric car manufactured by a car
manufacturer, including among others, competition faced by the car
manufacturer; market acceptance of hybrid electric and electric
cars, the engineering, sales and marketing and management
capabilities of the car manufacturer; technical challenges unrelated
to Ilion's technology or products faced by the car manufacturer in
developing its cars and the financial and other resources of the car
manufacturer.
Ilion is dependent on licensed patents and technology transfer agreements
Ilion's research and development of cathode materials, lithium carbonate,
polymer cells and anode materials utilizes internally-developed technology,
acquired technology and certain patents and related technology licensed by Ilion
pursuant to exclusive and non-exclusive licenses. Ilion is aware of one company
that has the patent rights to develop similar cathode materials, although Ilion
believes that that company is not actively developing materials using this
patent. Termination of the licenses to use patented materials and processes
could result in significant delays in the research and development of Ilion's
cathode materials and the commercialization of such product, which could have a
material adverse effect on Ilion's business, financial condition and results of
operations.
Ilion may not be able to successfully manage its business if its business grows
rapidly
Rapid growth of Ilion's business may significantly strain its management,
operations and technical resources. If Ilion is successful in obtaining rapid
market penetration of its advanced rechargeable batteries, Ilion will be
required to deliver large volumes of quality products to its customers on a
timely basis at a reasonable cost to those customers. If Ilion fails to manage
its growth effectively it could have an adverse effect on its business,
financial condition and results of operations.
Ilion does not have an employment contract with any of its current executive
officers and their services are supplied to Ilion pursuant to a management
agreement
None of Ilion's current executive officers are employed directly by Ilion.
Ilion is a party to a management agreement with Phoenix Management Limited, a
company owned by Robin Johannink, Ilion's Chief Executive Officer and a director
of Ilion. Mr. Johannink and Mr. Locke, Ilion's Chief Financial Officer, have
employment contracts with Phoenix Management and their services are provided to
Ilion pursuant to the management agreement. Neither Mr. Johannink nor Mr. Locke
work full-time for Ilion and their time is divided among two other companies for
which Phoenix Management also provides management services. The management
agreement does not specify that Phoenix Management must provide the services of
Mr. Johannink and Mr. Locke. See "Ilion's Certain Transactions - Management
Agreement".
20
<PAGE> 30
Components of Ilion's products contain certain elements that are known to pose
safety risks
Components of Ilion's products contain certain elements that are known to
pose safety risks. Although Ilion currently has in force insurance policies that
cover loss of its plant and machinery, leasehold improvements, inventory and
business interruption, and personal injury and workers compensation insurance,
any accident at its manufacturing facility may result in significant production
delays or claims for damages resulting from injuries, any of which could have a
material adverse effect on Ilion's business, financial condition and results of
operations.
Changes in environmental rules and regulations could result in increased
compliance costs
New Zealand national and local laws and regulations impose various
environmental controls on the manufacture, storage, use and disposal of lithium
carbonate and/or of certain chemicals used in the manufacture of our manganese
cathode materials at Ilion's New Zealand manufacturing facility. Although Ilion
believes that its operations are in substantial compliance with current
environmental regulations and that there are no environmental conditions that
will require material expenditures for clean-up at our present facilities, there
can be no assurance that changes in such laws and regulations will not impose
costly compliance requirements on our company or otherwise subject our company
to future liabilities.
RISKS RELATED TO LTC AND ITS OPERATIONS
LTC has not commercially produced lithium polymer cells
To be successful with respect to LTC's lithium polymer cells, LTC must
manufacture its cells in large commercial quantities with appropriate
performance characteristics at competitive costs, and with low failure rates.
Although LTC believes that it has the technology and ability to commercially
produce lithium polymer cells, the introduction of new products is subject to
the inherent risks of unforeseen delays and the time necessary to achieve market
success for any individual product is uncertain. At present, LTC operates a
pilot production line (including a manual cell assembly process and
semi-automated laminating and packaging machines) that produces limited
quantities of advanced rechargeable batteries for customer sampling and initial
product runs. LTC must successfully integrate its automated assembly and
packaging production line and be able to ramp up production of its advanced
rechargeable batteries. Failure of these machines to become fully operational
may result in LTC not being able to obtain additional orders from OEMs and may
adversely impact its ability to attract additional customers which will have a
material adverse effect on its business, financial condition and results of
operations. LTC currently has no high volume manufacturing capability or
experience in large scale manufacturing of its advanced rechargeable batteries
and has limited experience in automated assembly and packaging technology.
If volume production of LTC's lithium polymer cells is delayed for any
reason, LTC's competitors may introduce emerging technologies or refine existing
technologies which could have a material adverse effect on the business,
financial condition and results of operations of LTC.
The battery market is very competitive and LTC competes against larger companies
with greater resources
The primary and rechargeable battery industry is characterized by intense
competition with a large number of companies offering or seeking to develop
technology and products similar to LTC's. LTC is subject to competition from
manufacturers of traditional rechargeable batteries, such as nickel-cadmium
batteries, from manufacturers or rechargeable batteries of more recent
technologies, such as nickel-metal hydride, lithium-ion liquid electrolyte and
lithium-metal solid-polymer batteries, as well as from companies engaged in the
development of batteries incorporating new technologies.
21
<PAGE> 31
Manufacturers of nickel-cadmium and nickel-metal hydride batteries include
Moltech (formerly Eveready), Sanyo Electric Co. Ltd., Sony Corp., Toshiba Corp.,
Matsushita Electric Industrial Co., Ltd. and Duracell International, Inc.
Manufacturers of lithium-ion liquid electrolyte batteries include Saft-Soc des
ACC, Sony Corp., Toshiba Corp., Matsushita Electric Industrial Co., Ltd. and
Sanyo Electric Co. Ltd. Ultralife Batteries, Inc., Valence Technology, Inc.,
Battery Engineering, Inc. and Yuasa-Exide, Inc. have all developed prototype
solid-polymer cells/batteries and are constructing commercial-scale
manufacturing facilities.
There can be no assurance that LTC will be successful in competing with
these manufacturers, many of which have substantially greater financial,
technical, manufacturing, distribution, marketing, sales and other resources. A
number of companies with substantially greater resources than ours are pursuing
the development of a wide variety of battery technologies, including both liquid
electrolyte lithium and solid electrolyte lithium batteries, which are expected
to compete with LTC's technology. Other companies undertaking research and
development activities of solid-polymer batteries have already developed
prototypes and are constructing commercial scale production facilities. If
another company successfully markets its batteries prior to the introduction of
our battery products, there will be a material adverse effect on the business,
financial condition and results of operations of LTC.
LTC's battery technology may become obsolete
The market for LTC's products is characterized by changing technology and
evolving industry standards, often resulting in product obsolescence or short
product lifecycles. Although LTC believes that its batteries are comprised of
state-of-the-art technology, there can be no assurance that competitors will not
develop technologies or products that would render LTC's technology and products
obsolete or less marketable.
RISKS RELATED TO THE INDUSTRY IN WHICH WE OPERATE
The battery industry is characterized by rapid changes in technology and
end-user requirements
The battery industry is characterized by rapidly changing technology,
evolving industry standards, changes in end-user requirements and new products
introductions and enhancements. Our success will depend to a degree upon our
ability to introduce in a timely manner our contemplated product range whose
performance will match or better our competitors' products. There can be no
assurance that we will be able to do so.
Our business strategy depends on the continued growth of the lithium battery
industry
We would be adversely affected if sales of rechargeable lithium batteries
do not continue to grow. The growth in sales of rechargeable lithium batteries
may be inhibited for any number of reasons including:
- competition from other battery chemicals including nickel-metal
hydride and nickel-cadmium;
- the size of the Portable Applications market decreasing or remaining
stagnant;
- the failure of large-scale commercial production of lithium battery
powered hybrid electric or electric vehicles to materialize; and
- The failure of the market for the use of lithium batteries in
large-scale applications, such as energy storage, to materialize.
22
<PAGE> 32
Our long-term growth and success depends on the large-scale commercial
production of lithium battery powered hybrid electric and electric vehicles and
other large-scale applications, such as energy storage
If the markets for both large-scale energy storage and cars powered by
lithium batteries do not develop or develop at a slower rate than we anticipate,
then our growth and long-term success will be adversely affected. A number of
factors could prevent the development of these markets for lithium batteries
including:
- The failure of hybrid electric cars or electric cars to be accepted
by consumers as a viable alternative to cars powered by gas or
diesel;
- The price of lithium batteries may not fall enough for them to be
economical as a power source for hybrid electric or electric
vehicles - we estimate that the price of lithium batteries needs to
fall by as much as 75% from their current price; and
- The performance of lithium based batteries to be sufficient for
large applications.
- The development of cheaper alternative energy sources for cars such
as fuel cells, which employ a chemical reaction to "burn" hydrogen
and directly generate electricity, could corner the market in
alternatively powered cars - Honda has announced plans to introduce
a fuel cell vehicle to the market by 2003 and General Motors and
DaimlerChrysler have each announced plans to launch a fuel cell
vehicle by 2004.
We may be unable to protect the intellectual property rights needed to operate
our business
Both LTC and Ilion believe that its success is less dependent on the legal
protection that its patents and other proprietary rights may or will afford than
on the knowledge, ability, experience and technological expertise of its
employees. LTC and Ilion claim proprietary rights in various unpatented
technologies, know how, trade secrets and trademarks relating to its products
and manufacturing processes. There can be no assurances as to the degree of
protection these various claims may or will afford, or that its competitors will
not independently develop or patent technologies that are substantially
equivalent or superior to our technology. It is LTC's and Ilion's policy to
protect its proprietary rights in its products and operations through
contractual obligations, including nondisclosure agreements with certain
employees, customers, consultants and strategic partners. There can be no
assurance as to the degree of protection these contractual measures may or will
afford. Ilion, however, has had patents issued and patent applications pending
in the U.S., Taiwan, New Zealand, Japan, Australia and elsewhere and LTC has had
patents issued and patent applications pending in the U.S., China, Canada,
Italy, Korea, Japan and Germany. There can be no assurance:
- that patents will be issued from any pending applications, or that
the claims allowed under any patents will be sufficiently broad to
protect the technology;
- that any patents issued to either company will not be challenged,
invalidated or circumvented; or
- as to the degree or adequacy of protection any patents or patent
applications may or will afford.
If we are found to be infringing third party patents, there can be no
assurance that we will be able to obtain licenses with respect to such patents
on acceptable terms, if at all. If we fail to obtain necessary licenses it could
result in delays in product shipment or the introduction of new products, and
costly attempts to design around such patents could foreclose the development,
manufacture or sale of our products.
23
<PAGE> 33
UNAUDITED PRO FORMA
FINANCIAL INFORMATION
The unaudited pro forma financial information is based on the historic
consolidated financial statements of LTC and PLL. The unaudited pro forma
financial information should be read in conjunction with the financial
statements and related notes of LTC and PLL which are included elsewhere in this
prospectus.
The unaudited pro forma statement of income for the year ended December
31, 1999 has been prepared to illustrate the effects of the merger and the Ilion
IPO as if each had occurred on January 1, 1999. The unaudited pro forma balance
sheet as of December 31, 1999 gives effect to the merger and the Ilion IPO as if
each had occurred on that date.
The acquisition of LTC by Ilion included in the pro forma information (the
merger) is accounted for using the purchase method of accounting. The aggregate
purchase price has been allocated to the tangible and intangible assets acquired
and liabilities assumed based on their respective fair values.
The unaudited pro forma information is presented for illustrative purposes
only and does not indicate the operating results or financial position that
would have occurred if the merger or the Ilion IPO had been completed on the
dates indicated, nor is it indicative of our future operating results or
financial position if we complete these transactions. We cannot predict whether
the completion of the merger and the Ilion IPO will conform to the assumptions
used in the preparation of the unaudited pro forma financial information.
The Ilion IPO has been reflected in the pro forma information at a price
of $12.00 per share. There can be no assurances that the Ilion IPO will occur or
that it will be at a price of $12.00 per share. Ilion currently expects the IPO
share price to be in a range from $8 to $16 per share, $12 per share is the
mid-point of that range. The price of the Ilion IPO, if it does occur, may be
significantly different than $12.00 per share and therefore, would be
significantly different from the pro forma results presented herein.
24
<PAGE> 34
ILION TECHNOLOGY CORPORATION
Unaudited Pro Forma Statement of Income
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Adjustments Total
Lithium Pacific For Merger Pro Forma
Technology Lithium Limited and Initial Ilion Technology
Corporation ($US) (a) Public Offering Corporation
----------- --------- --------------- -----------
<S> <C> <C> <C> <C>
NET REVENUES $ 69,000 $ 569,642 $ 638,642
COST OF SALES 887,092 887,092
------------ ------------ ----------- ------------
Gross Profit 69,000 (317,450) (248,450)
OPERATING EXPENSES
Engineering, research and development 1,385,000 614,278 $ 550,000 (b) 2,549,278
General and administrative 1,501,000 1,154,814 2,655,814
Stock based compensation expense 1,769,000 1,769,000 (c)(d)
Sales and Marketing 137,077 137,077
Royalties 0 99,782 99,782
Depreciation and amortization 241,152 412,192 (e) 653,344
------------ ------------ ----------- ------------
4,655,000 2,247,103 962,192 7,864,295
OTHER EXPENSES (INCOME)
Interest expense 7,000 677 7,677
Interest income (84,866) (84,866)
Other expenses 2,177 2,177
------------- ------------ ------------ -------------
NET LOSS $ (4,593,000) $ (2,482,541) $ (962,192) $ (8,037,733)
============= ============ ============ =============
Basic net loss per share $ (0.10) $ (0.25)
============= ============
Weighted average common shares outstanding - basic 44,354,000 20,180,240 (32,521,736)(f) 32,012,504
</TABLE>
25
<PAGE> 35
ILION TECHNOLOGY CORPORATION
Unaudited Pro Forma Balance Sheet
As of December 31, 1999
<TABLE>
<CAPTION>
Adjustments Total
Lithium Pacific For Merger Pro Forma
Technology Lithium Limited and Initial Ilion Technology
Corporation ($US) (g) Public Offering Corporation
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSET:
Cash and cash equivalents $ 38,000 $ 2,048,869 1,297,593 (h) $ 90,937,462
(200,000)(l)
87,753,000 (i)
Accounts receivable, net 21,000 264,983 285,983
Notes receivable 823,751 (823,751)(j)
Inventory 71,751 71,751
Other current assets 18,000 18,000
------------ ------------ ----------- -------------
TOTAL CURRENT ASSETS 77,000 3,209,354 88,026,842 91,313,196
------------ ------------ ----------- -------------
Property and equipment, net 430,000 1,857,207 2,287,207
Security and equipment deposits 21,000 21,000
Licenses and Patents 1,273,867 6,600,000 (k) 7,873,867
Goodwill 2,885,343 (k) 2,885,343
Other assets 41,872 41,872
Investments 384,394 384,394
------------ ------------ ------------- -------------
TOTAL ASSETS $ 528,000 $ 6,766,694 $ 97,512,185 $ 104,806,879
============ ============ ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 164,000 $ 229,140 $ 393,140
Accrued salaries 366,000 (365,000) (l) 1,000
Accrued license costs 95,061 95,061
Other accrued expenses 100,000 100,000
Capital lease, current portion 2,865 2,865
------------ ------------ ------------- -------------
TOTAL CURRENT LIABILITIES 630,000 327,066 (365,000) 592,066
------------ ------------ ------------- -------------
LONG-TERM LIABILITIES
Capital Leases 737 737
Convertible Promissory Notes 818,000 (818,000) (j)
------------- ------------ ------------- -------------
TOTAL LIABILITIES 1,448,000 327,803 (1,183,000) 592,803
------------ ------------ ------------- -------------
Common stock - Class A 483,000 3,140 48,557 (h) 331,360
8,000 (i)
153,029 (m)
(370,545)(n)
6,179 (l)
</TABLE>
26
<PAGE> 36
<TABLE>
<S> <C> <C> <C> <C>
Common stock - Class B 13,675,496 (13,586,660) (m) 88,836
Capital from stock options 281,307 281,307
Unearned Stock Compensation (92,416) (92,416)
Additional paid-in capital 46,357,000 (47,389,455)(n) 111,033,625
1,249,036 (h)
9,485,343 (k)
(5,751)(j)
87,745,000 (i)
13,433,631 (m)
158,821 (l)
Retained earnings (7,428,636) (7,428,636)
Accumulated deficit (6,865,000) -- 6,865,000 (n)
Deficit accumulated during
development stage (40,895,000) -- 40,895,000 (n)
------------ ------------ ------------- -----------
TOTAL EQUITY (920,000) 6,438,891 98,695,185 104,214,076
------------ ------------ ------------- -----------
TOTAL LIABILITIES & EQUITY
(DEFICIENCY) $ 528,000 $ 6,766,694 $ 97,512,185 $ 104,806,879
============ ============ ============= =============
</TABLE>
27
<PAGE> 37
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION
{a} The column reflects the income statement of Pacific Lithium Limited for the
twelve month period ended December 31, 1999 in US$. These amounts were
calculated by adjusting the NZ$ amounts by the average exchange rate for the
twelve month period ended December 31, 1999 which was 0.52884.
{b} The adjustment reflects the increase in amortization arising from an
increase in patents acquired in the merger. The patents are amortized using the
straight-line method over a period of 12 years which represents their estimated
useful life.
{c} Ilion will record stock based compensation expense as a result of granting
300,000 options to LTC employees at a price of $2.25 per share immediately prior
to the Ilion IPO. The expense amount would be $2,925,000, calculated as the
difference between the $12.00 IPO price and the $2.25 exercise price multiplied
by 300,000 shares. This transaction is not reflected in the pro forma financial
information.
{d} The stock based compensation expense of $4,694,000 is related primarily to
general and administrative expenses.
{e} The adjustment reflects the amortization of goodwill acquired in the merger
using the straight-line method over an estimated useful life of 7 years.
{f} The adjustment reflects 1) an increase of 3,832,264 shares of common stock
issued to LTC shareholders as a result of the merger, 2) a decrease of
44,354,000 shares of LTC common stock acquired by Ilion in the merger and 3) an
increase of 8,000,000 shares issued as a result of the Ilion IPO.
{g} The column reflects the balance sheet of Pacific Lithium Limited at December
31, 1999 in US$. These amounts were calculated by adjusting the NZ$ amounts by
the exchange rate in effect at December 31, 1999 which was 0.5234.
{h} The adjustment reflects the exercise of 4,855,698 LTC options that have
exercise prices less than the quoted market price of the LTC common stock at
December 31, 1999. Exercise prices range from $0.25 to $0.28 and result in
$1,297,593 in cash proceeds to LTC.
{i} The adjustment reflects the proceeds from the Ilion IPO. Ilion expects to
issue 8,000,000 million shares of common stock at an exercise price of $12.00
per share. Proceeds are expected to be $87,753,000, net of a 7% underwriters
discount of $6,720,000 and other fees and expenses of $1,527,000.
{j} The adjustment reflects the elimination of the Convertible Promissory Notes
payable to Ilion on LTC's balance sheet and the corresponding Note Receivable
from LTC on Ilion's balance sheet.
{k} The adjustment reflects the estimated allocation of the purchase price to
the LTC assets acquired by Ilion in the merger. The allocation has been based
upon a preliminary appraisal performed by an independent third party. Management
does not expect the final allocation to be materially different from the
preliminary allocation. With the exceptions of licenses and patents, the book
value of LTC's assets approximate their fair values. Therefore, the total
expected purchase price of $8,624,343 has been allocated as follows: 1)
$(861,000) to assets and liabilities assumed where book value approximates fair
value and including an additional liability of $407,000 for anticipated bridge
financings prior to the Ilion IPO, 2) $6,600,000 to licenses and patents
determined per an independent appraisal and 3) the remaining $2,885,343
goodwill. The net effect of adjustment increases the value of licenses and
patents to their fair values and also records goodwill resulting from the merger
transaction.
{l} The adjustment reflects LTC's use of proceeds from exercised options (see
{h} above). Of the total proceeds, $365,000 is to be used to pay accrued
salaries owed to a former officer of LTC. The officer plans to immediately
exercise 617,857 options with an aggregate exercise price of $165,000,
resulting in a net cash decrease to LTC of $200,000. All remaining proceeds from
exercised options are to be used to fund LTC's continuing operations.
28
<PAGE> 38
{m} The adjustment reflects the conversion of Ilion class B shares to Ilion
Class A shares prior to the Ilion IPO.
{n} The adjustment reflects the issuance of 3,832,264 shares of Ilion stock for
all the outstanding stock of LTC. According to the amended merger agreement, the
base number of Ilion shares to be issued to the LTC stockholders is 3,500,000.
Under the amended merger agreement, proceeds received by LTC from exercised
options and warrants are to be used as follows; 1) $350,000 to fund LTC
continuing operations, 2) $365,000 to pay accrued salaries owed to a former
officer (see {l} above where a net cash decrease of $200,000 occurs) and 3) to
fund LTC's continuing operations. For each $2.25 LTC receives in proceeds beyond
1) and 2) above, LTC stockholders will receive an additional share of Ilion
stock. This presentation assumes cash proceeds of $1,297,573 from exercised
options (see {h} above) less $550,000 used in 1) and 2) above, leaving a
remaining $747,593 of cash proceeds under use 3) above. This results in 332,264
additional Ilion shares being given to LTC shareholders. No warrants have been
assumed to be exercised for purposes of preparing this presentation.
29
<PAGE> 39
COMPARATIVE PER SHARE INFORMATION
The following table sets forth historical per share data of Ilion and LTC and
unaudited pro forma combined per share data and equivalent pro forma per share
data after giving effect to the merger based on the purchase method of
accounting and the Ilion IPO. This data should be read in conjunction with the
audited consolidated financial statements of Ilion and LTC and the notes thereto
included elsewhere in this document from which the historical data below was
derived. The unaudited pro forma combined per share data should be read in
conjunction with the unaudited pro forma combined condensed financial
information included elsewhere in this document and is not necessarily
indicative of the net income per share or book value per share that would have
been achieved had the merger been completed as of the beginning of the periods
presented and should not be construed as representative of such amounts for any
future dates or periods. Since inception, neither LTC nor Ilion has declared or
paid a cash dividend. Accordingly, no cash dividends per share data is presented
below.
<TABLE>
<CAPTION>
12 Months Ended
December 31, 1999
-----------------
<S> <C>
LTC Historical
Net loss per share............................... $ 0.10
Book value per share.............................. $ 0.00
Ilion Historical
Net loss per share................................ $ 0.09
Book value per share.............................. $ 0.32
LTC and Ilion Pro Forma Combined
Net loss per share................................ $ 0.25
Book value per share.............................. $ 3.26
Equivalent LTC Pro forma data
Net loss per share................................ $ 0.02
Book value per share.............................. $ 0.23
</TABLE>
30
<PAGE> 40
SECURITY OWNERSHIP OF LTC SHARES BY MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of May 1, 2000 with respect
to the equity securities of LTC known by LTC to be beneficially owned by each
beneficial owner of more than five percent of LTC's common stock, by each
current director and Named Executive Officer (as defined in applicable SEC
regulations), and by all directors and executive officers as a group.
<TABLE>
<CAPTION>
Number of Shares
Name and Address of Beneficial Owner(1) Beneficially Owned(2) Percent of Class(2)
--------------------------------------- --------------------- -------------------
<S> <C> <C>
David J. Cade 836,982 (3) 1.65%
George R. Ferment 931,567 (3) 1.83%
Stephen F. Hope 1,289,607 (4) 2.52%
Ralph D. Ketchum 692,438 (5) 1.36%
John D. McKey, Jr. 127,535 (6) *
Barry Huret 13,334 (3) *
Arif Maskatia 13,334 (3) *
John J. McFeeley 13,334 (3) *
Thomas R. Thomsen 823,334 (7) 1.62%
All Directors and Officers as a group (8 persons) 3,918,131 (8) 7.54%
</TABLE>
* Less than 1%.
(1) The address of each beneficial owner is c/o Lithium Technology
Corporation, 5115 Campus Drive, Plymouth Meeting, PA 19462.
(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, that may be acquired within
60 days after March 1, 2000 upon the exercise or conversion of warrants,
options or convertible securities.
(3) Consists of options to acquire shares of common stock.
(4) Includes options to acquire 35,000 shares of common stock. Includes 90,328
shares of common stock held by Hazel Hope, the Executrix of the Estate of
Henry Hope.
(5) Includes options to acquire 58,334 shares of common stock and 7,999 shares
held by Mr. Ketchum's spouse.
(6) Includes options to acquire 58,334 shares of common stock.
(7) Includes options to acquire 723,334 shares of common stock. Mr. Thomsen
resigned as Chairman and Chief Executive Officer of LTC as of November 1,
1999.
(8) Includes options to acquire 1,960,219 shares of common stock.
31
<PAGE> 41
CHAPTER TWO
THE MERGER
You are being asked to approve the merger. Approval of the merger requires
the affirmative vote of holder of a majority of LTC's outstanding common stock
as of _____________, 2000. The following information describes the reasons the
merger is being recommended and the terms of the merger. The LTC Board of
Directors has approved the merger and recommends that you vote FOR the merger.
THE COMPANIES
LITHIUM TECHNOLOGY CORPORATION
Lithium Technology Corporation is in the late stages of developing and
seeking to commercialize a new generation of high performance, solid state
rechargeable lithium ion polymer batteries for portable electronics devices and
other applications such as the rapidly emerging hybrid electric vehicle
market. LTC's pilot line production operations are regularly producing three
generic sizes of thin flat cells, including a large 9 Ah cell (4"x8"x1/4").
LTC's patented and proprietary technology uses high performance fibers in
composite battery structures and low cost continuous flow fiber web coating and
handling processes for manufacturing. These new batteries represent a
significant benefit to the end-user in terms of longer run times and thinner,
flatter, lighter-weight form factors.
LTC is a corporation organized under the laws of the State of Delaware on
December 28, 1995. LTC's predecessor -- Lithium Technology Corporation (a Nevada
corporation previously named Hope Technologies, Inc.) -- merged with and into
LTC in a reincorporation merger that became effective on February 8, 1996. In
connection with the reincorporation on February 8, 1996, LTC also implemented a
recapitalization of its outstanding common stock and convertible preferred
stock, a reverse stock split, the ratification of an amendment to LTC's 1994
Stock Incentive Plan, and ratification of a Directors Stock Option Plan. Until
1994, LTC was named Hope Technologies, Inc., consisting of two subsidiaries:
Hope Industries, Inc. (Industries) and Lithion Corporation. Hope Industries was
the operating arm of LTC 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, Hope Industries was divested and
since such time LTC has focused on commercialization of battery technology and
developing strategic alliance partners of global prominence. LTC currently has
one subsidiary, Lithion Corporation, which is wholly-owned by LTC.
For additional information about LTC and its business, see "LTC's
Business" in Chapter Seven and "Where You Can Find More Information" in Chapter
Nine.
ILION TECHNOLOGY CORPORATION
Ilion Technology Corporation (currently known as Pacific Lithium Limited)
was formed as a New Zealand company in 1994 and expects to complete its
domestication to Delaware on or about May 21, 2000, at which time it will merge
with Ilion Technology Corporation, its wholly owned non-operating Delaware
subsidiary, and change its name to Ilion Technology Corporation.
Ilion is planning an initial public offering of its shares in the United
States, to take place by September 30, 2000, depending on market and other
conditions.
32
<PAGE> 42
Ilion started out as a company looking to commercially extract lithium
from sea water. Although Ilion developed the capability to do so, the extraction
of lithium from sea water turned out to be uneconomic under prevailing market
conditions and in 1997, Ilion turned its attention to being a developer and
supplier of advanced materials and enabling technologies in the rapidly growing
lithium battery industry. Ilion has exclusive and non-exclusive worldwide
licenses for advanced materials from the Massachusetts Institute of Technology
("MIT") and the National Research Council of Canada. Ilion has also developed
its own portfolio of patent applications and employs highly qualified scientists
at its advanced research and manufacturing facility in New Zealand. In addition,
Ilion has secured access to the one of the world's largest known unexploited
lithium reserves, located in China, through a joint venture with a provincial
government institute in China.
For additional information about Ilion and its business see "Ilion's
Business" in Chapter Eight.
THE MERGER
TERMS OF THE MERGER
The merger agreement provides that LTC will merge with and into Ilion and
Ilion will issue to the LTC stockholders a total of 3.5 million shares of Ilion
common stock in exchange for all of the outstanding LTC shares, subject to
possible increase of up to 638,267 additional shares of Ilion common stock under
certain circumstances relating to the number of LTC options and warrants
exercised prior to the merger. Assuming that all of the currently outstanding
LTC options and warrants are exercised prior to the merger and a total of
4,138,267 shares of Ilion common stock will be issued in the merger, 14.10
shares of LTC common stock will be converted into one share of Ilion in the
merger. The merger will be completed as soon as possible after the LTC
stockholders approve the merger and all of the conditions to the merger are
satisfied including the completion by Ilion of its initial public offering in
the United States. Ilion expects to consummate the Ilion initial public offering
by September 30, 2000, depending upon market and other factors.
CONSIDERATION TO BE RECEIVED IN THE MERGER; ILION CAPITAL STRUCTURE AFTER THE
MERGER
Ilion will issue between 3,500,000 and 4,138,267 shares of its common
stock to the LTC stockholders in the merger. Upon completion of the merger based
on the following assumed capital structure of Ilion after the Ilion IPO and the
merger, the merger securities will represent approximately 9.80% - 11.39% of
Ilion's outstanding common stock and the merger exchange ratio will be between
14.28 and 14.10 shares of LTC common stock for one share of LTC:
LTC STOCKHOLDERS ARE ISSUED 3,500,000 ILION SHARES IN
THE MERGER (9.80% OF THE OUTSTANDING STOCK OF ILION)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
NUMBER OF ILION SHARES STOCKHOLDERS
- --------------------------------------------------------------------------------------------
<S> <C>
24,193,079 Shares owned by current Ilion stockholders (as of May 1, 2000)
- --------------------------------------------------------------------------------------------
8,000,000 Shares to be issued in the Ilion IPO
- --------------------------------------------------------------------------------------------
3,500,000 Base number of shares to be issued to LTC shareholders in the
merger
- --------------------------------------------------------------------------------------------
35,693,079 Total number of outstanding Ilion shares
- --------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 43
EXCHANGE RATIO BASED ON 3,500,000 MERGER SHARES
Assuming 3,500,000 Ilion shares are issued in exchange for the 49,990,835
currently outstanding shares of LTC common stock, 14.28 shares LTC common stock
would be exchanged for one share of Ilion common stock in the merger.
LTC STOCKHOLDERS ARE ISSUED 4,138,267 ILION SHARES IN
THE MERGER (11.39% OF THE OUTSTANDING STOCK OF ILION)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
NUMBER OF ILION SHARES STOCKHOLDERS
- --------------------------------------------------------------------------------------------
<S> <C>
24,193,079 Shares owned by current Ilion stockholders (as of May 1, 2000)
- --------------------------------------------------------------------------------------------
8,000,000 Shares to be issued in the Ilion IPO
- --------------------------------------------------------------------------------------------
3,500,000 Base number of shares to be issued to LTC shareholders in the
merger
- --------------------------------------------------------------------------------------------
638,267 Additional Ilion shares to be issued to LTC
shareholders assuming all LTC options and warrants
are exercised prior to the merger
- --------------------------------------------------------------------------------------------
36,331,346 Total number of outstanding Ilion shares
- --------------------------------------------------------------------------------------------
</TABLE>
EXCHANGE RATIO BASED ON 4,138,267 MERGER SHARES
Assuming 4,138,267 Ilion shares are issued in exchange for the 58,344,353
shares of LTC (comprised of the 49,990,835 shares of LTC common stock
outstanding as of May 1, 2000, 3,763,469 shares of LTC to be issued upon the
exercise of LTC options and 4,590,049 shares of LTC to be issued upon the
exercise of LTC warrants), 14.10 shares LTC common stock would be exchanged for
one share of Ilion common stock in the merger.
Since the final number of shares to be issued in the Ilion IPO may be more
or less than 8 million shares, and Ilion may issue additional shares in
connection with private placement financing prior to the Ilion IPO, the
percentage of Ilion stock that the shares to be issued to the LTC stockholders
represents may decrease or increase from the 9.80%-11.39% range described above.
Because the exchange ratio is fixed in the merger agreement within the
range described above, the market value of the shares of Ilion common stock that
holders of LTC common stock will have the right to acquire on the date the
merger becomes effective may vary significantly from the market value of the
shares of Ilion common stock that holders of LTC common stock would receive if
the merger was completed on the date of this proxy statement/prospectus.
Similarly, the aggregate market value of the shares of LTC common stock that
Ilion will acquire on the date the merger becomes effective may vary
significantly from the aggregate market value of the shares of LTC common stock
on the date of this proxy statement/prospectus.
BACKGROUND OF THE MERGER
Since its inception, LTC has required and continues to require substantial
capital to fund development and production objectives and ongoing operations.
During the first quarter of 1999, LTC was seeking to raise $4,000,000 through
the private placement of redeemable convertible preferred stock. LTC received no
commitments for the preferred stock. LTC had cash of $153,000 at June 30, 1999,
which in the absence of new capital was only sufficient to meet LTC's operating
needs through July 1999. At that time LTC developed and implemented strategies
to minimize expenses and conserve cash. Thereafter, LTC completed a $450,000
private placement of 4,500,000 restricted shares of common stock in July and
August 1999 at $.10 per share, which funds were expected to provide working
capital only until approximately mid-October 1999. After numerous discussion
with prospective investors, it was determined that a $.10 per share price was
the necessary price to raise any funds in the private placement.
34
<PAGE> 44
In addition to seeking to raise equity for its operations and growth,
during 1999, LTC explored numerous strategic alternatives as a method to meet
its business and financial needs. In August, 1999, LTC was contacted by Ilion to
discuss the possibility of a merger of the businesses of Ilion and LTC. On
August 27, 1999, LTC and PLL signed a Letter of Intent to explore strategic
alliance scenarios. During the period August 27, 1999 to September 24, 1999, LTC
management and Ilion management considered the terms of the business combination
and conducted operational and financial due diligence on each other. The general
terms of the proposed business combination were set forth in a draft Memorandum
of Agreement between LTC and Ilion.
The LTC Board met on September 24, 1999 to discuss strategic alternatives
available to LTC. These strategic initiatives included discussions with, and
specific proposals to, third parties regarding joint venture arrangements,
equity investments in LTC and the potential sale of LTC. No party other than
Ilion presented an arrangement to meet the financial and operation needs of LTC.
At the September 24, 1999 meeting, the LTC Board of Directors considered
the terms of the proposed business combination with Ilion as set forth in the
draft memorandum of agreement. LTC management discussed with the Board the
potential strategic partners that had received proposals from LTC and the status
of such proposals. LTC management also discussed LTC's due diligence of Ilion
done to date which would be continued at Ilion's headquarters in Auckland, New
Zealand by Mr. Cade and Dr. Ferment. The Board authorized LTC management to
negotiate the final terms of the memorandum of agreement on the most favorable
terms available for LTC and its stockholders which would ultimately result in a
definitive acquisition agreement that would come before the LTC Board and the
LTC stockholders for consideration and approval.
Mr. David Cade and Dr. George Ferment met with Ilion management at Ilion's
offices in Auckland, New Zealand during the period between September 27, 1999 to
September 29, 1999 to continue LTC's due diligence review of Ilion and negotiate
the final terms of the memorandum of agreement. On September 29, 1999, LTC
entered into the Memorandum of Agreement with Ilion.
The memorandum of agreement provided for LTC and Ilion to merge their
respective lithium battery technologies and operations and ultimately form a new
Delaware corporation. The memorandum of agreement also provided that beginning
in October 1999, Ilion would provide working capital to LTC. The memorandum of
agreement further provided that if the merger was not consummated for any reason
any advances from Ilion to LTC would be converted into LTC common stock at $.10
per share, the price of the July and August 1999 private placement of restricted
shares of LTC common stock. The closing bid of LTC's common stock on September
28, 1999 was $0.26 per share.
On October 6, 1999, LTC issued a press release announcing the execution of
the memorandum of agreement.
On October 28, 1999, LTC held a board meeting at which Mr. Cade and Dr.
Ferment provided the LTC Board with a report on the due diligence review of
Ilion performed in Auckland, New Zealand, the negotiations with Ilion and the
terms for the proposed merger and bridge financing transactions between LTC and
Ilion as set forth in the memorandum of agreement. The LTC Board considered the
potential benefits and risks of the proposed bridge financing and merger. After
a lengthy discussion, the LTC Board concluded that it was in the interest of LTC
to pursue the financing and merger along the lines proposed in the memorandum of
agreement and ratified the terms of the memorandum of agreement executed on
September 29, 1999.
From October 29, 1999 through January 19, 2000, LTC and Ilion, together
with their legal advisors, negotiated and revised the terms of the merger and
the bridge financing and the definitive merger agreement and bridge financing
agreements and continued their legal, financial and business due diligence of
each other.
Pursuant to a unanimous written consent, on December 2, 1999, LTC
authorized the formation of a special merger committee consisting of three
outside directors - Ralph Ketchum, Barry Huret and John D.
35
<PAGE> 45
McKey, Jr. - to oversee the LTC-Ilion merger, review and negotiate the terms and
conditions of the merger agreement and related agreements and make a
recommendation to the LTC Board with respect to the merger agreement. At a
meeting of the LTC Merger Committee held on January 4, 2000, representatives of
LTC's financial advisors made presentations concerning the potential merger
between LTC and Ilion. The LTC Merger Committee also received presentations
concerning, and reviewed the terms of, the merger agreement and related
agreements with LTC's management and its legal counsel and financial advisors.
At the January 4, 2000 meeting, the LTC Merger Committee determined that the
terms of the merger were fair to, and in the best interests of, LTC
stockholders. The LTC Merger Committee approved the merger agreement and the
related transactions and recommended that the Board approve the merger.
At a meeting of the LTC Board of Directors held on January 4, 2000,
members of LTC's management and representatives of LTC's financial advisors made
presentations concerning the business and prospects of LTC and the potential
merger between LTC and Ilion. The LTC Board of Directors also received
presentations concerning, and reviewed the terms of, the merger agreement and
related agreements with members of LTC's management and its legal counsel and
financial advisors. At the January 4, 2000 meeting, the LTC Board of Directors
determined that the terms of the merger were fair to, and in the best interests
of, LTC stockholders. The LTC Board of Directors approved the merger agreement
and the related transactions and authorized the LTC Merger Committee to
negotiate and finalize the final terms of the merger, the merger agreement and
the related agreements.
On January 10, 2000 the LTC Merger Committee reviewed the final terms of
the merger, the merger agreement and the related agreements and approved the
same.
On January 19, 2000, LTC and Ilion executed the merger agreement, the
bridge financing agreement and related agreements. LTC issued a press release
announcing the proposed merger on January 20, 2000, before the stock market
opened for trading.
The LTC Board of Directors recommends that you vote FOR the merger.
INFORMATION AND FACTORS CONSIDERED BY THE LTC BOARD OF DIRECTORS
The LTC Board of Directors has determined that the merger is fair to, and
in the best interests of, LTC stockholders, and has approved the merger
agreement. The LTC Board of Directors unanimously recommends that the
stockholders vote to approve the merger with Ilion. In reaching its conclusion,
the LTC Board of Directors undertook extensive analysis and deliberation and
considered the relevant factors, including:
- the fact that, despite management's best efforts, LTC continues to
face significant short and long-term liquidity needs which have
impeded achieving LTC's strategic objectives;
- the fact that the Company had been unable to raise any equity for
its operations and growth during 1999 except for $450,000 in the
July and August 1999 private placement (at $.10 per share) and no
party other than Ilion presented an arrangement to meet the
financial and operational needs of the Company where Company shares
would be valued in excess of $.10 per share;
- the opinion of Schuler Associates, P.C. that the merger
consideration to be received by the stockholders of LTC in the
merger is fair from a financial point of view (see "Opinion of LTC's
Financial Advisor");
- the expected tax-free treatment to LTC and its stockholders;
36
<PAGE> 46
- the impact of the merger on LTC's stockholders;
- the financial condition, results of operations, cash flows and
prospects of LTC, Ilion and the combined company;
- the expectation that the combined company will produce greater
stockholder returns than either LTC or Ilion could produce on its
own;
- the strategic fit of LTC and Ilion, including the technology synergy
and potential revenue, expense and capital raising synergies and the
impact of those synergies on the ability of the combined company to
compete in the industry;
- the agreement of Ilion to provide working capital in excess of $1.1
million until the completion of the merger; and
- the agreement by Ilion to offer employment to all of the individuals
employed by LTC at the time of the merger.
After fully considering the matter and the factors described above, as
well as certain additional considerations including those reflected in "Risk
Factors," the LTC Board concluded that, the proposed merger is fair and in the
best interest of LTC and its stockholders.
This discussion of the information and factors considered and given weight
by the LTC Board of Directors is not intended to be exhaustive, but is believed
to include all material factors considered by the LTC Board of Directors. In
reaching the determination to approve and recommend that stockholders approve
the merger, the LTC Board of Directors did not undertake a separate analysis of
each of the factors considered, nor did it find it practical to, and it did not,
assign any relative or specific weight to any of the factors which were
considered, and individual directors may have given differing weights to
different factors.
OPINION OF LTC'S FINANCIAL ADVISOR
LTC retained Schuler Associates as financial advisor based upon their
qualifications, expertise and reputation. LTC retained Schuler Associates,
pursuant to a letter agreement dated December 13, 1999, to render financial
advisory services to LTC in connection with a proposed merger with Ilion.
On January 4, 2000, Schuler Associates rendered a written opinion to the
LTC Board of Directors to the effect that, based upon and subject to the
considerations set forth in such opinion, as of such date, the merger
consideration was fair to the holders of LTC common stock from a financial point
of view.
LTC stockholders should consider the following when reading the discussion
of the opinion of Schuler Associates in this proxy statement/prospectus:
- We urge you to read carefully the entire opinion of the financial
advisor, which contained in Appendix B to this proxy
statement/prospectus and is incorporated by reference.
- The following description of Schuler Associates opinion is qualified
by reference to the full opinion located in Appendix B to this proxy
statement/prospectus.
- The advisory services and opinion of Schuler Associates was provided
to the LTC Board of Directors for its information in its
consideration of the merger and was directed only to the fairness of
the merger consideration from a financial point of view.
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<PAGE> 47
- The financial advisor's opinion does not address the merits of LTC's
underlying business decision to engage in the merger.
- The financial advisor's opinion does not address the price or range
of prices at which shares of LTC common stock may trade before the
merger or at which the Ilion common stock may trade before or after
the merger.
- The financial advisor's opinion was necessarily based upon
conditions as they existed and could be evaluated on January 4, 2000
and the financial advisor assumed no responsibility to update or
revise its opinion based upon circumstances or events occurring
after such date.
- The opinion did not constitute a recommendation to the LTC Board of
Directors in connection with the merger, and does not constitute a
recommendation to any holder of LTC common stock as to how to vote
on the merger or any related matter.
Although LTC's financial advisor evaluated the fairness from a financial
point of view of the merger consideration to the holders of LTC common stock,
the exchange ratio itself was determined by LTC and Ilion through arm's-length
negotiations. LTC did not provide specific instructions to, or place any
limitations on, its financial advisor with respect to the procedures to be
followed or factors to be considered by the advisor in performing its analysis
or providing its opinion.
In arriving at its opinion, Schuler Associates (i) reviewed, among other
documents, the Merger Agreement, including a review of the financial terms of
the merger agreement in relation to, among other things, (a) current and
historical market prices of LTC common stock and PLL common stock, (b) the
Companies' relative trading volumes, earnings, dividends, value and cash flow
per share, (c) the capitalization and financial condition of LTC and PLL, and
(d) the patent portfolio of LTC; (ii) met with certain senior management of LTC
to discuss the business, operations and prospects of LTC and PLL; (iii) examined
certain publicly available business and financial information relating to LTC
and PLL, as well as certain financial information, documents and other
information prepared, or reviewed and approved, by LTC; (iv) analyzed certain
financial, stock market and publicly available information relating to the
business of other public companies operating in businesses deemed comparable to
the operations of LTC and PLL; (v) considered, to the extent publicly available,
the financial terms of certain other relevant business transactions involving
companies engaged in businesses similar to that of LTC; and (vi) conducted such
other analyses and examinations and considered such other financial, economic
and market criteria as it deemed necessary.
Schuler Associates did not conduct an appraisal or valuation of any assets
or liabilities of LTC and, in giving its opinion, Schuler Associates relied upon
and assumed the accuracy and completeness of the materials and information
considered in its review without independent verification. In rendering its
opinion, Schuler Associates also assumed that in the course of obtaining the
necessary regulatory and governmental approvals for the merger, no restriction
would be imposed that would have a material adverse effect on the contemplated
benefits.
DISCOUNTED CASH FLOW ANALYSIS. Schuler Associates performed a discounted
cash flow analysis based upon discussions with LTC management as to underlying
projected free cash flow. For purposes of this analysis, free cash flow means
earnings before interest and taxes, less taxes, depreciation and amortization,
changes in working capital and capital expenditures. A 38% tax rate was assumed.
STOCK TRADING HISTORY. Schuler Associates examined the history of the
trading prices and volume for LTC common stock, both separately and in relation
to PLL stock, and the relationship between movements of such common stocks and
movements in a composite index comprised of the S&P 500.
PRO FORMA MERGER ANALYSIS. Schuler Associates analyzed certain pro forma
effects of the merger and the simultaneous initial public offering. Based upon
the number of shares outstanding of 48,280,749, the consideration would result
in a conversion equaling 13.79 shares as of the date of their report. Subsequent
to their report, LTC's outstanding shares increased to 49,990,835 as of May 1,
2000 and assuming the issuance of 3,763,469 shares of LTC common stock to be
issued upon the exercise of LTC options and 4,590,049 shares of LTC to be issued
upon the exercise of LTC Warrants, the exchange ratio would be 14.10 shares of
LTC common stock for one share of Ilion common stock in the merger. Assuming
the exercise of all outstanding LTC Options and LTC Warrants, LTC's stockholders
would receive approximately 11.39% of the issued and outstanding common stock of
Ilion following the merger and following the initial public offering.
The summary set forth above is only a summary of the analyses and
examinations that Schuler Associates deems material to its opinion which must be
considered as a whole. Selecting portions of its analyses or of the above
summary, without considering all the factors and analyses, could create an
incomplete or misleading view of the processes underlying the analyses set forth
above and the opinion. Arriving at a fairness opinion is a complex analytical
process not necessarily susceptible to partial analysis or summary description.
In performing its analyses, Schuler Associates made numerous assumptions with
respect to LTC, industry performance, general business and economic conditions
and other matters, many of which are beyond the control of LTC. The analyses
performed by Schuler Associates are not indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than suggested by such analyses.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following outlines the material United States federal income tax
consequences of the merger and is not a complete analysis of all tax effects of
the merger. The discussion does not address the effect of state, local or
non-U.S. tax laws, or the effect of any U.S. federal tax laws other than those
pertaining to United States federal income tax.
Ilion and LTC intend that the merger will constitute a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code of 1986. As a
reorganization under Section 368(a) of the Code, the following are the material
United States federal income tax consequences of the merger:
- no gain or loss will be recognized by LTC or Ilion as a result of
the merger;
- no gain or loss will be recognized by the LTC stockholders upon the
conversion of LTC common stock into shares of Ilion common stock
pursuant to the merger, except with respect to cash, if any,
received in lieu of fractional shares of Ilion common stock;
- the aggregate tax basis of the shares of Ilion common stock received
in exchange for shares of LTC common stock pursuant to the merger,
including a fractional share of Ilion common stock for which cash is
received, will be the same as the aggregate tax basis of the shares
of LTC common stock exchanged therefor;
- the holding period of the shares of Ilion common stock received in
the merger will include the holding period of the shares of LTC
common stock exchanged therefor; and
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<PAGE> 48
- a LTC stockholder who receives cash in lieu of a fractional share of
Ilion common stock will recognize gain or loss equal to the
difference, if any, between the stockholder's tax basis in the
fractional share and the amount of cash received.
The conclusions expressed above are based on current law. Future
legislative, administrative or judicial changes or interpretations, which can
apply retroactively, could affect the accuracy of those conclusions. No rulings
have or will be sought from the internal revenue service concerning the tax
consequences of the merger.
The discussion does not address all of the tax consequences that may be
relevant to particular taxpayers in light of their personal circumstances or to
taxpayers subject to special treatment under the code. Such taxpayers include
non-U.S. persons, insurance companies, tax-exempt entities, retirement plans,
dealers in securities, banks and persons who acquired LTC stock pursuant to the
exercise of employee stock options or otherwise as compensation.
Because of the complexity of the tax laws, and because the tax
consequences to any particular LTC stockholder may be affected by matters not
discussed above, each LTC stockholder is urged to consult a personal tax advisor
with respect to the specific tax consequences of the merger to him or her taking
into account his or her own particular circumstances, including the
applicability and effect of state, local and non-U.S. tax laws, as well as of
the federal tax laws.
ACCOUNTING TREATMENT
Ilion and LTC anticipate that the merger will be accounted for as a
purchase.
The unaudited pro forma financial information contained in this proxy
statement/prospectus beginning on page 24 has been prepared by accounting for
the merger as a purchase.
NO APPRAISAL RIGHTS
The Delaware General Corporation Law governs stockholders' rights in
connection with the Merger. Under the applicable provisions of Delaware law, LTC
stockholders are not entitled to appraisal rights in connection with the merger
because the Ilion common stock will be listed on a national securities exchange
or the NASD national market system.
RESTRICTIONS ON RESALES BY AFFILIATES
All shares of Ilion common stock to be issued in connection with the
merger have been registered under the Securities Act of 1933, as amended. As a
result, these shares may be traded freely and without restriction by those
stockholders not deemed to be "affiliates" of LTC prior to the date of the LTC
special meeting, as that term is defined under the Securities Act, or of Ilion
following the effective time of the merger. Affiliates are generally defined as
persons who control, are controlled by or are under common control with LTC at
the time of the LTC special meeting, or Ilion following the effective time, and
may include directors and executive officers of LTC or Ilion.
This proxy statement/prospectus does not cover any resales of Ilion common
stock to be received by these affiliates and no person is authorized to make any
use of this proxy statement/prospectus in connection with any such resale. As a
result, any subsequent transfer by an affiliate of LTC must be one permitted by
the resale provisions of Rule 145 under the Securities Act, or Rule 144 under
the Securities Act in the case of such persons who become affiliates of Ilion,
or as otherwise permitted under the Securities Act.
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<PAGE> 49
MARKET PRICE AND DIVIDEND INFORMATION
LTC'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 OTC Electronic Bulletin Board. LTC's common stock is
traded under the symbol "LITH.0B". The following table sets forth certain
information with respect to the high and low bid prices for LTC's common stock
as of the close of each of the four calendar quarters of 1998 and 1999. 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>
2000
First Quarter $ 2.6250 $ .25
Second Quarter (through May 1, 2000) $ .80 $ .75
1999
Fourth Quarter $ .44 $ .15
Third Quarter $ .36 $ .24
Second Quarter $ .84 $ .38
First Quarter $ .8125 $ .22
1998
Fourth Quarter $ .45 $ .23
Third Quarter $ .90 $ .35
Second Quarter $ 1.04 $ .83
First Quarter $ 1.20 $ .84
</TABLE>
There is no established public trading market for Ilion common stock.
On October 5, 1999, the last full trading day prior to the public
announcement of the proposed merger, the closing price quoted on the OTC
Electronic Bulletin Board was $.40 per share of LTC common stock. LTC urges you
to obtain current market quotations before voting your shares. Because the
exchange ratio is fixed in the merger agreement, the market value of the shares
of Ilion common stock that holders of LTC common stock will have the right to
acquire on the date the merger becomes effective may vary significantly from the
market value of the shares of Ilion common stock that holders of LTC common
stock would receive if the merger was completed on the date of this proxy
statement/prospectus. Similarly, the aggregate market value of the shares of LTC
common stock that Ilion will acquire on the date the merger is effective may
vary significantly from the aggregate market value of the shares of LTC common
stock on the date of this proxy statement.
The closing sales price per share of LTC common stock quoted on the OTC
Electronic Bulletin Board was $_______ on _________, 2000 the latest practicable
trading day before the mailing of this document for which information was
obtainable.
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<PAGE> 50
DIVIDEND INFORMATION
Neither LTC nor Ilion has ever paid any cash dividends on their stock, and
both anticipate that they will continue to retain any earnings for the
foreseeable future for use in the operation of their respective businesses.
Ilion expects for the foreseeable future to retain all of its earnings, if any,
to finance the expansion of its business. The future payment of any dividends
will depend upon Ilion's operating results, financial condition, capital
expenditure plans and such other factors as Ilion's Board of Directors deems
relevant.
NUMBER OF STOCKHOLDERS
As of May 1, 2000 there were 791 stockholders of record who held shares of
LTC common stock and as of May 1, 2000 there were 807 stockholders of record who
held shares of Ilion common stock.
AMENDMENT TO LTC'S CERTIFICATE OF INCORPORATION
On January 4, 2000 the LTC Board of Directors approved, subject to
stockholder approval, an increase in the number of shares of common stock
authorized for issuance by LTC under the Certificate of Incorporation from 50
million to 125 million of authorized common stock. LTC intends to commence a
consent solicitation in May 2000 to allow LTC to proceed with the proposed
amendment of the Certificate of Incorporation without the necessity of convening
a special meeting of stockholders. As of March 1, 2000 LTC had outstanding
49,990,835 shares of common stock. LTC needs to increase the number of
authorized shares of common stock in order to have an adequate reserve of common
stock available for issuance upon exercise of outstanding options and warrants
and the potential conversion of the notes issued under the Bridge Loan Financing
Agreement and for other proper corporate purposes. Pending the amendment of
LTC's Certificate of Incorporation to increase the number of authorized shares
of common stock, the notes issued in connection with the bridge financing will
be convertible into shares of LTC preferred stock having the economic and voting
equivalent of the LTC common stock.
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<PAGE> 51
INTERESTS OF LITHIUM'S DIRECTORS
AND OFFICERS IN THE MERGER
EMPLOYMENT AGREEMENTS WITH ILION
Ilion will offer employment to Mr. David Cade, LTC's Chairman and Chief
Operating Officer, as the Chief Operating Officer of Ilion upon the merger
closing and Chief Executive Officer when designated as such by Ilion's Board of
Directors. The employment agreement provides for an annual salary of $165,000
and six month's severance in the event of termination of Mr. Cade by Ilion
without cause or the resignation of Mr. Cade (which requires 30 days notice).
Ilion will offer employment to Dr. George Ferment, LTC's President, Chief
Operating Officer and Chief Technical Officer as the Executive Vice President of
Cell Manufacturing Operations of Ilion upon the closing of the merger. The
employment agreement provides for an annual salary of $155,000 and six month's
severance in the event of termination of Mr. Ferment by Ilion without cause or
the resignation of Mr. Ferment (which requires 30 days notice).
ILION OPTIONS
Ilion will grant a minimum of 300,000 options to the transferred LTC
employees for the purchase of Ilion common stock at an exercise price of $2.25
per share. The Ilion options will be distributed to the transferred LTC
employees on a pro-rata basis based on the number of LTC stock options held on
the date the merger agreement was signed. Based on the formula set forth in the
merger agreement, David Cade, the Chairman and Chief Executive Officer of LTC,
will be granted 90,390 of the Ilion options and George Ferment, the President
and Chief Operating Officer of LTC, will be granted 92,525 of the Ilion options.
STOCK OPTIONS OF LTC
In the merger agreement, LTC agreed to use its best efforts to cause all
of outstanding warrants and options to be exercised by the holders thereof,
including to re-price and accelerate the vesting of such outstanding of LTC
warrants and options as an inducement to their exercise by the holders thereof
in order to provide working capital to LTC. All of LTC's stock plans and
outstanding and unexercised stock options will be terminated at the time of the
merger.
As of February 2, 2000 the vesting of all outstanding options was
accelerated and all outstanding options became fully exercisable on that date.
The following shows the estimated value of unvested options that became
exercisable on February 2, 2000 held by the executive officers and directors of
LTC based on $.23 per share (the last sale price on February 2, 2000).
<TABLE>
<CAPTION>
Name Number of Unvested Options Aggregate Value of Unvested Options
---- -------------------------- -----------------------------------
<S> <C> <C>
David J. Cade 255,010 0
George R. Ferment 255,010 0
Stephen F. Hope 15,000 0
Ralph D. Ketchum 18,334 0
John D. McKey, Jr. 18,334 0
Barry Huret 10,001 0
Arif Maskatia 10,001 0
John J. McFeely 10,001 0
</TABLE>
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<PAGE> 52
DIRECTORS AND EXECUTIVE OFFICERS
OF ILION FOLLOWING THE MERGER
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Upon the closing of the merger, the directors and executive officers of
Ilion will be as follows. Ilion also intends to appoint one additional
non-executive director prior to the merger.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robin T. Johannink 43 Director and Chief Executive Officer
Keith Young 44 Non-executive Director
Murray Haszard 45 Non-executive Director
Ralph Ketchum 73 Non-executive Director
Richard Locke 52 Chief Financial Officer
David J. Cade 62 Chief Operating Officer
George T. Ferment 60 Executive Vice President - Cell
Manufacturing Operations
</TABLE>
ROBIN T. JOHANNINK founded Ilion and has been a director of Ilion since
its formation. He was the Managing Director of Ilion from its formation until
its domestication, at which time his title changed to Chief Executive Officer.
Mr. Johannink is employed by Phoenix Management Limited, a private New Zealand
venture management company and a shareholder of Ilion, which provides his
services to Ilion pursuant to the management agreement. Mr. Johannink is also a
director and shareholder of Phoenix Management. From September 1995 to April
2000, he served as Chief Executive Officer of, and since September 1995 has been
a director of, Vortec Energy Limited, a developer of wind-power technology based
in New Zealand. Phoenix Management is also a shareholder of Vortec Energy
Limited.
KEITH YOUNG has been a non-executive director of Ilion since June 1996.
Mr. Young is a senior partner in the New Zealand law firm of Jones Young, which
he co-founded in February 1997. From April 1988 to December 1996, he was a
senior partner in the law firm of Phillips Fox. Mr. Young holds Law and
Accounting degrees from the University of Auckland, New Zealand.
MURRAY HASZARD has been a non-executive director of Ilion since June 1999.
Mr. Haszard has served as Managing Director of Aerotrading Ltd, an airplane
propeller manufacturer in New Zealand, since November 1999. From June 1998 to
November 1998, he served as General Manager, Auckland Office of Symantec New
Zealand Ltd, a developer of computer software. From May 1996 to June 1998, Mr.
Haszard served as Managing Director of Binary Research Ltd, whose Ghost computer
software was purchased by the parent company of Symantec New Zealand Ltd.
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<PAGE> 53
RALPH KETCHUM will be appointed as a director of Ilion on the closing
of the merger. Pursuant to the terms of the merger agreement, LTC has the
right to appoint one director to the Board of Ilion effective at the closing of
the merger and Ilion must use its best efforts to cause such appointee to be
elected to the Board of Directors. Ralph D. Ketchum has been a director of LTC
since 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. 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.
RICHARD LOCKE has been the Chief Financial Officer of Ilion since January
1997. Mr. Locke is employed by Phoenix Management, which provides his services
to Ilion pursuant to the management agreement. Pursuant to a management
agreement between Vortec Energy Limited and Phoenix Management, he has also
served as General Manager - Finance & Administration of Vortec Energy Limited
since January 1997. From September 1995 to January 1997, he served as an
executive Director of Thornton Hall Limited, a clothing manufacturer and
retailer in New Zealand. Prior to joining Thornton Hall, Mr. Locke served as a
Financial Officer of Altair Holdings Ltd, a specialist technology development
company in New Zealand. Mr. Locke is a Chartered Accountant.
DAVID J. CADE will serve as Chief Operating Officer of Ilion on the
closing of the merger. Mr. Cade has been the Chairman and Chief Executive
Officer of LTC since November 1, 1999. Mr. Cade previously served as President
and Chief Operating Officer of LTC from May 1996 to November 1999. Mr. Cade
served as LTC's Vice President of Marketing from August 1994 to May 1996 and was
elected an officer in October 1994. Mr. Cade was elected a director of LTC 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 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 a Bachelor's degree
from the University of Illinois. He is also a graduate of Colombia University's
Executive Program in Business Administration.
GEORGE T. FERMENT will serve as Executive Vice President - Cell
Manufacturing Operations of Ilion on the closing of the merger. George T.
Ferment, Ph.D. has been the President and Chief Operating Officer of LTC since
November 1, 1999. Dr. Ferment also serves as the Chief Technical Officer of LTC
(since May 1996). Dr. Ferment previously served as Executive Vice President of
Operations of LTC since May 1996. Dr. Ferment served as LTC'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 LTC 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 Campbell'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.
DIRECTOR COMPENSATION
Ilion's non-executive directors receive NZ$10,000 per annum in
compensation for their service as directors and reimbursement of all reasonable
out-of-pocket expenses for attendance at Board meetings.
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<PAGE> 54
COMPENSATION COMMITTEE AND INSIDER PARTICIPATION INTERLOCKS
Ilion does not have a compensation committee of its board of directors.
Mr. Johannink is a director of Ilion and a director of Phoenix Management, which
company provides management services to Ilion pursuant to a management
agreement. See "Ilion's Certain Transactions - Management Agreement".
EXECUTIVE COMPENSATION
Ilion's Chief Executive Officer services are provided to Ilion by Phoenix
Management pursuant to a management services agreement and Ilion does not
directly pay his salary. See "Ilion's Certain Transactions - Management
Agreement". No executive officer of Ilion earned more than US$100,000 in salary
and bonus in any of the last three fiscal years.
There have been no issues of stock options to Robin Johannink, the only
named executive officer.
AUDIT COMMITTEE
Ilion has established an audit committee consisting of Keith Young and
Murray Haszard, both of whom are independent directors of Ilion.
Responsibilities of the audit committee include:
- - recommending to the board of directors the engagement of Ilion's
independent auditors;
- - reviewing with the independent auditors the scope and results of the
audits, Ilion's internal accounting controls and the professional services
furnished by them; and
- - reviewing with management, the independent auditors and internal auditors
significant risks and exposures, audit activities and significant audit
findings.
EMPLOYEE SHARE OPTION PLAN
Ilion established its Employee Share Option Plan on April 1, 1998 and it
will continue until terminated by the Board of Directors. Under the terms of the
plan, the Board of Directors nominates employees who may participate in the plan
and in respect of each nomination the Board determines the number of options and
exercise prices. The maximum number of options that may be issued in a 5-year
period by Ilion is limited to five percent of the total number of shares.
Options granted generally vest one-third upon each anniversary of the grant
date. Options granted are cancelled if not exercised within two weeks of the
termination of the grantee's employment or association with Ilion, except in
certain situations such as death or disability.
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<PAGE> 55
ILION'S CERTAIN TRANSACTIONS
MANAGEMENT AGREEMENT
Phoenix Management Limited, owned by Robin Johannink, the Chief Executive
Officer and a director of Ilion, provides management services to Ilion and motor
vehicles for executive officers of Ilion and various office furniture. In the
year ended March 31, 1999, Ilion paid Phoenix Management NZ$31,200 for the
provision of motor vehicles and office furniture and NZ$432,860 for the
provision of management services. In the nine month period ended December 31,
1999, Ilion paid Phoenix Management NZ$23,400 for the provision of motor
vehicles and office furniture and NZ$294,445 for the provision of management
services. Ilion's Chief Executive Officer and Chief Financial Officer are both
employed by Phoenix Management and their services provided to Ilion pursuant to
the management agreement. A total of six employees of Phoenix Management worked
for Ilion in fiscal 1999. The terms of the provision of these services were
memorialized in the management agreement between Phoenix Management and Ilion
dated April 3, 2000. Pursuant to the management agreement, Phoenix Management
provides management services to Ilion, including strategic management,
administration, accounting, marketing, business development, capital raising,
shareholder relations, provision of offices and equipment and staffing for all
of the above functions. Phoenix Management provides these services to Ilion at
the actual costs incurred by Phoenix Management, and where the costs are
incurred to enable Phoenix Management to provide similar services to its other
clients, a proportion of such costs are allocated to Ilion calculated on a fair
and equitable basis. The management agreement is terminable by either party on
six months notice at any time. In addition, Ilion has the right to terminate the
management agreement if there is a change in the composition of the shareholding
in, or the board of directors of, Phoenix Management or if Phoenix Management
ceases to be controlled by Robin Johannink.
SHARE OPTION GRANTS AND SHARE ISSUANCES
In June 1999, Richard Locke, Chief Financial Officer of Ilion, was granted
an option to purchase 15,000 shares under the Employee Share Option Plan. The
option was granted with an exercise price of 10% less than the fair market value
of the shares on the date of the grant.
In November 1999, Mr. Keith Young, a director of Ilion, was granted an
option to purchase 50,000 shares of common stock of Ilion at NZ$4.80 per share
in consideration for services provided as a director of Ilion. The options
expire if unexercised within two years. The fair market value of Ilion shares on
the date of the grant was NZ$4.00 per share.
In November 1999, Murray Haszard, a director of Ilion, exercised 950,000
warrants that were granted to him at NZ$3.00 per share in July 1999, when the
fair market value of the shares was NZ$3.70 per share.
In February 2000, Phoenix Management Limited, wholly owned by Robin
Johannink, the Chief Executive Officer of Ilion, purchased 1,320 shares in a
rights offering by Ilion, at the issue price of NZ$4.00 per share.
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<PAGE> 56
CHAPTER THREE
THE MEETING AND VOTING
GENERAL
This proxy statement/prospectus is furnished to the holders of LTC
common stock in connection with the solicitation of proxies by the LTC Board for
use at the special meeting to be held for the purposes described in this
document.
This proxy statement/prospectus is also furnished to LTC stockholders
as a prospectus in connection with the issuance by Ilion of shares of shares of
Ilion common stock pursuant to the merger.
PURPOSE OF THE MEETING
At the LTC special meeting, LTC stockholders will be asked to consider
and vote upon a proposal to adopt the merger agreement and approve the merger
described in the merger agreement. The merger agreement is attached as Appendix
A to this proxy statement/prospectus and described under "The Merger Agreement"
Chapter Four.
It is not expected that any matters other than the merger proposal will
be brought before the LTC special meeting. If, however, other matters are
properly presented, the persons named in the proxy will have authority to vote
in accordance with their judgment on any such matters, except that no proxy that
directs a vote against or abstention with respect to the adoption of the merger
agreement will be voted to adjourn or postpone the LTC special meeting.
DATE, PLACE AND TIME
The LTC special meeting will be held on Monday, July 31, 2000, at 10:00
a.m. local time, at LTC's corporate headquarters, 5115 Campus Drive, Plymouth
Meeting, Pennsylvania 19402.
RECORD DATE; STOCK OUTSTANDING
The LTC Board has fixed the close of business on __________, 2000 as
the record date for determining the holders of LTC common stock that are
entitled to receive notice of and to vote at the LTC special meeting. On the
record date, there were ____ shares of LTC common stock outstanding. Each share
of LTC common stock entitles its holder to one vote.
VOTES REQUIRED FOR APPROVAL
The affirmative vote of a majority of the total votes outstanding as of
the record date is required to approve the adoption of the merger agreement.
Because the adoption of the merger agreement requires the approval of a
majority of the total votes outstanding, abstentions or the failure to vote and
broker non-votes will have the same effect as a negative vote. A broker non-vote
occurs when a nominee holding shares for a beneficial owner does not vote on a
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received instructions from the beneficial
owner.
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<PAGE> 57
QUORUM REQUIREMENT
A quorum of LTC stockholders is necessary to hold a valid meeting. The
presence in person or by proxy of holders of shares representing a majority of
the LTC's outstanding common stock on the record date is a quorum. Abstentions
and broker non-votes count as present for establishing a quorum. Shares held by
LTC in its treasury are not counted as outstanding for quorum or voting
purposes.
VOTING AND REVOCATION OF PROXIES
LTC common stock represented by a proxy properly signed and received at
or prior to the LTC special meeting, unless subsequently revoked, will be voted
in accordance with the instructions thereon. If a proxy is signed and returned
without indicating any voting instructions, shares represented by the proxy will
be voted "for" the adoption of the merger agreement. If you vote in favor of
adoption of the merger agreement, the proxy holders may, in their discretion,
vote your shares to adjourn the special meeting to solicit additional proxies in
favor of adoption of the merger agreement.
A LTC stockholder who executes a proxy may revoke it any time before it
is exercised by giving written notice of revocation to the corporate secretary
of LTC, by subsequently filing another, later-dated proxy or by attending the
LTC special meeting and voting in person. Attendance at the LTC special meeting
will not in and of itself constitute revocation of a proxy.
SOLICITATION OF PROXIES
The LTC Board is soliciting proxies on behalf of LTC. In addition to
solicitation by mail, directors, officers and employees of LTC, none of whom
will be specifically compensated for such services, may solicit proxies from the
stockholders of LTC, personally or by telephone or other forms of communication.
Brokerage houses, nominees, fiduciaries and other custodians will be requested
to forward soliciting materials to beneficial owners and will be reimbursed for
their reasonable expenses incurred in sending proxy materials to beneficial
owners.
SHARES OWNED BY DIRECTORS AND OFFICERS
On May 1, 2000, directors and executive officers of LTC owned and were
entitled to vote 1,957,912 shares of LTC common stock, or approximately 4% of
the outstanding shares of LTC common stock.
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CHAPTER FOUR
THE MERGER AGREEMENT
The following is a summary of certain provisions of the merger agreement,
a copy of which is attached as appendix A to this proxy statement/prospectus and
which is incorporated herein by reference. This summary is qualified in its
entirety by reference to the merger agreement. All LTC stockholders are urged to
read the merger agreement carefully for a complete description of the merger.
TERMS OF THE MERGER
The merger agreement provides that LTC will merge with and into Ilion and
Ilion will issue to the LTC stockholders a total of 3.5 million shares of Ilion
common stock in exchange for all of the outstanding LTC shares, subject to
possible increase of up to 638,267 additional shares of Ilion common stock under
certain circumstances relating to the number of LTC options and warrants
exercised prior to the merger. Assuming that all of the currently outstanding
LTC options and warrants are exercised prior to the merger and a total of
4,138,267 shares of Ilion common stock will be issued in the merger, 14.10
shares of LTC common stock will be converted into one share of Ilion in the
merger. The merger will be completed as soon as possible after the LTC
stockholders approve the merger and all of the conditions to the merger are
satisfied including the completion by Ilion of its initial public offering in
the United States. Ilion expects to consummate the Ilion initial public offering
by September 30, 2000, depending upon market and other factors.
EXCHANGE OF SHARES
Prior to the completion of the merger, we will appoint an exchange agent.
On the date the merger becomes effective, Ilion will deposit with the exchange
agent certificates representing shares of Ilion common stock that will be issued
in exchange for certificates representing shares of LTC common stock. Soon after
the completion of the merger, Ilion will send a letter to each person who was a
LTC stockholder on the date the merger became effective. The letter will contain
instructions on how to surrender LTC stock certificates to the exchange agent
and receive certificates for shares of Ilion.
Ilion will not issue any fractions of a share resulting from the
conversion. Instead, LTC stockholders will receive in cash the value of any
fractions of a share to which they would otherwise have been entitled to receive
due to the merger. This cash payment will be based on the initial public
offering price for a share of Ilion common stock.
LTC stockholders will not be entitled to receive any dividends or other
distributions payable by Ilion until they exchange their LTC stock certificates
for certificates representing shares of Ilion common stock. Once they deliver
their LTC stock certificates to the exchange agent, the LTC stockholders will,
subject to applicable laws, receive any accumulated dividends and distributions,
without interest.
TREATMENT OF LTC STOCK OPTIONS AND WARRANTS
In the merger agreement, LTC agreed to use its best efforts to cause all
of outstanding warrants and options to be exercised by the holders thereof,
including to re-price and accelerate the vesting of such outstanding of LTC
warrants and options as an inducement to their exercise by the holders thereof.
LTC agreed to terminate all of LTC stock plans and outstanding and unexercised
stock options as of a date not later than immediately prior to the merger. Any
of LTC warrants outstanding at the merger that are not terminated, other than
warrants held by Ilion, will be converted and adjusted at the merger into
warrants to purchase shares of Ilion in accordance with their terms.
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LTC has agreed that in the event that any holder of LTC warrants or
options exercises such warrants or options prior to the merger, LTC will use all
proceeds thereof as follows: (1) the first $350,000 will be used by LTC to
finance the operations of LTC in lieu of obtaining financing under the Bridge
Loan Financing Agreements and (2) the second $200,000 will be used by LTC to pay
a portion of the accrued salary due and owing to Mr. Thomsen, the former Chief
Executive Officer of LTC.
Any exercise funds in excess of the foregoing $550,000 will be used by LTC
to pay LTC's operating costs directly by LTC. To the extent LTC pays its
operating costs through the exercise funds rather than through bridge loan
financing funds the Ilion shares to be distributed to the LTC stockholders in
the Merger will be increased on the following basis: one share of Ilion Common
Stock will be added to the 3,500,000 base Ilion shares for every $2.25 of
exercise funds received by LTC in excess of $550,000 (the "Additional Merger
Securities").
By way of example, if LTC receives $1,450,000 in exercise funds, (1) LTC
will first use $350,000 to finance the operations of LTC in lieu of using bridge
loan financing funds, (2) LTC will use $200,000 to pay accrued salary due and
owing Thomas Thomsen, (3) LTC will use the remaining $900,000 to pay LTC's
operating costs and (4) the LTC stockholders will receive in the merger 400,000
additional shares of Ilion common stock.
REPRESENTATIONS AND WARRANTIES
In the merger agreement, we make representations and warranties to each
other about our companies with respect to, among other things:
- due organization and good standing;
- capitalization and ownership of subsidiaries;
- absence of any breach of organizational documents or material
agreements as a result of the contemplated transactions;
- accuracy of financial statements
- accuracy of LTC filings with the Securities and Exchange Commission;
- accuracy of Ilion filings with the District Registrar of Companies
in Auckland, New Zealand;
- absence of specified changes;
- litigation and violations of law;
- intellectual property;
- employee matters, labor relations, environmental matters and tax
matters; and
- required board of directors and stockholder approvals with respect
to the contemplated transactions.
CONDITIONS TO THE MERGER
The merger agreement contains conditions to our obligation to complete the
merger. We will not be obligated to complete the merger unless:
- Representations and Warranties. The representations and warranties
of the other party contained in the merger agreements or as
subsequently updated in writing must have been true and correct as
of the date the agreement was executed or updated and must be true
and correct as of the closing;
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- Agreements and Consents. The other party must have duly performed
and complied with all covenants, agreements and obligations required
by the agreement to be performed or complied with by it on or prior
to the closing;
- No Action or Proceeding. No action or proceeding may be pending or,
threatened by or before any court or other governmental body or
agency seeking to restrain, prohibit or invalidate the transactions
contemplated by the merger agreement;
- Consents and Approvals. The other party must have obtained all of
the third party consents required to be obtained by it in connection
with the merger;
- Stockholder Approval. The stockholders of Ilion and LTC have
approved the merger;
- Ilion Initial Public Offering. The Ilion initial public offering
must have closed contemporaneously with the merger;
- Registration Statement. The registration statement relating to this
proxy statement/prospectus is effective and no stop order suspending
effectiveness is in effect;
- LTC Option and Employment Agreements. All option plans, option
agreements and employment agreements of LTC or its subsidiaries must
have been terminated prior to the closing date with no further
obligation or liability to LTC or Ilion;
- Fairness Opinion. Schuler Associates shall not have withdrawn its
opinion that the proposed merger is fair from a financial point of
view to the LTC stockholders; and
- Tax Opinion. LTC has received an opinion to the effect that the
merger will qualify as a tax free reorganization under Section 368
of the Internal Revenue Code.
PRINCIPAL COVENANTS
The merger agreement provides that, until the merger has been completed,
LTC will conduct its business in the ordinary course and consistent with past
practice. LTC has agreed to use its best efforts to:
- preserve intact its business organizations;
- keep available the services of its officers and employees; and
- maintain its relationships and goodwill with licensors, suppliers,
distributors, customers, landlords, employees and agents.
LTC has also agreed that, except with the prior written consent of Ilion,
LTC will not:
- amend or modify its certificate of incorporation or bylaws or other
similar constituent documents except to increase the number of
authorized shares of common stock up to 200 million shares;
- change any salaries or other compensation of, or pay any bonuses to,
any of its current or former directors, officers, employees or
stockholders, or enter into any employment, severance or similar
agreement with any of current or former directors, officers,
stockholders or employees;
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- adopt or increase any benefits under any profit sharing, bonus,
deferred compensation, savings, insurance, pension, retirement or
other benefit plan for or with any of its employees;
- incur or commit to make any capital expenditures in excess of the
remaining balance of the planned capital expenditures under the
current capital expenditure budget;
- enter into any contract or commitment, except for contracts and
commitments entered into in the ordinary course of business;
- modify or amend in any material respect or terminate any material
contract;
- incur, assume or guarantee any indebtedness;
- enter into any transaction or commitment relating to its assets or
business which could be material, or cancel or waive any claim or
right which, individually or in the aggregate, could be material;
- make any change in accounting methods or practices;
- issue or sell any capital stock, or make any other changes in LTC
capital structure, other than the grant in the ordinary course of
business of stock options or other rights to purchase shares of LTC
capital stock pursuant to any existing benefit plan or the repricing
of existing warrants or options to induce their exercise by the
holders thereof;
- sell, lease or otherwise dispose of any of its material assets or
properties;
- write-off as uncollectable any notes or accounts receivable, except
write-offs in the ordinary course of business; write-off, write-up
or write-down any of its other material assets; or alter its
customary time periods for collection of accounts receivable or
payments of accounts payable;
- rebate or assume any lien, other than permitted liens;
- make any loan, advance or capital contributions to or investment in
any person;
- terminate or close any of its facilities, businesses or operations;
- cause or permit to occur any event, occurrence, development or state
of circumstances or facts which, individually or together with other
matters, has had or could reasonably be expected to have a material
adverse effect;
- take any action that would cause any of its representations and
warranties made not to remain true and correct or any of the closing
conditions from being satisfied;
- enter into any discussions or negotiations with any person regarding
the sale, transfer, disposition or licensing of any intellectual
property rights;
- settle, release or forgive any claim or litigation or waive any
right thereto that relates to LTC or its business; or
- agree to do any of the foregoing.
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NO SOLICITATION OF TRANSACTIONS
During the period from the date of the merger agreement to the earlier of
the closing date and the termination of the merger agreement in accordance with
its terms, subject to the fiduciary duties of our respective officers and
directors, we have agreed that we will not, and will not authorize or permit any
of our stockholders or any of our respective affiliates, or any of our officers
or directors or any of our respective affiliates, or any representative of any
of the foregoing to, take any action to, directly or indirectly, engage,
initiate, solicit or engage in discussions or negotiations with, or provide any
information to any person, or enter into any agreement with any third party,
concerning any purchase of any capital stock, the business or intellectual
property rights of us or any merger, asset sale or similar transaction involving
such party or any transaction involving a competing thin film technology or any
transaction that would frustrate the purposes of the merger agreement, without
the prior written consent of the other party.
LINE OF BUSINESS; NON-COMPETE
Until the earlier of the Ilion initial public offering or January 18,
2002, LTC and Ilion agreed that LTC shall not engage in any business other than
its business as conducted on the date of the merger agreement and as
contemplated on the date of the merger agreement in accordance with LTC's
business plans, except to the extent as would not be material to LTC and its
subsidiaries, taken as a whole. In addition, LTC agrees not to compete directly
or indirectly with Ilion.
ILION INITIAL PUBLIC OFFERING
In the merger agreement, Ilion has agreed to use all reasonable efforts
(subject to market, economic and business conditions) to consummate an initial
public offering as soon as practicable after a vote of LTC stockholders
approving the merger. Contemporaneously with the consummation of the merger and
the initial public offering, Ilion will distribute the Ilion shares of common
stock to the LTC stockholders pursuant to the registration statement relating to
this proxy statement/prospectus.
Ilion currently expects to complete an underwritten initial public
offering in the United States by September 30, 2000 of approximately 8 million
shares of common stock at approximately $12.00 per share, or approximately $87.8
million net after expenses. Ilion expects that based on the maximum number of
Ilion shares to be issued to the LTC stockholders in the merger and the number
of currently outstanding Ilion shares, the IPO shares will represent
approximately 22% of the outstanding shares of Ilion.
The final terms and structure of the Ilion IPO may ultimately be different
from the terms described herein and such final IPO terms and structure may be
less favorable than those contemplated at this time.
LTC will be obligated to proceed with the merger provided that all closing
conditions have been met, including the condition set forth in the merger
agreement that provides that Ilion must complete an initial public offering and
sale of its common stock that results in aggregate gross proceeds to Ilion in an
amount that, when added to the aggregate gross proceeds of all equity funding
received by Ilion at any time during the period from September 29, 1999 until
the time of the Ilion IPO, equals at least $25 million.
LTC stockholders may elect to include the Ilion shares received at the
time of the merger in the initial public offering. Ilion has agreed to use its
best efforts to include the Ilion shares owned by the LTC stockholders in the
Ilion initial public offering. However, if the managing underwriter of the
initial public offering advises Ilion in writing that in its opinion, the number
of Ilion shares owned by LTC stockholders together with the other Ilion shares
proposed to be offered, exceeds the number of securities which can be sold in
such offering without having a material adverse effect on the price of such
securities, Ilion has agreed to include in such registration, first, the
securities that Ilion proposes to sell and second, the Ilion shares owned by LTC
stockholders and other Ilion shares requested to be included in such
registration, pro rata among the
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holders thereof on the basis of the number of shares of Ilion in good faith
requested to be registered by such holders.
CONSULTING SERVICES
Upon the approval of the merger agreement by LTC stockholders, Ilion has
agreed to retain LTC as a consultant to provide management and technical
services to Ilion. The management services will include, without limitation:
- general management services including executive functions;
- supervisory support;
- capital raising support,
- corporate strategy development;
- strategic alliance development and negotiations;
- financial planning services;
- strategic planning services; and
- sales, marketing and business development services.
The technical services will include, without limitation:
- research and development services,
- engineering, and other technical assistance; and
- advice related to the development and manufacturing of lithium
polymer rechargeable cells.
The work product and new technology resulting from LTC's services to Ilion
will be deemed assigned and will belong exclusively to Ilion. Ilion will have
the exclusive right to obtain copyrights, registrations and such other
proprietary protections on the new technology and LTC has agreed to provide
Ilion with all assistance reasonably required to protect such rights, at Ilion's
expense.
EMPLOYEE MATTERS
Upon the closing of the merger, Ilion will offer to each full-time LTC
employee, employment with Ilion or an affiliate of Ilion. Each LTC employee will
have a substantially equivalent title and level of responsibility and will
receive substantially equivalent compensation and benefits as such employee had
as a LTC employee, subject to the terms and conditions of Ilion's standard
employment agreements.
Ilion will grant a minimum of 300,000 options to the transferred LTC
employees for the purchase of Ilion common stock at an exercise price of $2.25
per share. The Ilion options will be distributed to the transferred LTC
employees on a pro-rata basis based on the number of LTC stock options held on
the date the merger agreement was signed.
Ilion will offer employment to Mr. David Cade, LTC's Chairman and Chief
Operating Officer, as the Chief Operating Officer of Ilion upon the merger
closing and Chief Executive Officer when designated as such by Ilion's Board of
Directors. The employment agreement provides for an annual salary of $165,000
and six month's severance in the event of termination of Mr. Cade by Ilion
without cause or the resignation of Mr. Cade (which requires 30 days notice).
Ilion will offer employment to Dr. George Ferment, LTC's President, Chief
Operating Officer and Chief Technical Officer, as the Executive Vice President
of Cell Manufacturing Operations of Ilion upon the closing of the merger. The
employment agreement provides for an annual salary of $155,000 and six month's
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severance in the event of termination of Mr. Ferment by Ilion without cause or
the resignation of Mr. Ferment (which requires 30 days notice).
TERMINATION
The merger agreement may be terminated as follows:
- by our mutual written agreement;
- by Ilion, if LTC's stockholders do not approve the merger by July
31, 2000;
- by either of us, if there has been a material violation or breach by
the other party of any covenant, representation or warranty
contained in the merger agreement and such violation or breach has
not been waived or cured within 60 days after written notice of such
breach;
- by either of us, if the merger has not been consummated by February
28, 2002; provided, however, that neither party will be entitled to
terminate the merger agreement if such person's breach of the merger
agreement has prevented the merger;
- by Ilion, if there has been a material adverse change in LTC; or
- by LTC, if there has been a material adverse change in Ilion.
BRIDGE FINANCING FROM ILION TO LTC; EFFECT OF TERMINATION OF THE MERGER
Pursuant to the terms of a bridge loan financing agreement entered into as
of November 29, 1999, Ilion has provided working capital to LTC. Ilion has
advanced a total of $1,475,000 as of May 1, 2000 for working capital and
$125,000 for the purchase of a packaging machine. In addition, Ilion has agreed
to continue to advance to LTC funds required by LTC for ongoing employee,
operating and administrative expenses excluding capital expenses until the
closing of the merger.
LTC estimates that approximately $250,000 per month will be required by
LTC for working capital. Under the agreements with Ilion, LTC will offset a
portion of the funds received by LTC upon the exercise of options and warrants
against the funding otherwise required to be advanced by Ilion under the bridge
financing agreement. If the merger does not close until February 2002, a total
of approximately $5,250,000 will be required by LTC for working capital from
June 2000 until February 2002.
If the merger is not consummated for any reason, any advances from Ilion
to LTC under the bridge loan financing agreement will be converted into LTC
common stock at $0.10 per share, and except in the event of a default by Ilion
under the merger agreement, Ilion will be issued warrants to purchase 7.5
million shares of LTC common stock exercisable at $0.15 per share until January
19, 2003, and Ilion will have a first option to purchase LTC's technologies and
processes at market value if LTC decides to sell them, goes into receivership,
liquidation or the like. If the merger agreement is terminated other than in the
event of a default by Ilion, Ilion will also have the right and option to
purchase LTC's pilot plant and equipment at book value as of the date of the
merger agreement.
In connection with the Bridge Loan, LTC has granted Ilion a non-exclusive
worldwide license to use LTC's thin film technology and manufacturing methods
solely as it relates to lithium-ion polymer batteries. Pursuant to the licensing
agreement, Ilion will pay to LTC a royalty equal to the higher of one percent of
the net sales price of each licensed product manufactured, sold or otherwise
disposed of during the term of the licensing
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agreement or the rate that applies to any license agreement entered into
subsequent to October 1, 1999 (which rate will apply retroactively to October 1,
1999). The funds advanced by Ilion to LTC under the Bridge Loan will be deemed
as an advance payment of royalty fees due under the licensing agreement.
LTC has also agreed to enter into a Security Agreement and Assignment of
Lease in favor of Ilion upon the approval of the merger by the LTC stockholders
(the "Approval Date"), pursuant to which LTC will grant Ilion a first priority
security interest in all of the assets of LTC effective from the Approval Date
until the closing of the merger (the "Security Agreement"). The Security
Agreement will grant Ilion the right to foreclose on all of LTC's assets in the
event of any bankruptcy of LTC or similar event. Pending the amendment of LTC's
certificate of incorporation to increase the number of authorized shares of LTC
common stock, the notes issued in connection with the bridge financing will be
convertible into shares of LTC preferred stock having the economic and voting
equivalent of the LTC common stock
At May 1, 2000, Ilion held $1,600,000 of notes convertible into 16,000,000
shares of LTC common stock at a conversion price of at $.10 (which are only
convertible in the event of a default or if the merger does not close by
February 28, 2002 or is not approved by the LTC stockholders by July 31, 2000 or
such later date agreed to by Ilion). LTC may issue up to approximately
$5,250,000 of additional notes to Ilion from June 2000 until February 2002,
convertible into 51,000,000 shares of LTC common stock at a conversion price of
$.10 per share, and may issue to Ilion warrants to purchase 7,500,000 shares of
LTC common stock exercisable at $0.15 per share. The notes will not be converted
into LTC common stock if the merger is closed.
The percentage ownership of LTC that Ilion will own if there is a default
under the bridge financing agreement or in the event the merger is not closed
will depend on the amount of funds advanced by Ilion to LTC. If Ilion advances
another $5,250,000 in addition to the $1,600,000 advanced through May 1, 2000,
and the notes were converted, Ilion would own approximately 68,500,000 shares of
LTC common stock, which would represent approximately 58% of LTC's outstanding
common stock on a fully diluted basis. If the merger is completed, the notes
will not be converted into LTC common stock and no warrants will be issued to
Ilion.
The bridge financing agreement does not contain a maximum of the amount of
funding that may be advanced under such agreement. Accordingly, there is no
maximum number of notes that may be issued to Ilion. The amount of the notes
will be related to the working capital requirements of LTC and the length of
time until the merger is completed.
REGULATORY APPROVAL
Other than filings to be made and approvals under certain state securities
or "blue-sky" laws and the declaration of effectiveness of the registration
statement relating to this proxy statement/prospectus, there are no federal or
state regulatory requirements that must be compiled with or obtained in
connection with the merger.
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CHAPTER FIVE
CERTAIN LEGAL INFORMATION AND EXCHANGE RATES
DESCRIPTION OF ILION'S CAPITAL STOCK FOLLOWING THE MERGER
(Explanatory Note - The following description of Ilion's capital stock
assumes that Ilion has domesticated into Delaware and is based on the form of
certificate of incorporation and bylaws that Ilion intends to adopt at the time
of its domestication.)
GENERAL
Under Ilion's form of certificate of incorporation, Ilion's Board of
Directors has the authority to issue a maximum of 60,000,000 shares of Ilion
common stock, par value $.01 per share, and 100,0000 shares of Ilion preferred
stock, par value $.01 per share. As of May 1, 2000, there were issued and
outstanding 24,193,079 shares of Ilion common stock and no shares of Ilion
preferred stock.
COMMON STOCK
Each holder of Ilion common stock is entitled to one vote for each share
held on any matter submitted to a vote of Ilion stockholders, except for those
matters for which only holders of a specified class of shares of Ilion are
entitled to vote. Holders of Ilion common stock do not have cumulative voting
rights. Holders of Ilion common stock are entitled to receive dividends when, as
and if declared by Ilion's Board of Directors, out of funds legally available
for their payment, subject to the rights of holders of any outstanding shares of
Ilion preferred stock.
In the event of the liquidation, dissolution or winding up of Ilion, the
holders of Ilion common stock would be entitled to share ratably in all assets
of Ilion available for distribution to such holders after the payment of all
debts and other liabilities, subject to the prior rights of the holders of any
outstanding series of Ilion preferred stock. The holders of Ilion common stock
have no preemptive or subscription rights to purchase additional securities
issued by Ilion nor any rights to convert their Ilion common stock into other
securities of Ilion or to have their shares redeemed by Ilion.
The outstanding shares of Ilion common stock are, and the shares of Ilion
common stock to be delivered pursuant to the merger upon delivery will be, duly
authorized, validly issued, fully paid and nonassessable.
The outstanding shares of Ilion common stock are currently not publicly
traded. The closing of the merger is conditional upon Ilion successfully
completing its initial public offering in the United States and being listed on
Nasdaq. Therefore, the shares of Ilion common stock to be delivered pursuant to
the merger upon notice of issuance will be listed on Nasdaq. The Bank of New
York, New York, N.Y. is the transfer agent and registrar for Ilion common stock.
PREFERRED STOCK
Under Ilion's certificate of incorporation, Ilion's Board of Directors may
issue preferred stock in one or more series and may determine the voting powers
(if any) and the designations, preferences and special rights and qualifications
of those series. If Ilion issue shares of preferred stock, the relative rights
of Ilion common stock will be affected, depending upon the exact rights and
powers Ilion's Board of Directors confers on the preferred stock.
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COMPARISON OF STOCKHOLDERS RIGHTS
After consummation of the merger, the holders of LTC common stock will
become holders of Ilion common stock. Because LTC and Ilion are both Delaware
corporations, the rights of LTC stockholders will continue to be governed by the
Delaware General Corporation Law. Additionally, the rights of stockholders of
LTC are presently governed by LTC's certificate of incorporation and bylaws. As
stockholders of Ilion, their rights following the consummation of the merger
will instead be governed by Ilion's certificate of incorporation and bylaws.
There are no material differences between the rights of Ilion stockholders and
LTC stockholders under their respective charters.
EXCHANGE RATES
Ilion publishes its Financial Statements in New Zealand dollars.
Unless otherwise specified in this proxy statement/prospectus, references
in this prospectus to "$," "US$" or "U.S. dollars" are to United States dollars
and references to "NZ$" are to New Zealand dollars.
The following table sets forth, for the periods and dates indicated,
information concerning the rates of exchange of New Zealand dollars into U.S.
dollars based on the noon buying rate in New York City for cable transfers in
foreign currencies as certified for customs purposes by the Federal Reserve Bank
of New York.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
AT
FISCAL YEAR ENDED MARCH 31, PERIOD END AVERAGE (1) HIGH LOW
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 0.6549 0.6152 0.6549 0.5770
- -----------------------------------------------------------------------------------------
1996 0.6807 0.6650 0.6807 0.6502
- -----------------------------------------------------------------------------------------
1997 0.6947 0.6942 0.7108 0.6795
- -----------------------------------------------------------------------------------------
1998 0.5524 0.6276 0.6930 0.5524
- -----------------------------------------------------------------------------------------
1999 0.5340 0.5249 0.5555 0.4950
- -----------------------------------------------------------------------------------------
</TABLE>
(1) Represents the average of the noon buying rates on the last day of each
month during the relevant period.
On May 9, 2000, the noon buying rate was NZ$1.00 = US$0.4790
For your convenience in some parts of this proxy statement/prospectus,
Ilion has translated New Zealand dollars into U.S. dollars at the noon buying
rate on December 31, 1999, which was NZ$1.00 = US$0.5234. In providing these
translations Ilion is not representing that the New Zealand dollar amounts
actually represent the U.S. dollar amounts indicated or that Ilion could have
converted those New Zealand dollars to U.S.
dollars at the rate indicated.
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LISTING OF ILION; DELISTING AND DEREGISTRATION OF LTC STOCK
It is a condition to the merger that the shares of Ilion common stock to
be issued in the merger will be approved for listing on Nasdaq. Once the merger
is completed, LTC common stock will no longer be traded in the over-the-counter
market or on any exchange.
EXPERTS
The consolidated financial statements of LTC as of December 31, 1999 and
for the years ended December 31, 1999 and 1998 and for the period from July 21,
1989 (date of inception) to December 31, 1999 except for the period from July
21, 1989 (date of inception) to December 31, 1996 included in this proxy
statement/prospectus have been audited by Deloitte & Touche, LLP, as stated in
their report appearing herein (which report expresses an unqualified opinion and
includes an explanatory paragraph relating to the Company's ability to continue
as a going concern). The consolidated financial statements of LTC for the period
from July 21, 1989 (date of inception) to December 31, 1996 have been audited by
Wiss & Company, LLP, as stated in their report included herein. Such
consolidated financial statements of LTC are included herein in reliance upon
the respective reports of such firms given upon their authority as experts in
auditing and accounting. All of the foregoing firms are independent auditors.
The financial statements of LTC for the period July 21, 1989 (date of
inception) to December 31, 1996 included in this proxy statement/prospectus have
been audited by Wiss & Company, LLP, independent certified public accountants,
and have been so included in reliance upon the reports given upon the authority
of that firm as experts in auditing and accounting.
The financial statements of Ilion for the years ended March 31, 1999, 1998
and 1997 included in this proxy statement/prospectus have been audited by
Horwath Porter Wigglesworth independent certified public accountants, and have
been so included in reliance upon the reports given upon the authority of that
firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the Ilion common stock to be issued in connection with the
merger will be passed upon by Jones, Day, Reavis & Pogue.
The material tax consequences of the merger are being passed upon for LTC
by Moore Stephens, P.C. and for Ilion by Jones, Day, Reavis & Pouge.
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CHAPTER SIX
LITHIUM BATTERY TECHNOLOGY
AND MARKET OVERVIEW
OVERVIEW OF BATTERY TECHNOLOGY
A battery is an electrochemical apparatus that stores energy and releases
it in the form of electricity. A battery contains one or more individual battery
cells, which are the energy source of the battery. The main components of a
conventional battery cell are the anode, the cathode, the separator and an
electrolyte.
Upon discharge of the battery cell, the anode supplies a flow of
electrons, known as current, to a device outside of the battery with the
electron flow re-entering the battery cell at the cathode. As electrons flow
from the anode to the device being powered by the battery, ions are released
from the anode, cross through the electrolyte to the cathode. The separator acts
as an insulator, preventing electrical contact between the anode and cathode
inside the battery cell.
There are two types of batteries, primary and rechargeable. A primary
battery can not be recharged. Primary battery chemistries generally consist of
carbon-zinc, alkaline or lithium.
In contrast, rechargeable batteries can be recharged after being
discharged and can be used again. Generally, discharge and recharge cycles can
be repeated a number of times in rechargeable batteries, but the achievable
number of cycles varies among competing technologies. All rechargeable batteries
experience a small, measurable loss in energy capacity with each recharge and
discharge cycle. Today the most prevalent rechargeable battery chemistries are
nickel-cadmium, nickel-metal hydride and lithium-ion liquid. Rechargeable
batteries generally can be used in all primary battery applications as well as
portable computers, cellular telephones, camcorders and other consumer
electronic products.
The performance characteristics of rechargeable batteries are measured by
several key parameters including design flexibility, energy density, cycle life
and discharge rate.
Design flexibility refers to the ability of rechargeable batteries to be
made to fit the design of the consumer product. Thin profile batteries provide
the design flexibility to enable increasingly small and lightweight electronic
devices to be developed.
Energy density refers to the total electrical energy stored in a battery
per unit of weight or volume. High energy density batteries generally are longer
lasting power sources providing longer operating times and necessitating fewer
battery recharges. Lithium-ion batteries, by the nature of their electrochemical
properties, are capable of providing higher energy density than comparably sized
batteries that utilize other chemistries.
Cycle life refers to the number of times a battery can be charged and
discharged. Long cycle life is a preferred feature of a rechargeable battery
because it allows the user to charge and recharge the battery many times before
noticing a decrease in performance.
Discharge rate refers to the rate at which a battery is able to release
its energy. High discharge rates are critical in applications that require the
delivery of high amounts of energy over brief intervals, such as digital
cellular telephones.
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INDUSTRY OVERVIEW
The increasing power requirements of products such as portable computers,
cellular telephones and camcorders have driven the development of rechargeable
battery technology. Improvements in battery technology are rapidly integrated
into new device designs.
Portable computers and cellular telephones represent the largest and
fastest growing segments of the portable electronic devices market. Worldwide
sales for cellular telephones were approximately 90 million units in 1997 and
are projected to reach 325 million units by the year 2001, representing a
compounded annual growth rate of 37%. Worldwide sales for portable computers
were approximately 13 million units in 1997 and are projected to reach 23
million units by the year 2001, representing a compounded annual growth rate of
19%. According to the Nomura Research Institute of Japan, the worldwide
lithium-ion rechargeable battery market was estimated to be 200 million cells in
1997 and is expected to reach 300 million cells by the end of 2000. Currently
the rechargeable battery market is dominated by three major battery chemistries.
Measured as a percentage of total rechargeable battery sales in 1999, nickel
cadmium has 17%, nickel-metal hydride has 20% and lithium-ion liquid has 63%.
Two other technologies, sealed lead-acid and zinc air, have very low market
share for portable applications.
Nickel-cadmium Batteries
Nickel-cadmium batteries (introduced during the 1960s) were the first
generation of rechargeable batteries and are the mostly widely used form of
rechargeable battery. They are attractive on a cost basis relative to other
rechargeable battery technologies and offer high discharge rates making them
well suited for power-demanding applications such as power tools. However, they
have significant performance limitations when compared to other battery
technologies as they lose energy storage capacity at a greater rate (the so
called memory effect) and have a high self-discharge rate so require frequent
recharging. Nickel - cadmium batteries are also toxic. Increased environmental
concerns have led some European countries to place restrictions on
nickel-cadmium batteries due to disposal issues.
Nickel-metal Hydride Batteries
Nickel-metal hydride batteries (first introduced in 1989) have gained
considerable market acceptance. Nickel-metal hydride batteries offer twice the
energy capacity of nickel-cadmium batteries on a volume basis. However, they
have very high self-discharge rates. They are 25% more expensive than
nickel-cadmium batteries and relatively difficult to recycle. Nickel-metal
hydride, like nickel-cadmium batteries, contain heavy metals that have come
under increased environmental regulation in recent years.
Lead-acid Batteries
Automobiles have been the primary users of sealed lead-acid batteries
since the turn of the century. Sealed lead-acid batteries for certain portable
electronics devices have good power capability and are inexpensive, but are
heavy, have very low cycle life and require special disposal management.
Lead-acid batteries have not gained significant market acceptance in portable
computers and wireless communications devices.
Zinc Air Batteries
Rechargeable zinc air batteries, which entered the marketplace in 1994,
provide long run time for notebook computers but have limited mass market appeal
because of their low number of discharge cycles and their size, which requires
them to be configured as "clip-ons" using plugs or jacks rather than as an
integrated product.
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Lithium Batteries
Lithium-ion liquid technology, in a cylindrical form, offers the highest
energy density of all commercial rechargeable technologies on the market today.
On a weight basis, the technology offers two to three times the energy content
of nickel-cadmium. The higher voltage typically allows the design of battery
packs with fewer cells than nickel-based technologies.
Rechargeable battery technology utilizing polymer (solid) electrolytes
rather than liquid electrolytes have been under development since the late
1970s. The attraction of this technology is its ability to produce thin, flat
batteries, which can be more efficiently packaged than liquid electrolyte cells,
resulting in higher energy density than liquid cell battery packs. Polymer
electrolytes are also more stable than Lithium ion liquid technologies, which
require constant monitoring and management within the battery itself to minimize
the possibility of an explosion. Lithium based technologies are expected to
experience significantly higher growth rates than either of the nickel based
technologies. According to Nomura Research Institute, production of lithium-ion
liquid cells has increased from just 15 million cells in 1994 to around 250
million cells in 1998. Kline & Company predicts the market for lithium-ion
polymer batteries will grow to approximately $4.4 billion in 2007, making it the
fastest growing projected segment of the high performance rechargeable battery
market.
The market for lithium batteries is broken into two major segments, the
portable electronic goods segment, which comprises cellphones, portable
computers and camcorders ("Portable Applications"), and the emerging automotive
segment, which comprise electric scooters and bikes, hybrid electric vehicles
and electric vehicles ("Automotive Applications"). There is also a potential
market for niche portable products such as home and garden products, medical
devices and power tools. In addition, there is also a potential market for large
energy storage and distributed applications.
Portable Applications
Lithium-ion liquid batteries were first introduced into the portable
application marketplace in the early 1990's by Sony. The market for lithium-ion
liquid batteries grew steadily until the end of 1995, at which point Sony and a
number of other Japanese electronics manufacturers experienced rapid growth. The
dominance of these Japanese companies continues to this day, with six Japanese
companies controlling approximately 97% of the world's lithium-ion liquid
battery supply in 1999. Many of the large volume producers of lithium-ion liquid
batteries, such as Sony and Panasonic (Matsushita), are also large volume
producers of nickel-metal hydride batteries.
Automotive Applications
Electric powered vehicles using lead acid battery technology were among
the first vehicles to displace the horse and cart. Even today, the same
lead-acid battery chemistry is being used by General Motors in its EV-1
state-of-the-art electric vehicle. The only all-electric vehicle in commercial
production is the Honda EV-Plus, which is powered by nickel-metal hydride
batteries.
Due to the high costs associated with electric vehicles, hybrid electric
vehicles are leading the commercialization path for cars powered by electricity.
The most successful, with approximately 25,000 unit sales to date has been the
Toyota Prius, which uses nickel-metal hydride batteries as a cost effective
means of doubling the fuel efficiency of a standard petrol engine. The success
of the Prius has prompted Ford, Honda, Mitsubishi and Nissan to announce rival
hybrid electric vehicle programs. The latter two companies have announced they
will use lithium-ion liquid as their battery chemistry.
Ilion believes that lithium batteries are currently the only batteries
that are able to meet the performance requirements required for the large-scale
commercial production of pure electric vehicles. However, lithium batteries are
not used in electric vehicles because they are approximately four times more
expensive than lead-
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acid batteries and other possible battery chemistries. With lithium-ion liquid
batteries holding two to three times the energy by weight of nickel-metal
hydride, it is mainly cost and safety issues that are preventing lithium
batteries from widespread application in electric vehicles.
The United States Advanced Battery Consortium believes that the key price
parameter for an electric vehicle is $150/kWh, or less than $1 per cell for a
standard 18650 lithium-ion cell. In 1999 lithium-ion cells sold for
approximately $4 per cell. Based on the 1999 price of lithium-ion liquid cell
prices, the cost of a lithium-ion battery for an electric vehicle requiring
30kWh of energy storage capacity would be approximately $18,000.
Other Applications
The high energy density characteristics of lithium batteries gives rise to
a number of potential product applications that would not be feasible with other
types of batteries, enabling the development of products that could not
previously be powered by battery power, including large-scale applications, such
as energy storage.
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CHAPTER SEVEN
LTC'S BUSINESS
OVERVIEW
Lithium Technology Corporation is in the late stages of developing and
seeking to commercialize a new generation of high performance, solid state
rechargeable lithium ion polymer batteries for portable electronics devices and
other applications such as the rapidly emerging hybrid electric vehicle market.
LTC's pilot line production operations are regularly producing three generic
sizes of thin flat cells, including a large 9 Ah cell (4"x8"x1/4"). LTC's
patented and proprietary technology uses high performance fibers in composite
battery structures and low cost continuous flow fiber web coating and handling
processes for manufacturing. These new batteries represent a significant benefit
to the end-user in terms of longer run times and thinner, flatter,
lighter-weight form factors.
LTC is a corporation organized under the laws of the State of Delaware on
December 28, 1995. LTC's predecessor -- Lithium Technology Corporation (a Nevada
corporation previously named Hope Technologies, Inc.) -- merged with and into
LTC in a reincorporation merger that became effective on February 8, 1996. In
connection with the reincorporation on February 8, 1996, LTC also implemented a
recapitalization of its outstanding common stock and convertible preferred
stock, a reverse stock split, the ratification of an amendment to LTC's 1994
Stock Incentive Plan, and ratification of a Directors Stock Option Plan. Until
1994, LTC was called Hope Technologies, Inc., consisting of two subsidiaries:
Hope Industries, Inc. and Lithion Corporation. Hope Industries was the operating
arm of LTC 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, Hope Industries was divested and since such
time LTC has focused on commercialization of battery technology and developing
strategic alliance partners of global prominence. LTC currently has one
subsidiary, Lithion Corporation, which is wholly-owned by LTC.
DEVELOPMENT AND COMMERCIALIZATION PLAN
LTC's strategy is to commercialize and produce a new generation of solid
state lithium polymer battery cells based on seventeen years of 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 lithium coating/handling methods for manufacturing. This technology
encompasses lithium-ion polymer batteries (market entry in 2000) and lithium
alloy polymer batteries (market entry in three to five years). LTC's target
market is hybrid electric vehicles and mobile computing and communications
applications which showcase LTC's thin, flat lightweight and long run-time
cells.
During March 1996, a continuous flow coating/laminating pilot line -
sometimes referred to as the Demonstration Manufacturing Facility ("DMF") -- was
installed by LTC. This line has been used to further define LTC's manufacturing
technology and to sharpen manufacturing cost estimates. Through equipment
augmentation and upgrade, this line is in the process of transitioning to the
"Plymouth Meeting Manufacturing Plant" (sometimes also referred to as the
"PMMP") which LTC expects will serve as the production facility for battery
cells which will be assembled into battery packs for Original Equipment
Manufacturer ("OEM") customers.
Subject to the uncertainties discussed herein, it is anticipated that the
PMMP will cost approximately $4.0 million to complete in 2000 including
manufacturing equipment meeting applicable environmental regulatory standards.
The Board of Directors of Ilion has approved the purchase of the equipment
necessary to complete the PMMP. The equipment will be owned by Ilion and located
within LTC's existing facility in Plymouth Meeting, Pennsylvania. There can be
no assurance that LTC will be able to achieve the
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technological breakthroughs that will be necessary in order to ultimately
achieve commercialization or generate revenues in order to sustain LTC's ongoing
research and development phase or that Ilion will provide all of the financing
and equipment necessary to complete the PMMP.
As of December 31, 1999, LTC had not generated any significant product
revenues and had no commercial operations. To date, LTC has delivered limited
quantities of its battery cells to selected OEMs for evaluation. Based upon the
performance of LTC's battery cells and its unique manufacturing technology, a
top ten personal computer manufacturer (the "PC OEM") is working with LTC to
incorporate LTC's lithium-ion polymer batteries into an advanced notebook
computer. Subject to successful qualification of LTC's battery and the ability
to meet the OEM's volume production needs, LTC anticipates entering into a
definitive supply agreement with the PC OEM or a comparable OEM.
LTC's development and commercialization plan currently has the following
milestones:
(1) hand-made call samples tested by potential strategic partners
in 1995 (accomplished);
(2) installation of a pilot line continuous flow coating
laminating unit in 1996 (accomplished);
(3) upgrade of the pilot line and distribution of lithium-ion
polymer call samples produced on the pilot line to selected
OEMs beginning in early 1997 (accomplished);
(4) distribution of prototype battery cells to selected OEMs in
early 1998 (on-going);
(5) installation of packaging equipment and environmental control
equipment to achieve EPA compliance at the Plymouth Meeting
manufacturing plant (fourth quarter 1999 - second quarter
2000);
(6) initial commercial production at PMMP in 2000; and
(7) joint venture manufacturing or technology licensing
arrangements in Asia, the United States and Europe in the
2001-2002 timeframe, with revenue sharing or licensing
royalties based on the use of the combined technologies of LTC
and Ilion.
LTC estimates that completion of phases (5) and (6) will cost LTC
approximately $4.0 million in capital expenditures. There can be no assurances
that LTC will meet these development milestones on the time schedule outlined
above.
Until the completion of the merger, LTC and Ilion are working together as
partners in leveraging their combined vertical integration capabilities
encompassing advanced materials, composite fiber web cell structures and web
handling manufacturing processes to pursue global market opportunities involving
portable electronics and hybrid electric vehicle battery applications. The two
companies intend to establish joint venture manufacturing or technology
licensing relationships at selected locations worldwide.
LTC'S TECHNOLOGY
LTC's proprietary new battery is based upon an integrated approach
employing a patented lithium alloy or composite fiber web anode, composite
polymer electrolyte, and a composite fiber web cathode. It is truly a "solid
state" battery in comparison to traditional liquid electrolyte technology. LTC's
battery cells offer distinctly superior energy density, low self-discharge,
design flexibility, and low manufacturing cost in comparison to existing and
emerging battery technologies. Of equal significance, the cells are
environmentally friendly, with no toxic metals such as mercury, cadmium, or
lead.
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LTC holds 22 issued and ten pending U.S. patents on critical composition,
process, and packaging aspects of the battery. LTC's lithium-ion polymer battery
and lithium alloy polymer battery are comprised of thin, laminated cells or
bicells.
LTC's use of thin, laminated, composite layers (e.g., thin, lightweight
fibers embedded in active solid material matrices) is different from competitive
methods which utilize thin-film extrusion, coating technology and metal grids.
This composite formulation improves conductivity, stability, resistance to
shorting, reliability, uniformity and manufacturability. The composite
structures also permit relatively simple production processes, which form the
basis for successful scale-up and ultimately, very low costs. The processing
scheme uses proven and well understood "web handling" technology that results in
a uniform thickness across the web, low cost high yield production and more
consistent performance of the battery product.
LTC's lithium-ion polymer technology has an energy density advantage
because of the lightweight fiber web construction and a production cost
advantage because of the web-carrier/substrate-based continuous flow, high speed
coating and laminating manufacturing process. The advantages of LTC's
lithium-ion polymer technology are as follows:
- - Lower Cost Manufacturing Process
|_| Web Coating Enables Easier Cell Assembly
|_| Fewer Laminate Components
|_| Fewer Process Steps
|_| Better Bonding
|_| Better Structural Stability
|_| Lower Defect Rate/Higher Yields
- - Superior Battery Performance
|_| Fibers Webs Give Higher Energy Density Than Metal Grids
|_| Better Pulse Discharge Rate
|_| Equivalent Cycle Life
Although there are other companies working on lithium metal polymer
technology in the laboratory, LTC believes that its design is superior due to:
(1) its patented "fireproof" lithium alloy anode which provides improved cycle
life (i.e. it resists dendrite growth which is a cause of internal shorts and
life limitations); (2) its composite electrolyte which yields a more rugged
design with lower production costs; (3) its highly efficient composite cathode;
(4) its lithium anode sealing tape which dramatically improves the safety
profile, while improving its productability; and finally, (5) LTC's lithium
alloy polymer battery uses low-cost thermal curing of the polymer as opposed to
expensive and complicated electron beam methodology. Patents are in place for
all critical aspects of this technology.
LTC's manufacturing process is based on conventional and proven
"web-handling" technology widely used in the paper coating, textile, floor
covering and other industries. The pilot line has now demonstrated all unit
operations and validated quality and cost data.
INTELLECTUAL PROPERTY
LTC holds 22 issued U.S. patents and has ten pending patent applications
on its technology. LTC also has other proprietary knowledge that is in the
patent disclosure stage or that it protects as trade secrets. LTC'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 LTC patent protection on the use of metalized fiber webs for building
electrodes and separators. These
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metalized webs, which are now being incorporated into LTC's composite cell
structures, provide superior conductivity and further simplify the manufacturing
process.
There are other companies with lithium-polymer battery technology patents;
however, LTC 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 LTC's patents expires 2003. There is no current or, to LTC's
knowledge, threatened litigation on its patents. See "LTC's Business --
Competition".
The following table sets forth the U. S. patents currently held by LTC:
<TABLE>
<CAPTION>
Patent Number Title
------------- -----
<S> <C>
4,576,883 Cathode Composition and Method for Solid State LTC Battery
4,794,059 Lightweight Solid State Rechargeable Batteries
4,808,496 Electrode Construction for Solid State Electrochemical Cell
4,861,690 Lightweight Battery Construction
4,960,655 Lightweight Batteries
5,006,431 Solid State Polymer Electrolyte for Batteries
5,057,385 Battery Packing Construction
5,057,651 Lightweight Electroconductive Wire
5,102,752 Solid State Composite Electrolyte for Batteries
5,350,647 Electrodes for Electrochemical Devices
5,378,558 Solid State Composite Electrolyte for Electrochemical Devices
5,422,200 Battery Packaging Construction for Alkali Metal Multicell Batteries
5,443,602 Apparatus and Method for Automatic Mass Production and Packaging
of Electrochemical Cells
5,521,023 Composite Electrolytes (CIP of Serial No. 08/001,145)
5,529,707 Lightweight Composite Polymeric Electrolytes for Electrochemical
Devices
5,597,658 Rolled Single Cell and Bi-Cell Electrochemical Devices and Method
of Manufacturing Same
5,650,243 Battery Packaging Construction using Flexible Plastic Barrier
Structures
</TABLE>
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<TABLE>
<S> <C>
5,655,313 Apparatus for Fluidized, Vacuum Drying and Gas Treatment for
Powered Granular, or Flaked Material
5,705,084 Polymer Alloy Electrolytes For Electrochemical Devices
5,747,195 Current Collectors For High Energy Density Cells
5,750,289 Lightweight Current Collectors and Carriers For Electrochemical
Devices
5,925,483 Multi-Layer Polymer Electrolytes For Electrochemical Devices
4,997,732 Battery in a Vacuum Sealed Enveloping Material and Process for
Making the Same (1)
</TABLE>
(1) U.S. Patent No. 4,997,732 is held by Valence Technologies, Inc. LTC has
rights relating to this Patent under the cross-licensing agreement, dated July
22, 1997, between LTC and Valence Technologies, Inc.
With respect to licensing relationships, LTC has: (i) granted a license to
Valence Technology Corporation with respect to certain technology and entered
into a cross-license with Valence with respect to certain technology; and (ii)
granted certain license/distributorship option rights pursuant to a Japanese
consortium technology development agreement entered into in 1996.
TECHNOLOGY DEVELOPMENT HISTORY
LTC's advanced rechargeable battery technology is based on nearly
seventeen years of specific research and development and over forty years of
experience in plastics, thin films and emulsions. With the divestiture of Hope
Industries in late 1993, LTC successfully raised capital from outside sources,
narrowed LTC's focus, and renewed development of its rechargeable battery
technology.
- During 1994, LTC was re-staffed with needed technical personnel, and
critical research, including historical test data such as capacity
and cycle life, was reconfirmed.
- During 1995, LTC 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.
- During 1996, LTC advanced its technology by developing a solid state
lithium-ion polymer cell using proprietary web structures in both
the anode and cathode with excellent cycle life and which
demonstrate the utility of LTC's manufacturing process technology
for lithium-ion polymer cells.
- 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, distribution of lithium-ion polymer cell samples processed
on the pilot line commenced to selected OEMs.
- During 1998, development and distribution of prototype battery cells
and packs commenced to certain OEMs and is on-going. LTC's pilot
line production operations are regularly producing three generic
sizes of thin flat cells, including a large 9 Ah cell (4"x8"x1/4").
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- As of December 31, 1999, LTC had not generated any product revenues
and had no commercial operations.
- In January 2000, LTC took delivery of a semiautomatic cell packaging
and filling machine. This state-of-the art machine inserts LTC's
thin flat lithium-ion cells into a pouch package, adds the polymer
electrolyte and then seals the package. Its configuration is
optimized for LTC's unique large footprint cells, which will be the
common building blocks for notebook computer, PDA and hybrid
electric vehicle battery applications.
COMPETITION
There are a number of emerging battery technologies that offer performance
improvements over those that dominate the market today. The principal
competitive rechargeable technologies are nickel-cadmium ("NiCad"), sealed lead
acid, nickel-metal hydride, zinc air and liquid electrolyte lithium-ion
batteries. NiCad batteries are still the most widely used rechargeable batteries
in the consumer electronics market, but for wireless communications and portable
computer applications, nickel-metal hydride and liquid lithium-ion now have
dominant market share; moreover, lithium-ion is beginning to eclipse
nickel-metal hydride, particularly for high-end applications.
Nickel-Cadmium
Nickel-cadmium batteries have experienced evolutionary improvement.
However, even with capacity improvements, NiCad batteries still have significant
inherent user limitations. The batteries lose energy storage capacity on each
recharge, have a high self-discharge rate, and cadmium is toxic and difficult to
recycle. Some states are beginning to place restrictions on NiCad batteries due
to disposal issues.
Nickel-Metal Hydride
Nickel-metal hydride ("NiMH") batteries, first introduced in 1989, are
being produced in large volume by a number of battery companies. The advantage
of NiMH batteries is that they have twice the capacity of NiCad batteries.
However, they cannot discharge as quickly, have slower recharge times, and are
currently twice as expensive as NiCad batteries. They also have a very high
self-discharge rate of 10-25% per month.
Lead Acid
Automobiles have been the primary users of unsealed, lead batteries since
the turn of the century. There have been only incremental improvements in this
technology. Sealed lead acid batteries for certain portable electronics devices
are inexpensive, but relatively heavy. They have good power density and good
discharge capability, but have very low cycle life and require special disposal
management.
Zinc Air
Zinc Air batteries, which entered the marketplace in 1994, provide long
run time for notebook computers but have limited mass market appeal because of
their high weight, volume and cost, and their configuration as a "clip-on" using
plugs or jacks rather than as an "integrated" product.
Lithium-ion (Non-Polymer Configuration)
Lithium-ion rechargeables, pioneered by Sony and introduced in 1991, have
a high energy density, but less than that of solid polymer lithium metal
technology projected to enter the market in the next three to five years.
Lithium-ion technology also has a higher self-discharge rate than NiMH and is
more expensive. Since
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lithium-ion cells are not tolerant of overcharge or overdischarge, more
sophisticated electronics are required in the battery pack.
Lithium-ion (Polymer)
This is a solid state version of lithium-ion, as developed and licensed by
Telcordia and others, but is not yet in the marketplace in commercial
quantities. It has form factor, weight, performance and safety advantages over
liquid electrolyte lithium-ion as well as comparable energy density and
self-discharge properties.
There are a number of companies that have announced initiatives to enter
the lithium polymer battery business. Small firms such as HET (a division of
Thomas & Betts) and Shubila reportedly have entered the marketplace with small
volumes of hand-made cellular phone cells. Panasonic (Matsushita) also entered
the market with cellular phone batteries in late 1999, but apparently suspended
production due to performance problems. As of early 2000, there are unconfirmed
reports that Panasonic has resumed such production. Sony, Ultralife and Valence
have each announced that they are ready to enter the marketplace with cellular
phone cells/batteries. Several other companies have indicated that they have
polymer development activities underway in preparation for entering the
marketplace. As is the case with liquid lithium ion cells, the market is big
enough for multiple players and there will be many opportunities for high margin
niche applications in addition to the large volume cellular phone market
segment. Moreover, LTC believes that its patented and proprietary fiber web cell
structures and fiber web substrate-based manufacturing process provide market
differentiation, particularly in the area of consistent, uniform large footprint
9Ah cells that can be the common building block for notebook computer and hybrid
electric vehicle batteries.
RAW MATERIALS
Certain materials used in LTC's products are available only from a limited
number of sources. The industry currently has sufficient capacity to meet LTC's
needs. LTC also believes that Ilion's direct access to sources of lithium raw
materials should provide additional sources of raw materials. However, there can
be no assurances that sources and the currently adequate supply of raw materials
will continue.
EQUIPMENT AND FACILITIES
LTC 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 LTC's near-term needs. In January 2000,
LTC received a semiautomatic cell packaging and filling machine. Together with
the coating equipment and lamination equipment previously installed, this new
piece of equipment is one of the central elements of LTC's capital investment
program to expand and upgrade its continuous flow production line.
EMPLOYEES
During the last six years, LTC hired a new management team and a core
technical staff. The staff has expertise in technology, commercialization,
process development, battery engineering, electrochemistry international
marketing, fund-raising and strategic alliance development. As of December 31,
1999, LTC had a total of 15 employees, of whom 14 were employed full-time by
LTC.
GOVERNMENT REGULATION, SAFETY, ENVIRONMENTAL COMPLIANCE
LTC's products incorporate lithium, which is known to cause explosions and
fires if not properly handled. Although LTC 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. LTC 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
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accident, whether occasioned by the use of a battery or LTC's manufacturing
operations, could result in significant production delays or claims for damages
resulting from injuries, which would adversely affect LTC's operations and
financial condition.
Prior to the commercial introduction of LTC's batteries into a number of
markets, LTC 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
LTC's technical staff and, if redesign were necessary, result in a delay in the
introduction of LTC'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 LTC 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 LTC 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
LTC's technical staff and if redesign were necessary, could delay the
introduction of LTC's products.
Various regulatory agencies will have jurisdiction over the operation of
any manufacturing facilities established by LTC. Because of the risks generally
associated with the use of lithium, LTC expects rigorous enforcement. No
assurance can be given that LTC 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 LTC 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 LTC to adequately control the discharge of
hazardous wastes could also subject it to future liabilities.
PROPERTY
LTC leases a 12,400 square foot research facility and corporate
headquarters in a free-standing building at 5115 Campus Drive in Plymouth
Meeting, Pennsylvania pursuant to a Lease Agreement dated July 22, 1994, between
PMP Whitemarsh Associates and LTC and Addendum thereto dated July 22, 1994, as
extended.
The lease had an initial five year term (which expired on October 31,
1999) and has an additional five year extension option. LTC is required to give
six months notice of its intention to exercise the five year extension or of its
intention not to extend the lease. PMP Whitemarsh Associate has agreed by
letter, dated February 3, 2000, to give LTC until July 31, 2000 to exercise the
lease option or give the six month notice of termination.
LEGAL PROCEEDINGS
LTC is not a party to any material legal proceedings.
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<PAGE> 81
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF LTC
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto appearing elsewhere in this report.
GENERAL AND PLAN OF OPERATION
LTC is a development stage company engaged in the business of developing
and seeking to commercialize unique, solid state, lithium-ion polymer batteries
for portable electronic devices and other applications such as the rapidly
emerging hybrid electric vehicle market. LTC's pilot line production operations
are regularly producing three generic sizes of thin flat cells, including a
large 9 Ah cell (4"x8"x1/4"). LTC's patented and proprietary technology uses
high performance fibers in composite battery structures and low cost continuous
flow fiber web coating and handling processes for manufacturing. These new
batteries represent a significant benefit to the end-user in terms of longer run
times and thinner, flatter, lighter-weight form factors.
LTC's strategy is to commercialize and produce a new generation of solid
state lithium polymer batteries based on seventeen years of 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 lithium coating/handling methods for manufacturing. This technology
encompasses lithium-ion polymer batteries (market entry in 2000) and lithium
alloy polymer batteries (market entry in three to five years). LTC's target
market is hybrid electric vehicles (HEVs) and mobile computing and
communications applications which showcase LTC's thin, flat lightweight and long
run-time cells.
During March 1996, a continuous flow coating/laminating pilot line was
installed by LTC. This pilot line has been used to further define LTC's
manufacturing technology and to sharpen manufacturing cost estimates. Through
equipment augmentation and upgrade, this pilot line is in the process of
transitioning to LTC's manufacturing plant in Plymouth Meeting, Pennsylvania,
which LTC expects will serve as the production facility for battery cells, which
will be assembled into battery packs for original equipment manufacturer ("OEM")
customers.
Subject to the uncertainties discussed herein, it is anticipated that
LTC's manufacturing plant will cost approximately $4.0 million to complete in
2000 including manufacturing equipment meeting applicable environmental
regulatory standards. Ilion's Board of Directors has approved the purchase of
the equipment necessary to complete LTC's manufacturing plant. The equipment
will be owned by Ilion and located within LTC's existing facility in Plymouth
Meeting, Pennsylvania. There can be no assurance that LTC will be able to
achieve the technological breakthroughs that will be necessary in order to
ultimately achieve commercialization or generate revenues in order to sustain
LTC's ongoing research and development phase or that Ilion will provide all of
the financing and equipment necessary to complete LTC's manufacturing plant.
LTC has been unprofitable since inception, expects to incur substantial
additional operating losses over the next few years and needs significant
additional financing to continue the development and commercialization of its
technology. LTC does not expect to generate any significant revenues from
operations during the fiscal year ending December 31, 2000.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
LTC has financed its operations since inception with convertible debt and
private placements of common and preferred stock and has raised approximately
$16.0 million, including $818,00 from Ilion as of December 31, 1999.
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At December 31, 1999, LTC had cash and cash equivalent of $38,000, fixed
assets of $430,000 and other assets of $21,000. LTC's total liabilities were
$1,448,000, consisting of accounts payable, accrued salaries, accrued expenses
in the amount of $630,000 and convertible promissory notes payable to Ilion in
the amount of $818,000. LTC had a working capital deficit of $553,000 on
December 31, 1999, as compared to $513,000 in working capital on December 31,
1998.
LTC's cash and cash equivalents decreased by approximately $1,035,000 from
December 31, 1998 to December 31, 1999. The working capital deficit and decrease
in cash and cash equivalents is attributable primarily to normal on-going
activities of the business.
LTC's stockholders' deficiency was $920,000 at December 31, 1999, after
giving effect to an accumulated deficit of $47,760,000, which consisted of
$40,895,000 accumulated deficit during the development stage from July 21, 1989
through December 31, 1999, and $6,865,000 accumulated deficit from prior
periods. LTC expects to incur substantial operating losses as it continues its
commercialization efforts.
Pursuant to the terms of a bridge loan, Ilion has agreed to advance
working capital to LTC until the closing of the merger. Ilion has advanced a
total of $1,475,000 as of May 1, 2000 for working capital and $125,000 for the
purchase of a packaging machine. In addition, Ilion has agreed to advance to LTC
ongoing funds required by LTC for ongoing employee, operating and administrative
expenses excluding capital expenses. Beginning in October 1999, and until the
closing of the merger, Ilion has provided and will continue to provide working
capital for LTC. LTC believes that provided Ilion advances the needed working
capital to LTC until the consummation of the merger, LTC will have sufficient
capital resources to meet its needs and satisfy its obligations through the date
of the merger. LTC does not currently have sufficient cash to achieve all its
development and production objectives.
RESULTS OF OPERATIONS
LTC had no revenues from commercial operations in 1999 and 1998.
Engineering, research and development expenses were $1,385,000 in 1999 compared
to $1,899,000 in 1998. The decrease of $514,000 was due primarily to decreased
lab supplies and consulting expenses.
General and administrative expenses were $1,501,000 in 1999 compared to
$1,770,000 in 1998. The decrease of $269,000 was due to decreased consulting
expenses and amortization of debt issue costs.
Stock based compensation expense of $1,769,000 was recorded in 1999. Of
this amount, $1,167,000 was related to a private placement offering of common
stock of LTC and $602,000 was related to the decrease in price of all
outstanding warrants to $0.15 per share.
Interest expense decreased to $7,000 (net of interest income of $21,000)
in 1999 compared to $341,000 (net of interest income of $126,000) in 1998. The
decrease in interest expense is attributable to the conversion of LTC's
convertible term notes into common stock.
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EXECUTIVE COMPENSATION OF LTC
The following table sets forth information concerning the compensation
paid by LTC during the three years ended December 31, 1999 to (i) the Chief
Executive Officer of LTC and (ii) all other executive officers of LTC, or any of
its subsidiaries, who were serving in such capacity during 1999 and received
total salary and bonus in excess of $100,000 during fiscal year 1999
(collectively, "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Awards Securities
Name and Principal Compensation Underlying
Position Year Salary Bonus Options/Sars (#)
- -------- ---- ------ ----- ----------------
<S> <C> <C> <C> <C>
David J. Cade, Chairman of 1999 $156,667 $ 0 165,000 (2)
the Board and Chief 1998 $148,750 $ 0 528,029 (3)
Executive Officer (1) 1997 $140,000 $15,000 316,001 (4)
George R. Ferment, 1999 $146,667 $ 0 165,000 (5)
President, Chief Operating 1998 $138,750 $ 0 528,029 (6)
Officer and Chief 1997 $130,000 $15,000 316,000 (7)
Technical Officer
Thomas R. Thomsen, 1999 $154,166 (8) $ 0 0
Chairman of the Board of 1998 $185,000 (8) $ 0 310,000 (9)
Directors and Chief 1997 $185,000 (8) $ 0 413,334 (10)
Executive Officer through
October 31, 1999
</TABLE>
(1) Mr. Cade was appointed Chief Executive Officer of LTC on November 1, 1999.
(2) Mr. Cade was granted 165,000 stock options on September 27, 1999 at an
exercise price of $0.26 per share.
(3) Mr. Cade was granted 528,029 stock options on December 18, 1998 at an
exercise price of $0.28 per share.
(4) 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.
Mr. Cade was granted 316,001 stock options on December 2, 1997 at an
exercise price of $1.00. The foregoing 671,982 options were repriced to
$.26 on September 27, 1999 in connection with the repricing of employees'
options under the 1994 Stock Plan.
(5) Dr. Ferment was granted 165,000 stock options on September 27, 1999 at an
exercise price of $0.26 per share.
(6) Dr. Ferment was granted 528,029 stock options on December 18, 1998 at an
exercise price of $0.28 per share.
(7) Dr. Ferment was granted 133,333 stock options on July 24, 1996 at an
exercise price of $1.33 and 88,037
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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. Dr. Ferment was granted 316,000 stock
options on December 2, 1997 at an exercise price of $1.00. The foregoing
704,038 options were repriced to $.26 on September 27, 1999 in connection
with the repricing of employees' options under the 1994 Stock Plan.
(8) 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. LTC 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
LTC's common stock to Mr. Thomsen in satisfaction of $100,000 of accrued
but unpaid salary. Effective November 1, 1999, Mr. Thomas R. Thomsen
elected to step down as the Chairman and Chief Executive Officer of LTC.
The Board of Directors approved the payment of the $366,000 in deferred
salary owed to Mr. Thomsen through November 1, 1999, fifty percent in cash
and fifty percent in common stock of LTC at $.2750 per share (the closing
sale price on November 1, 1999). The Board also approved the acceleration
of the vesting of the options owned by Mr. Thomsen as of November 1, 1999.
(9) Mr. Thomsen was granted 310,000 stock options on December 18, 1998 at an
exercise price of $0.28 per share.
(10) Mr. Thomsen was granted 13,334 stock options on February 22, 1995
exercisable at $3.00 per share. 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. 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. The foregoing 400,000 options were repriced to $.26 on
September 27, 1999, in connection with the repricing of employees' options
under the 1994 Stock Plan.
OPTION GRANTS IN FISCAL YEAR 1999
1994 STOCK INCENTIVE PLAN
In February 1994, the Board of Directors of LTC established the 1994 Stock
Incentive Plan (the "1994 Stock Plan") to aid LTC in attracting, retaining and
motivating officers and key employees, whether or not they are directors of LTC,
and consultants and other advisors to LTC by providing them with incentives for
making significant contributions to the growth and profitability of LTC. In
February 1994, the number of shares available for issuance of awards granted
under the 1994 Stock Plan was increased to 2,666,667 from 1,333,333. 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 LTC's shareholders. The 1994 Stock Plan terminates in
February 2004. The 1994 Stock Plan is administered by a Committee of the Board,
currently consisting of Ralph Ketchum.
The 1994 Stock Plan authorizes LTC 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 LTC. In addition, the 1994 Stock Plan permits
LTC 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 LTC's performance. It is expected that, while
some or all of the awards
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<PAGE> 85
referred to above may be made from time to time, LTC will principally grant
stock options pursuant to the 1994 Stock Plan. The aggregate number of shares of
common stock which may be the subject of an award under the 1994 Stock Plan for
any participant may not exceed 666,667 shares in any fiscal year. As of December
31, 1999, there were outstanding options with respect to 2,484,982 shares of
common stock under the 1994 Stock Plan. As of February 2, 2000, all of such
stock options were vested by LTC.
DIRECTORS STOCK OPTION PLAN
In August 1995, the Board of Directors adopted the Directors Stock Option
Plan (the "Directors Plan") to aid LTC in attracting, retaining and motivating
independent directors by providing them with incentives for making significant
contributions to the growth and profitability of LTC. The Directors Plan is
designed to accomplish this goal by the granting of stock options, thereby
providing participants with a proprietary interest in the growth, profitability
and success of LTC. The Directors Plan authorizes the granting of up to 333,333
options. The Directors Plan terminates in August 2005. The Directors Plan is
administered by a committee of the Board, currently consisting of David Cade and
Ralph Ketchum.
Directors of LTC who are not officers or employees of LTC 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 LTC'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 LTC consummates a joint venture
agreement with an investment in LTC 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 LTC's Senior
Secured Convertible Notes. As of December 31, 1999, there were options with
respect to 205,004 shares of common stock outstanding under the Directors Plan.
As of February 2, 2000, all of such options were vested by LTC.
1998 PLAN
In December 1998, the Board of Directors of LTC established the 1998 Stock
Incentive Plan (the "1998 Plan") to aid LTC in attracting, retaining and
motivating officers and key employees, whether or not they are directors of LTC,
and consultants and other advisors to LTC by providing them with incentives for
making significant contributions to the growth and profitability of LTC. The
1998 Plan terminates in December 2008. The 1998 Stock Plan is administered by a
Committee of the Board currently consisting of Ralph Ketchum.
The 1998 Stock Plan makes available a maximum of 3,000,000 shares of LTC's
common stock for issuance for awards granted under the 1998 Plan. The 1998 Stock
Plan authorizes LTC 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 1998 Stock Plan or any other stock plan
of LTC. 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 LTC's performance. It is expected
that, while some or all of the awards referred to above may be made from time to
time, LTC will principally grant stock options pursuant to the 1998 Stock Plan.
As of December 31, 1999, there were outstanding options with respect to
2,783,559 shares of common stock under the 1998 Plan. As of February 2, 2000,
all of such options were vested by LTC.
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<PAGE> 86
The following table sets forth stock options granted to each of the Named
Executive Officers during the year ended December 31, 1999 to purchase shares of
common stock.
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/
Underlying Sars Granted Exercise
Options/ to Employees or Base
Sars in Fiscal Price Expiration
Name Granted (#) year (1) ($/sh.) Date
- ---- ----------- -------- ------- ----
<S> <C> <C> <C> <C>
David J. Cade (2) 165,000 17.44% $0.26 9/27/09
George R. Ferment (3) 165,000 17.44% $0.26 9/27/09
Thomas R. Thomsen 0 -- -- --
</TABLE>
(1) The percentage of total options granted to each of the Named Executive
Officers is based on a total of 946,293 options granted in 1999 (including
13,334 stock options issued to a director and 932,959 issued to
employees).
(2) Mr. Cade was granted 165,000 stock options on September 27, 1999 at an
exercise price of $0.26 (exercisable in equal amounts on September 27,
1999, 2000, and 2001).
(3) Dr. Ferment was granted 165,000 stock options on September 27, 1999 at an
exercise price of $0.26 (exercisable in equal amounts on September 27,
1999, 2000, and 2001).
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 the year ended December 31,
1999 (none) and (ii) the number and value of in-the-money unexercised options
held by each of the Named Executive Officers at December 31, 1999 (none). The
value of in-the-money unexercised options held at December 31, 1999 is based on
the closing "bid" price of $0.24 per share of common stock on December 31, 1999.
All of the options held by Named Executive Officers had exercise prices in
excess of $.24 as of December 31, 1999, accordingly there were no in-the-money
unexercised options as of that date.
AGGREGATED OPTION/SAR EXERCISES IN THE YEAR ENDED DECEMBER 31, 1999 AND
DECEMBER 31, 1999 OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of
Unexercised Unexercised
Options/SARS in the Money
At Year Options/SARS
End(#) at Year
Shares Acquired Value Exercisable/ End(#)
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
---- -------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
David J. Cade 0 0 1,000,001/365,010 $0/0
George R. Ferment 0 0 1,032,057/365,010 $0/0
Thomas R. Thomsen 0 0 723,334/ 0 $0/0
</TABLE>
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STOCK OPTION REPRICING AND ACCELERATION OF VESTING
In September 1999, the Board of Directors approved the reduction of the
exercise price of each option held by an employee (including executive officers)
under LTC's 1994 Stock Plan to $0.26 per share, the market value of the common
stock as of the date of the repricing. The Board of Directors determined such
repricing to be appropriate in order to sustain the incentivization of all of
its employees.
In connection with the 1999 repricing of the stock options under the 1994
Stock Plan, the Board concluded repricing was advisable and in the best
interests of LTC in order to, among other things, provide incentive to
management and employees. The Board based its conclusion, on several factors
including the following: (i) all options that were repriced were exercisable at
various strike prices that were greater than the current fair market value of
LTC's common stock as of the repricing date; (ii) LTC 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 LTC; and (iii)
LTC, 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, LTC approved the reduction of the
exercise price of the options to $.26 per share, the fair market value of LTC's
common stock as of September 27, 1999. No change other than the change in
exercise price was approved at that time.
In November 1999, a Special Committee of the Board considered and approved
the reduction of the exercise price of all outstanding options to $0.22 and the
implementation of a new 1999 Stock Plan, subject to the approval of the
stockholders of LTC. At this time LTC believes that the repricing and 1999 Stock
Plan are no longer necessary. As of December 31, 1999, the stock options
outstanding under the 1994 Stock Plan and the 1998 Stock Plan had exercise
prices ranging from $.26 to $.28 and stock options outstanding under the
Directors Plan had exercise prices ranging from $.25 to $.90.
In February 2000, the Board approved the acceleration of the vesting of
all outstanding stock options, on the condition that the optionee consents to a
new termination date of the earlier of (i) the original option termination date
and (ii) the date preceding the merger between LTC and PLL. This action was
taken in connection with the merger agreement, which contains a covenant that
LTC will use its best efforts to cause all outstanding options for shares of LTC
common stock to be exercised by the holders thereof prior to the merger.
COMPENSATION OF DIRECTORS
Directors receive no cash compensation for serving on LTC's Board of
Directors. Each Non-Employee Director receives an option to purchase 13,334
shares of common stock under LTC's Directors Stock Option Plan upon election to
the Board.
Under the Directors Plan, non-qualified stock options to purchase shares
of LTC's common stock are 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 LTC consummates a
joint venture agreement with an investment in LTC of at least $3,000,000,
options to acquire up to an additional 20,000 shares.
EMPLOYMENT AGREEMENTS AND CERTAIN EMPLOYEE MATTERS
On May 9, 1996, LTC entered into a one-year employment agreement with
Thomas R. Thomsen pursuant to which Mr. Thomsen was employed as LTC's Chief
Executive Officer at an annual salary of $185,000. The agreement was extended
through May 8, 1998 and in June 1998, LTC 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 LTC until October 1997. In 1997,
the Board of Directors approved the issuance of 246,623 shares of LTC's common
stock to Mr. Thomsen in satisfaction of $100,000 of accrued but unpaid salary.
Mr. Thomsen's
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employment agreement also provided for the issuance of a ten (10) year
non-qualified option to purchase 400,000 shares of LTC'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 LTC's Stock Plan for new options with an exercise price of $0.58
per share. The new options became exercisable on November 1, 1997. On September
27, 1999, the Board approved the reduction of the exercise price of all 1994
options to $.26, which included 400,000 options held by Mr. Thomsen.
Effective November 1, 1999, Mr. Thomas R. Thomsen elected to step down as
the Chairman and Chief Executive Officer of LTC. The Board of Directors approved
the payment of the $366,000 in deferred salary owed to Mr. Thomsen through
November 1, 1999, fifty percent in cash and fifty percent in common stock of LTC
at $.2750 per share (the closing sale price on November 1, 1999). The Board also
approved the acceleration of the vesting of all options owned by Mr. Thomsen as
of November 1, 1999.
On July 24, 1996, LTC entered into a one-year employment agreement with
David J. Cade pursuant to which Mr. Cade was employed as LTC'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, LTC 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.
Effective November 1, 1999, the Board of Directors elected Mr. Cade LTC's
Chairman and Chief Executive Officer and Mr. Cade's salary was increased to
$165,000 per year. In January 2000, the Board of Directors approved an extension
of the employment agreement between LTC and Mr. Cade until the later of February
8, 2002 and one year after the closing date of the merger.
Mr. Cade is 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 LTC'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 LTC's Stock
Plan for new options with an exercise price of $0.58 per share. The new options
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, 528,029
options on December 18, 1998 at an exercise price of $.28 and 165,000 options on
September 28, 1999 at an exercise price of $.26. On September 27, 1999, the
Board approved the reduction of the exercise price of all 1994 options to $.26,
which included 671,982 options held by Mr. Cade.
Mr. Cade's employment agreement 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 LTC's termination of his employment without cause. In connection
with the execution of the merger agreement, Mr. Cade entered into an agreement
with Ilion and LTC agreeing to a modification of the change-in-control and
severance provisions of his employment agreement and agreeing to a termination
of the employment agreement with LTC effective at the time of the Merger
closing.
On July 24, 1996, LTC entered into a one-year employment agreement with
George R. Ferment, pursuant to which Mr. Ferment was employed as LTC'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, LTC
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. Effective November 1, 1999, the Board of
Directors elected Dr. Ferment LTC's President and Chief Operating Officer and
Dr. Ferment's salary was increased to $155,000 per year. In January 2000, the
Board of Directors of LTC approved an extension of the employment agreement
between LTC and Dr. Ferment until the later of February 8, 2002 and one year
after the closing date of the merger.
Dr. Ferment is 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)
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year incentive option to purchase 133,333 shares of LTC'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 LTC'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, 528,029 options on December 18, 1998 at an exercise
price of $.28 and 165,000 options on September 26, 1999 at an exercise price of
$.26. On September 27, 1999, the Board approved the reduction of the exercise
price of all 1994 options to $.26, which included 704,038 options held by Dr.
Ferment.
Dr. Ferment's employment agreement 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 LTC's termination of his employment without cause. In connection
with the execution of the merger agreement, Dr. Ferment entered into an
agreement with Ilion and LTC agreeing to a modification of the change-in-control
and severance provisions of his employment agreement and agreeing to a
termination of the employment agreement with LTC effective at the time of the
merger closing.
In the years ended December 31, 1999 and 1998, LTC paid $53,218 and
$73,781, respectively to William D. Walker for services rendered to LTC. Mr.
Walker served as Treasurer and Chief Financial Officer of LTC until August 1999
and continues to provide services as a consultant. Mr. Walker did not receive a
salary from LTC. On October 28, 1999, the Board also approved the acceleration
of the vesting of the options owned by Mr. Walker in consideration of consulting
services to be provided to LTC.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 22, 1997, LTC entered into a Senior Secured Convertible Note
Purchase Agreement with Lithium Link LLC ("Lithium Link") for the sale of $5.5
million of LTC's Senior Secured Convertible Notes. The convertible notes were
convertible into LTC's common stock at a conversion price of $.28 per share. In
January 1999, the convertible notes were converted into 19,642,857 shares of
LTC's common stock and 562,647 shares of LTC's common stock were issued to pay
accrued interest to the conversion date. In February 1999, Lithium Link
authorized the distribution of these 20,205,504 shares to its members. Mr.
Ketchum, a director of LTC, and his wife were members of Lithium Link and
received a total of 383,660 shares of LTC common stock from Lithium Link in the
distribution.
LTC believes that the transactions described above were fair to LTC and
were as favorable to LTC as those which it might have obtained from
non-affiliated third parties, given the circumstances under which such
transactions were proposed and effectuated.
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CHAPTER EIGHT
ILION'S BUSINESS
GENERAL
Ilion (currently known as Pacific Lithium Limited) was formed in 1994 as a
New Zealand company and expects to become a Delaware company on or about May 21,
2000, at which time it will merge with Ilion Technology Corporation, its wholly
owned non-operating Delaware subsidiary, and change its name to Ilion Technology
Corporation. Ilion started out as a company looking to commercially extract
technical grade lithium carbonate from sea water. Although Ilion developed the
capability to do so, the market price for technical grade lithium carbonate
became substantially cheaper as a result of a new supplier entering the market,
which resulted in the extraction of lithium from sea water being uneconomic at
the then prevailing market price. In 1997, Ilion began utilizing its proprietary
research and technology to become a developer and supplier of advanced lithium
materials and enabling technologies for the rapidly growing lithium battery
industry. Ilion has been successful in selling its lithium-based raw materials
to the large global battery manufacturing market, with a market share of 20% of
the lithium carbonate for cathode raw material business and 25% of the lithium
carbonate for electrolyte raw material business in 1999. Ilion has exclusive
worldwide licenses for advanced materials from the Massachusetts Institute of
Technology ("MIT") and exclusive and non-exclusive worldwide licenses for
advanced materials developed by the National Research Council of Canada. Ilion
has also developed its own portfolio of patent applications and employ highly
qualified scientists at its advanced research and manufacturing facility in New
Zealand. In addition, Ilion has secured access to the one of the world's largest
known unexploited lithium reserves, located in China, through a joint venture
with a provincial government institute in China.
Lithium rechargeable batteries are revolutionizing the portable
electronics market by providing power and convenience to the consumer. Lithium
batteries have neither the negative memory effect of nickel-metal hydride
batteries nor the negative environmental effects of nickel-cadmium batteries. In
addition, lithium batteries store substantially more energy and are lighter than
either of these battery chemistries.
The success of lithium rechargeable batteries is evidenced by their growth
in everyday use and availability. From negligible numbers in 1993, the market
for lithium batteries was worth US$3 billion in 1998. Their use in portable
applications alone is expected to expand this market to US$6 billion by 2005.
This value would be significantly surpassed if the potential of these batteries
to be used in electric vehicles and hybrid electric vehicles is realized. In
order to capitalize on this potential, the price of lithium batteries needs to
fall significantly.
Ilion's business strategy is to be a vertically integrated supplier of
materials and technology to the lithium battery industry - from raw materials to
advanced battery cells and to provide recycling technologies. Through vertical
integration and technical innovation, one of Ilion's primary goals is to
significantly reduce the price of lithium battery cells.
To facilitate Ilion's goal of vertical integration, Ilion entered into the
merger agreement with LTC.
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BUSINESS STRATEGY
Ilion's objective is to become a leading supplier of materials and
technology to the lithium battery industry. In order to accomplish its objective
it intends to:
- - Be a Vertically Integrated Supplier of Materials and Technology to the
Lithium Battery Industry
Ilion currently sells high and premium grade lithium carbonate, which are
the basic materials used in the manufacture of lithium batteries. Ilion is
broadening its product range and moving into products with higher profit margins
such as cathode materials and cell technologies. By expanding its product range,
Ilion plans to be a vertically integrated supplier of materials and technology
to the lithium battery industry, supplying all components from raw materials to
complete cells and, in some cases, licensing the associated technologies.
[FLOW CHART]
- - Leverage Existing Customer and Industry Relationships to Sell Ilion's New
Products
Since Ilion's formation, Ilion has concentrated on developing contacts and
relationships in specific sectors of the lithium battery industry. Ilion
believes it will be able to leverage these relationships to facilitate sales of
its new products.
- - Significantly Reduce the Cost of Lithium Cells by the End of 2005
Reducing the price per unit cell is the key to unlocking the potentially
enormous market for lithium batteries in the automotive industry. One of Ilion's
primary goals is to significantly reduce the cost of lithium cells by the end of
2005. Ilion plans to achieve this by vertically integrating all the primary
elements within the lithium battery and changing the composition of lithium
cells as follows:
- - change the cathode from lithium cobalt oxide, the current market leader,
to a manganese based material;
- - change the anode from carbon to alternative higher performing materials;
and
- - change the electrolyte from a liquid to a more commercially desirable
polymer.
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Ilion has research and development programs for all of these new
materials.
- - Pursue Strategic Acquisitions
Where appropriate, Ilion plans to acquire companies and assets in order to
expedite business development, increase market access and exploit technology
synergies. For example, Ilion's merger with LTC will compliment Ilion's existing
expertise by providing specific cell manufacturing technology.
- - Continued Research and Development
Ilion believes a contributor to its future success will be its ability to
continue to develop innovative technologies for the lithium battery industry.
Ilion's team of highly qualified scientists employed at its facilities in New
Zealand places it in a good position to continue its developments.
PRODUCTS
Lithium Carbonate
Since Ilion's founding in 1994, Ilion has developed a series of leading
technologies in the areas of lithium carbonate processing and purification.
Through the use of these technologies, Ilion is able to supply lithium carbonate
of greater than 99.90% purity and to customize specific contaminant, particle
size and moisture content according to client requirements. It has been this
ability in material customization which has been behind Ilion's success in
gaining strong growth in market share for its lithium carbonate in the
traditionally risk adverse and conservative Japanese market.
Lithium carbonate can be manufactured from a variety of lithium
feedstocks. Ilion currently manufactures lithium carbonate at its New Zealand
facility using lithium hydroxide as the feedstock. Alternative feedstock sources
and complimentary processing technologies are under evaluation.
Ilion currently sells two types of lithium carbonate:
- - high grade lithium carbonate (99.90% purity) for cathode materials; and
- - premium grade lithium carbonate (99.95% purity) for electrolytes.
High grade and premium grade lithium carbonate are the base products for
all lithium batteries.
In 1999, Ilion had 20% of the world market share for high grade lithium
carbonate and 25% for premium grade lithium carbonate.
High Grade Lithium Carbonate
High grade lithium carbonate sells for between $3,000-5,000 per tonne and
had a worldwide market for lithium battery applications of 2,500 tonnes in 1999.
For the fiscal years 1997, 1998, 1999 and the nine months ended December 31,
1999, revenues from sales of high grade lithium carbonate were NZ$80,488,
NZ$715,919, NZ$722,643 and NZ$768,383, respectively.
Ilion has sold approximately 75% of its high grade lithium carbonate
through Nissho Iwai Corporation, who is the exclusive sales agent for Ilion's
lithium carbonate in Japan. Nissho Iwai's customers for Ilion's lithium
carbonate include leading cathode manufacturers who represent a significant and
growing percentage of cathode producers in Japan. Ilion has sold approximately
20% of this product to LithChem, a non-exclusive wholesaler of Ilion's high
grade lithium carbonate in North America. LithChem is a subsidiary of ToxCo Inc.
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Premium Grade Lithium Carbonate
Premium grade lithium carbonate sells for between $10,000-16,000 per tonne
and had a worldwide market for lithium battery applications of 500 tonnes in
1999. Ilion commenced selling premium grade lithium carbonate in fiscal 1999 and
for fiscal 1999 and the nine months ended December 31, 1999, revenue from sales
of premium grade lithium carbonate was NZ$53,307 and NZ$178,026, respectively.
Ilion has sold almost all of its premium grade lithium carbonate through Nishho
Iwai.
Technical Grade Lithium Carbonate
Technical grade lithium carbonate is produced from lithium chloride,
commonly found in the brine of high altitude salars in South America and China.
Currently, 95% of the world's technical grade lithium carbonate is sourced from
Chile. Technical grade lithium carbonate is used in the manufacture of numerous
products including aluminum, glass and a range of specialty chemicals. It is not
used in the manufacture of lithium batteries, but can be processed into high
grade and premium grade lithium carbonate. Currently, Ilion only supplies
technical grade lithium carbonate as a by-product. However, Ilion's joint
venture in China should be in small-scale commercial production of technical
grade lithium carbonate by mid-2001. Ilion expects that the joint venture will
be in full-scale production in 2004. Technical grade lithium currently sells for
between US$1,800-2,200 per tonne and the worldwide market is approximately
50,000 tonnes per annum.
Manganese Cathode Materials
The cathode materials used in lithium batteries are layered oxides based
on cobalt ("lithium cobalt oxide"). Because of the high price of cobalt, lithium
cobalt oxide cathode makes up around 40% of the materials cost of a standard
lithium battery. The high cost and, the relatively limited resources of cobalt
around the world means that lithium cobalt oxide based lithium-ion
liquid/lithium-polymer cells are unlikely to be a commercially viable technology
for hybrid electric vehicle and electric vehicle applications. Consequently,
Ilion has focused on other base metals that are able to offer similar if not
better performance, at a reduced price and with significant safety and
environmental benefits.
Ilion has acquired the exclusive worldwide rights to layered manganese
cathode technologies from MIT and both exclusive and non-exclusive worldwide
rights to electrode materials and electrolyte materials developed by the
National Research Council of Canada The patents for these materials have
priority dates established as early as 1993. Through these technologies and the
efforts of Ilion's scientists, Ilion is developing its own proprietary manganese
based cathode materials, which potentially:
- can be made for less than the cost of lithium cobalt oxide;
- possess greater energy density than lithium cobalt oxide; and
- have high temperature stability.
The resource for manganese throughout the world is abundant and should be
sufficient to meet any future demand from hybrid electric vehicle and electric
vehicle applications. A manganese based cathode material would also be suitable
for portable applications.
Lithium cobalt oxide cathode materials sell for between US$50,000-70,000
per tonne and the worldwide market in 1999 was approximately 4,500 tons.
Ilion plans to commence marketing its cathode materials in China beginning
in July 2000. Ilion's cathode materials are currently being tested by potential
customers. Ilion will need to further develop its cathode materials for the
specific requirements of the various world markets before commencing sales to
them.
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Ilion anticipates beginning sales in 2001. To date, Ilion has not received any
significant revenue from this product.
Polymer Electrolyte
Another means of reducing the cost of lithium batteries is to move to the
continuous coating-type processes used to make lithium polymer cells. The
mechanism of lithium-ion transport in these polymers makes them ideally suited
for use in high rate applications such as cellular phones and hybrid electric
vehicles. However, the polymer needs to have equivalent performance to the
standard liquid electrolytes used in lithium-ion liquid cells, as well as being
economic, robust and easy to manufacture. In order to gain capabilities in this
area, Ilion licensed from MIT a polymer electrolyte that combines the mechanical
strength of a solid, with many of the ionic properties of a liquid electrolyte.
In addition, Ilion has, in collaboration with the University of Auckland and
through the efforts of Ilion's scientists, developed another gel polymer with
promising performance features. Further development and optimization is required
before this technology will be integrated into Ilion's commercial production of
lithium polymer cells. Patent applications have been lodged for both MIT's and
Ilion's polymer technologies.
Anode Materials
Rounding out Ilion's sourcing of battery components, Ilion has also
obtained a non-exclusive license for anode materials technologies from MIT.
Ilion is also developing capabilities in the area of nanocomposite anode
materials, which Ilion believes is the future for anode materials in lithium-ion
liquid/lithium polymer cells.
SALES AND MARKETING
Ilion employs two salespersons, one concentrating specifically on Asia and
the other on the United States and Europe.
Ilion's major market is Japan, where six major Japanese companies
controlled 97% of the world's lithium-ion battery supply in 1999. Nissho Iwai
Corporation is the exclusive sales agent for Ilion's lithium carbonate in Japan.
Nissho Iwai is one of Japan's leading trading companies, with annual revenues of
approximately US$100 billion and is also one of Ilion's shareholders, holding
less than 10% of Ilion's shares. The exclusive sales agency with Nissho Iwai can
be terminated by either party on twelve months notice.
Ilion has entered into a collaborative business agreement with a leading
cathode producer in Japan to market and distribute Ilion's manganese cathode
materials and to collaborate on the continuing technical development of these
materials.
In North America, LithChem is the non-exclusive wholesaler of Ilion's high
grade lithium carbonate. To date, United States lithium battery manufacturers
have lagged considerably behind their Japanese counterparts in terms of
production units. However, Ilion believes that manufacturers in the United
States will produce a greater percentage of the world's lithium batteries over
time, due to the growing demand for innovative energy technologies and
applications, particularly for electric vehicles and load leveling systems.
In Europe, RodaChem is the non-exclusive wholesaler of Ilion's high and
premium grade lithium carbonate.
In China, Beijing C & K Development Co. Limited, a Chinese company, was
appointed exclusive distributor of Ilion's cathode materials and electrodes for
lithium polymer cells and non-exclusive distributor for lithium carbonate
pursuant to a distribution agreement dated February 10, 2000. The term of the
distribution agreement is six months.
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MANUFACTURING
Ilion manufactures high grade and premium grade lithium carbonate at its
manufacturing facility in Auckland, New Zealand.
Ilion has constructed a pilot cathode process for manufacturing manganese
cathode material at its New Zealand facility and intends to build a full-scale
plant at this facility by May 2001.
RAW MATERIALS
Ilion currently obtains lithium hydroxide from ToxCo, Inc., a U.S. based
company. ToxCo's stockpile of lithium hydroxide is limited and likely to be
depleted within eight years, depending on demand. Ilion is currently evaluating
a range of alternative sources of lithium feedstock for use in its New Zealand
plant.
In order to ensure that Ilion will have a secure and reliable future
source of lithium feedstock in September 1998, Ilion entered into a joint
venture agreement with the Qinghai Institute of Saline Lakes. This agreement
gives the joint venture entity the right to exploit the lithium resource in
Qinghai Province's salt lakes and provides Ilion with the opportunity to access
a long term and economic lithium resource. First stage development and funding
of the joint venture was completed on October 31, 1999, and sampling of
technical grade lithium carbonate from the pilot plant will start in mid-2000.
Small-scale commercial production is expected to commence by mid-2001, with
large-scale production commencing two years later.
Ilion is also investigating the possible commercial use of its hybrid
purification system to obtain lithium hydroxide solution from lithium battery
waste salts.
Ilion sources manganese used for manufacturing manganese cathode materials
from several companies. There are numerous suppliers of manganese throughout the
world and Ilion does not anticipate any difficulties in obtaining supplies.
INTELLECTUAL PROPERTY
Ilion has an active patent program and currently have six patents subject
to application. Although Ilion seeks to protect its proprietary information,
there can be no assurance that others will not develop independently, the same
or similar information or obtain access to its proprietary information. In
addition, there can be no assurance that Ilion would prevail if any challenges
to intellectual property rights are asserted by it against third parties or that
third parties will not successfully assert infringement claims against it in the
future. Although Ilion's success is dependent in part on the legal protection of
its intellectual property rights, Ilion believes its success also relies on the
knowledge, ability, experience and technical expertise of its employees.
Ilion's Proprietary Technologies
The following are summaries of the technologies Ilion has developed over
the last five years:
Hybrid purification system
Specifically designed for the extraction and simultaneous purification of
lithium from lithium battery waste salts, the hybrid purification system is able
to concentrate lithium-based solutions to yield pure lithium hydroxide
solutions, which can be readily converted to lithium carbonate. This
electrochemically based extraction system is also able to oxidize many otherwise
environmentally unsound components found within batteries into environmentally
benign products.
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Lithopure purification process
The lithopure purification process is a flexible membrane based process
that can be applied to the purification of a wide range of lithium monovalent
salts. Typical purification factors of between 10 and 100 times are observed for
this highly productive purification process.
Matrix absorption system
Originally designed to extract lithium from extremely dilute solutions
containing substantial quantities of contaminating species, the matrix
absorption system is good for difficult lithium separation systems.
Selectivities (a purification ratio) as high as 25,000 have been recorded for
lithium using this system, from solutions in the part per billion range.
High purity lithium carbonate production
Ilion has extensive know-how and proprietary technology in producing
greater than 99.95% purity lithium carbonate from crude lithium products.
Lithium carbonate purification
As well as using lithium hydroxide, Ilion is investigating process
technologies to use other impure lithium feedstocks to produce high purity
lithium carbonate.
Licensed Lithium Battery Materials Patents
License Agreement with MIT
In February 1998, Ilion entered into an exclusive worldwide license for
certain anode, cathode and electrolyte materials technologies developed by MIT.
This agreement was amended in December 1998, so that Ilion's license for anode
patents is now non-exclusive. Under the license agreement, Ilion paid $450,000
and issued 200,000 shares to MIT. Ilion is required to pay a minimum of $100,000
per calendar year as a license maintenance fee for the term of the license
agreement, which payment is credited for any royalties owed to MIT under the
agreement. MIT is entitled to a royalty payment of 5% of the net revenue derived
from the sale of Ilion's products using the licensed patents and 50% of any
sublicense fees Ilion receives from the licensed patents. In addition to paying
the license fee, Ilion is required to fulfill the following obligations:
- Ilion must raise at least $100 million from the sale of its shares
by December 31, 2000, or demonstrate that Ilion owns the production
capacity to produce at least 5,000,000 batteries based on licensed
products per annum, or that Ilion has signed multi year contracts
for the contract manufacture of at least 5,000,000 batteries based
on licensed products per annum;
- Ilion is required to develop working prototypes of lithium batteries
for electric vehicle applications by January 2004 and working
prototypes of large energy storage systems or large energy leveling
systems by January 1, 2008; and
- Ilion is required to have net revenues on sales of licensed products
of $2,500,000 per annum by December 31, 2000 and $15,000,000 per
annum by December 31, 2001.
If Ilion does not fulfil the above obligations MIT will have the right to
terminate the agreement. Ilion is currently renegotiating the terms of the
agreement with MIT.
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The term of the agreement is for so long as any of the patents or patents
for which patent applications have been made under the agreement is still valid.
Ilion is entitled to terminate the agreement on six months written notice to
MIT.
License Agreement with Energy Ventures Inc.
Through an agreement with Energy Ventures Inc., dated October 13, 1999,
Ilion acquired an option to acquire both exclusive and non-exclusive worldwide
licenses to the lithium electrode materials and electrolyte components developed
by the National Research Council of Canada. Ilion exercised the option effective
as of March 31, 2000. In connection with the exercise of the option, Ilion
issued Energy Ventures with 100,000 shares of Ilion. Ilion is required to spend
a minimum of $22,225 per month on research and development of the licensed
products and processes, which obligation will end on July 31, 2000. In addition,
if Ilion does not contract the National Research Council of Canada to conduct
more than $100,000 per annum worth of further research and development of the
licensed products and processes, Ilion will need to negotiate the terms of the
license for any new products developed by the National Research Council. Ilion
has agreed to pay that amount to the National Research Council for the contract
year ending March 31, 2001. The amounts paid by Ilion to the National Research
Council for research and development of the licensed products are credited to
Ilion as non-refundable payments on account of the minimum guaranteed royalty
fees or royalty fees described below.
In consideration for the license rights, Ilion is required to pay either
the greater of:
- royalty fees of 33% of the license or other fees earned by Ilion
from the sub-licensing to a third party of the rights to the
licensed products or processes and 4% of the gross sales of licensed
products or processes manufactured by Ilion less sales taxes,
freight, insurance, sales commission and packaging costs. If Ilion
manufacture cells or batteries using the licensed products or
processes, Ilion is required to pay 1% of the gross sales less sales
taxes, freight, insurance, sales commission and packaging costs; or
- the minimum guaranteed royalty fee of each contract year as set out
below (only the next seven years are set out below):
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Contract Year Guaranteed Cell Volumes
Ending March 31, Containing Licensed Cathode Minimum Guaranteed Royalty Fee
--------------------------------------------------------------------------------------------------
<S> <C> <C>
2001 Nil $100,000
--------------------------------------------------------------------------------------------------
2002 500,000 $100,000
--------------------------------------------------------------------------------------------------
2003 5,000,000 $200,000
--------------------------------------------------------------------------------------------------
2004 10,000,000 $400,000
--------------------------------------------------------------------------------------------------
2005 25,000,000 $1,000,000
--------------------------------------------------------------------------------------------------
2006 50,000,000 $2,000,000
--------------------------------------------------------------------------------------------------
2007 75,000,000 $3,000,000
--------------------------------------------------------------------------------------------------
</TABLE>
An indicative cost of $2.00 per cell was used in calculating the minimum
guaranteed royalty fees set out above and the fees are subject to adjustment to
reflect the actual selling price of the licensed products and of battery cells
utilizing the licensed products.
The exclusivity of the license rights may be reduced to non-exclusive
license rights by:
- Energy Ventures, if Ilion fails to meet the guaranteed cell volumes
set forth in the above table in any two consecutive years and the
accumulative cell volumes of the same consecutive years; or
- Ilion, in the event that it reasonably believes that it will be
unable to meet the guaranteed cell volumes respecting contract years
ending March 31, 2003 or later.
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Ilion's latest cathode materials incorporate licensed products and if and
when sold, would be subject to the agreement. The agreement expires when none of
the licensed products or processes is subject to a valid patent. Ilion has the
right to terminate the agreement at the end of any contract year upon 12 months
written notice.
Ilion has also entered into an exclusive technology development agreement
with the National Research Counsel of Canada to co-operate in developing next
generation cathode materials.
All of Ilion's employees are required to enter into agreements providing
for confidentiality and the assignment of rights to inventions made by them
while employed by Ilion. There can be no assurance that Ilion will be able to
enforce these agreements.
Option and License Agreement with Auckland Uniservices
Ilion has entered into an option and license agreement with Auckland
Uniservices Limited, dated March 15, 2000. Ilion has agreed to conduct further
research and development on a lithium conducting electrolyte that was developed
by Auckland Uniservices in consideration for Auckland Uniservices' grant of an
option to Ilion to license this product. Ilion shall own all improvements and
patents developed as result of this research. The option expires on December 31,
2001. If Ilion exercises the option, royalties on sales of the licensed product
will accrue at 2.5% of net sales per quarter with a maximum royalty set at
NZ$1,000,000 over the life of the license agreement. The license agreement
expires on the expiry date of the patented product. Ilion can terminate the
agreement on three months notice prior to April 1 of any year.
RESEARCH AND DEVELOPMENT
Ilion conducts its research and development at its wholly owned
subsidiary's facility in New Zealand. Ilion spent NZ$948,371, NZ$548,462,
NZ$1,040,625 and NZ$728,055 in fiscal 1997, 1998 and 1999 and the nine months
ended December 31, 1999, respectively, on research and development. Ilion
anticipates increasing the amount spent on research and development, as Ilion
develops its knowledge in the areas of carbonate processing, manganese cathode
materials, polymer electrolyte, anode materials and cell development. Some of
this research will be undertaken by Ilion and some will be done in conjunction
with strategic partners. In February 2000, Ilion was granted NZ$675,000 by a New
Zealand government agency to apply towards its research and development costs.
COMPETITION
High Grade Lithium Carbonate
Ilion's main competitors in the high grade lithium carbonate industry are
FMC/Honjo, Chemetall Cyprus and Nippon Chemicals Incorporated. In 1999, Ilion
had 20% of the world market for high grade lithium carbonate with FMC/Honjo
holding 40%, Chemetall, 20% and Nippon Chemicals, 20%. At prices between $3,000
and $5,000 per ton, Ilion's high grade lithium carbonate (99.90% purity) is more
expensive than its nearest competitor who sells products with 99.50% purity at
$2,500 per tonne. However, moisture content, raw material purity and particle
size are critical factors in the performance of lithium based cathode materials.
Ilion's high grade lithium carbonate can be tailored to meet customers' needs
and a number of Japanese and U.S. manufacturers are now using Ilion's high grade
lithium carbonate for their cathode material requirements. Ilion's competitors
may face significant difficulties in producing the same quality of material for
lithium battery applications at the same price.
Premium Grade Lithium Carbonate
Ilion's main competitors in the premium grade lithium carbonate industry
are FMC/Honjo and Nippon Chemicals. In 1999, Ilion had approximately 25% of the
world market for premium grade lithium carbonate
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(99.95% purity) with FMC/Honjo holding 40% and Nippon Chemicals holding 30%.
Premium grade lithium carbonate, like high grade lithium carbonate, can be
marketed on the basis of purity and Ilion's ability to fine tune the product to
meet customers' exact specifications. Ilion has an advantage over the
competition because of its ability to meet individual order requirements.
Technical Grade Lithium Carbonate
Although Ilion does not currently sell technical grade lithium carbonate,
except as by-product, Ilion will do so once the joint venture in China is in
full-scale commercial production. The industry is currently controlled by two
companies, Chemetall (40% market share) and SQM (60% market share). SQM has been
cutting its price for technical grade lithium carbonate in order to increase its
market share and in the last year has increased its market share significantly.
Technical grade lithium carbonate is marketed on price.
Manganese Cathode Materials
Ilion's main competitors in the cathode materials market are Japanese
companies such as Seimi and Nikko Rica who produce lithium cobalt cathode
materials. Currently, no other company in the world commercially produces
layered lithium manganese oxide cathodes in large quantities, although a number
of technologies exist. Although Ilion's cathode materials require further
development before they can be sold into the United States and the Japanese
market, Ilion believes that the higher average energy density and significantly
cheaper cost of manganese compared to cobalt will mean that lithium cobalt oxide
cathode materials will be unable to successfully compete with lithium manganese
oxide cathode materials in the long term.
Polymer Cell Technology
While some battery manufacturers including Sony and Matsushita have
produced some commercial scaled product in 1999, there are considerable
manufacturing issues with sealing polymer cells and achieving significant volume
production to meet the projected growth in market demand. Additionally, there
are difficulties adjusting production processes between product lines with
different cell shapes. Ilion believes that these early production runs are
uneconomic and considers that its research progress in lithium polymer cells and
the related manufacturing technologies has it well placed to be in the market
delivering commercially viable technologies through licensees.
SAFETY AND REGULATION
Ilion is in full compliance with all national and local health and safety
regulations applicable to its New Zealand facility. Ilion has been audited by an
accredited body for compliance with the New Zealand Occupational Health and
Safety in Employment Act (1992). Hazardous chemicals are handled in accordance
with regulations under both the New Zealand Dangerous Goods and Services Act and
the Occupational Health and Safety in Employment Act. Ilion has resource
consents for air discharge and trade waste effluent discharge.
EMPLOYEES
As of April 1, 2000, Ilion employed a total of 29 full time persons, all
of whom are based in New Zealand. Ilion also hires up to an additional ten
persons under contract labor for its manufacturing facility, depending on its
production requirements. In addition, six persons work for Ilion pursuant to the
management agreement with Phoenix Management. See "Ilion's Certain Transactions
- - Management Agreement."
PROPERTY
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<PAGE> 100
Ilion operates its manufacturing plant in New Zealand from a leased
industrial site. The current lease term expires in February 2004. Ilion has
negotiated a lease extension to 2007 with the right to renew for a further three
years beyond this. Ilion has negotiated a growth clause with the landlord. In
the event that Ilion outgrows its existing site Ilion can relocate to another of
the landlord's larger sites and transfer the existing terms and conditions to
the new premises.
Ilion has its management office in Auckland, New Zealand. Ilion is
currently in the process of negotiating a joint lease for new premises. Ilion
plans to move into the new premises in Auckland in June and expects that the
term of the new lease will expire in June 2006, with a three year right of
renewal. Ilion expects to be a proportional guarantor under the new joint lease
agreement.
INSURANCE
Ilion maintains insurance policies covering business, property, business
interruption, general public liability and workers compensation. Ilion believes
its insurance policies provide it with sufficient protection given its present
operations.
LEGAL PROCEEDINGS
Ilion is not a party to any material legal proceeding nor, to its
knowledge, is any material proceeding threatened against it.
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<PAGE> 101
ILION'S SELECTED FINANCIAL DATA
You should read the selected financial data together with Ilion's
consolidated financial statements and the section of the proxy
statement/prospectus entitled "Ilion's Management's Discussion and Analysis of
Financial Condition and Results of Operations".
The income statement data for the years ended March 31, 1997, 1998 and
1999 and the balance sheet data at March 31, 1998 and 1999 and December 31, 1999
are derived from, and are qualified by reference to, the consolidated financial
statements audited by Horwath Porter Wigglesworth, that commence on page F-31.
The income statement data for the years ended March 31, 1995 and 1996, the nine
month periods ended December 31, 1998 and 1999 and the balance sheet data at
March 31, 1995, 1996 and 1997 and December 31, 1998 and 1999 are derived from,
and are qualified by reference to, Ilion's unaudited consolidated financial
statements. In the opinion of Ilion's management, the unaudited consolidated
financial statements reflect all adjustments necessary for a fair presentation
of the financial data but are not necessarily indicative of results of future
operations. You should read the selected financial data together with Ilion's
consolidated financial statements and the section of the proxy
statement/prospectus entitled "Ilion's Management's Discussion and Analysis of
Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED MARCH 31,
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA: NZ$ NZ$ NZ$ NZ$ NZ$
Revenues:
Net sales -- -- 80,488 715,919 775,950
Cost of sales (exclusive of
Depreciation below) 122,124 319,125 122,529 1,260,636 1,121,532
----------- ----------- ----------- ----------- -----------
Gross profit/(loss) (122,124) (319,125) (42,041) (544,717) (345,582)
Operating expenses:
Research and development -- -- 948,371 548,462 1,040,625
Royalty expense -- -- -- -- --
General and administration 356,384 601,914 778,373 985,691 1,819,812
Sales and marketing 102,746 135,870 71,869 142,620 240,257
Depreciation 5,817 72,130 203,359 406,801 374,053
----------- ----------- ----------- ----------- -----------
Total operating expenses 464,947 809,914 2,001,972 2,083,574 3,474,747
Loss from operations (587,071) (1,129,039) (2,044,013) (2,628,291) (3,820,329)
Other expense (income):
Other income (principally interest) (4,844) (86,596) (145,114) (35,147) (42,062)
Interest expense -- -- -- 12,534 3,541
Loss on abandonment of assets -- -- 196,083 703,141 --
----------- ----------- ----------- ----------- -----------
Loss before income taxes
(share of equity loss) (582,227) (1,042,443) (2,094,982) (3,308,819) (3,781,808)
Income taxes -- -- -- -- --
Equity earnings (Loss) -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Net loss (582,227) (1,042,443) (2,094,982) (3,308,819) (3,781,808)
=========== =========== =========== =========== ===========
Weighted average number
of common shares outstanding 6,733 4,838,500 13,069,000 15,499,946 17,273,161
----------- ----------- ----------- ----------- -----------
BASIC AND DILUTED NET LOSS PER SHARE (86.47) (0.22) (0.16) (0.21) (0.22)
BALANCE SHEET DATA:
Current assets 197,947 2,222,255 2,325,605 1,163,712 1,843,937
Fixed assets 56,296 1,065,327 2,893,895 2,409,851 4,173,229
----------- ----------- ----------- ----------- -----------
Total assets 254,243 3,287,582 5,219,500 3,573,563 6,017,166
Current liabilities 22,820 223,602 715,502 283,502 1,014,581
Long term bank and other debts -- -- -- 18,400 2,816
----------- ----------- ----------- ----------- -----------
Total liabilities 22,820 223,602 715,502 301,902 1,017,397
----------- ----------- ----------- ----------- -----------
Total shareholders equity 231,423 3,063,980 4,503,998 3,271,661 4,999,769
=========== =========== =========== =========== ===========
AT OR FOR THE NINE MONTHS ENDED DECEMBER 31,
1999 1998 1999 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA: US$ NZ$ NZ$ US$
Revenues:
Net sales 406,132 645,206 946,409 495,350
Cost of sales (exclusive of
Depreciation below) 587,010 884,262 1,214,938 635,899
----------- ----------- ----------- -----------
Gross profit/(loss) (180,878) (239,056) (268,529) (140,549)
Operating expenses:
Research and development 544,663 555,470 728,055 381,064
Royalty expense -- -- 188,680 98,755
General and administration 952,490 1,223,434 1,813,104 948,979
Sales and marketing 125,751 208,974 227,920 119,293
Depreciation 195,779 269,938 456,001 238,671
----------- ----------- ----------- -----------
Total operating expenses 1,818,683 2,257,816 3,413,760 1,786,762
Loss from operations (1,999,561) (2,496,872) (3,682,289) (1,927,311)
Other expense (income):
Other income (principally interest) (22,015) (53,958) (372,277) (194,850)
Interest expense 1,853 2,850 1,281 670
Loss on abandonment of assets -- -- -- --
----------- ----------- ----------- -----------
Loss before income taxes
(share of equity loss) (1,979,399) (2,445,764) (3,311,293) (1,733,131)
Income taxes -- -- -- --
Equity earnings (Loss) -- -- (4,116) (2,154)
----------- ----------- ----------- -----------
Net loss (1,979,399) (2,445,764) (3,315,409) (1,735,285)
=========== =========== =========== ===========
Weighted average number
of common shares outstanding 17,273,161 17,089,320 20,180,240 20,180,240
----------- ----------- ----------- -----------
BASIC AND DILUTED NET LOSS PER SHARE (0.11) (0.14) (0.16) (0.09)
BALANCE SHEET DATA:
Current assets 965,117 1,847,156 4,557,895 2,385,603
Fixed assets 2,184,268 4,023,045 8,370,446 4,381,091
----------- ----------- ----------- -----------
Total assets 3,149,385 5,870,201 12,928,341 6,766,694
Current liabilities 531,032 746,245 624,886 327,066
Long term bank and other debts 1,474 6,895 1,408 737
----------- ----------- ----------- -----------
Total liabilities 532,506 753,140 626,294 327,802
----------- ----------- ----------- -----------
Total shareholders equity 2,616,879 5,117,061 12,302,047 6,438,891
=========== =========== =========== ===========
</TABLE>
<PAGE> 102
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ILION
You should read the following discussion of Ilion's financial condition
and results of operations together with the financial statements and the notes
to those statements beginning on page F-32 of this proxy statement/prospectus.
Ilion's fiscal year ends on March 31 of each year and is identified
according to the calendar year in which it ends. For example, the fiscal year
ended March 31, 1999 is referred to as "fiscal 1999".
GENERAL
Ilion was formed in 1994 as a New Zealand company and expects to become a
Delaware corporation on or about May 21, 2000. Ilion started out as a company
looking to commercially extract technical grade lithium carbonate from sea
water. Although Ilion developed the capability to do so, the market price for
technical grade lithium carbonate became substantially cheaper as a result of a
new supplier entering the market, which resulted in the extraction of lithium
from sea water being uneconomic at the then prevailing market price. In 1997,
Ilion began utilizing its proprietary research and technology to become a
developer and supplier of advanced lithium materials and enabling technologies
for the rapidly growing lithium battery industry. Ilion has been successful in
selling its lithium-based raw materials to the large global battery
manufacturing market, gaining a market share of 20% of the cathode raw material
business and 25% of the electrolyte raw material business in 1999.
During fiscal 1997, 1998 and 1999, the only revenues generated were from
sales of lithium carbonate, with the majority of the sales being at a low gross
margin. In the nine month period ended December 31, 1999, in addition to sales
of lithium carbonate.
Ilion's principle expenses have been costs associated with research and
development, and general and administration expenses. The largest contributor to
research and development expense has been labor costs.
RESULTS OF OPERATIONS
NINE MONTH PERIOD ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTH PERIOD ENDED
DECEMBER 31, 1998
NET SALES
Net sales increased NZ$301,203 (46.7%) from NZ$645,206 for the nine month
period ended December 31, 1998 to NZ$946,409 for the nine month period ended
December 31, 1999. This increase related primarily to the increased sale of
lithium carbonate.
COST OF SALES
Cost of sales increased NZ$330,676 (37.4%) from NZ$884,262 for the nine
month period ended December 31, 1998 to NZ$1,214,938 for the nine month period
ended December 31, 1999. This increase related to the increase in the amount of
lithium carbonate sold, which meant an increase in volume of lithium feedstock
required and an increase in labor costs.
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<PAGE> 103
OPERATING EXPENSES
Research and Development. Research and development increased by NZ$172,585
(31.1%) from NZ$555,470 for the nine month period ended December 31, 1998 to
NZ$728,055 for the nine month period ended December 31, 1999. This increase was
primarily due to the employment of additional staff to undertake research and
development of Ilion's cathode materials.
General and Administration. General and administration expenses increased
by NZ$589,670 (48.2%) from NZ$1,223,434 for the nine month period ended December
31, 1998 to NZ$1,813,104 for the nine month period ended December 31, 1999. This
increase was primarily related to higher legal fees and travel expenses involved
in negotiating the merger with Lithium.
Sales and Marketing. Sales and marketing costs increased by NZ$18,946
(9.1%) from NZ$208,974 for the nine month period ended December 31, 1998 to
NZ$227,920 for the nine month period ended December 31, 1999. This increase was
primarily related to travel costs in connection with overseas marketing
activities.
Depreciation. Depreciation increased by NZ$186,063 (68.9%) from NZ$269,938
for the nine month period ended December 31, 1998 to NZ$456,001 for the nine
month period ended December 31, 1999. This increase was primarily related to the
depreciation of Ilion's cathode pilot plant and an x-ray defraction machine,
which were built and bought, respectively, in the nine-months ended December 31,
1999.
OTHER ITEMS
Other Income. Other income increased by NZ$318,319 (589.9%) from NZ$53,958
for the nine month period ended December 31, 1998 to NZ$372,277 for the nine
month period ended December 31, 1999. This increase was primarily related to a
foreign exchange gain of NZ$211,801 on a U.S. dollar denominated bank account
and an increase in the amount of cash on deposit.
Loss Before Income Taxes. As a result of the foregoing factors, Ilion's
net loss before income tax increased NZ$865,529 (35.4%) from NZ$2,445,764 for
the nine month period ended December 31, 1998 to NZ$3,311,293 for the nine month
period ended December 31, 1999.
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1998
NET SALES
Net sales increased NZ$60,031 (8.4%) from NZ$715,919 in fiscal 1998 to
NZ$775,950 in fiscal 1999. All sales related to the sales of lithium carbonate.
Although the dollar value of the sales was similar, greater volumes were sold in
fiscal 1999 than in fiscal 1998, but at lower prices.
COST OF SALES
Cost of sales decreased by NZ$139,104 (11%) from NZ$1,260,636 in fiscal
1998 to NZ$1,121,532 in fiscal 1999. Although the volume of lithium carbonate
produced increased, the direct materials costs and production costs both fell
from NZ$696,634 and NZ$530,822 in fiscal 1998 to NZ$692,150 and NZ$368,007 in
fiscal 1999, respectively.
Operating Expenses
Research and Development. Research and development increased by NZ$492,163
(89.7%) from NZ$548,462 in fiscal 1998 to NZ$1,040,625 in fiscal 1999. This
increase was primarily due to the employment of additional staff to undertake
research and development of Ilion's cathode materials.
93
<PAGE> 104
General and Administration. General and administration expenses increased
by NZ$834,121 (84.6%) from NZ$985,691 in fiscal 1998 to NZ$1,819,812 in fiscal
1999. This increase was primarily related to higher staffing costs and higher
legal costs.
Sales and Marketing. Sales and marketing costs increased by NZ$97,637
(68.5%) from NZ$142,620 in fiscal 1998 to NZ$240,257 in fiscal 1999. This
increase was primarily related to the salary of an additional full-time sales
person and increased overseas marketing activities.
Depreciation. Depreciation decreased by NZ$32,748 (8.1%) from NZ$406,801
in fiscal 1998 to NZ$374,053 in fiscal 1999. This decrease was primarily related
to the diminishing value method of depreciation being applied to a prior year
comparable asset base.
OTHER ITEMS
Other Income. Other income increased by NZ$6,915 (19.7%) from NZ$35,147 in
fiscal 1998 to NZ$42,062 in fiscal 1999. This increase was primarily related to
an increase in interest earned due to an increase in the amount of cash on
deposit.
Loss Before Income Taxes. Ilion's net loss before income tax increased
NZ$472,989 (14.3%) from NZ$3,308,819 in fiscal 1998 to NZ$3,781,808 in fiscal
1999. This increase was primarily related to an increase in research and
development costs and general and administration expenses offset by the fact
that there was no loss on abandonment of assets in fiscal 1999.
FISCAL YEAR ENDED MARCH 31, 1998 COMPARED TO MARCH 31, 1997
NET SALES
Net sales increased NZ$635,431 (or 789.5%) from NZ$80,488 in fiscal 1997
to NZ$715,919 in fiscal 1998. The significant increase in sales reflected the
completion of a portion of Ilion's research and development to the point where a
commercial lithium carbonate pilot plant could be established and operated with
the output sold on the commercial market.
COST OF SALES
Cost of sales increased by NZ$1,138,107 (or 928.8%) from NZ$122,529 in
fiscal 1997 to NZ$1,260,636 in fiscal 1998. This increase related to the
increase in the amount of lithium carbonate sold, which meant an increase in
volume of lithium feedstock required and an increase in labor costs.
OPERATING EXPENSES
Research and Development. Research and development decreased by NZ$399,909
(42.2%) from NZ$948,371 in fiscal 1997 to NZ$548,462 in fiscal 1998. This
decrease was primarily due to the fact that the majority of the research and
development required to establish the lithium carbonate plant was undertaken in
fiscal 1997. In addition, in fiscal 1997, some costs were continuing to be
incurred by Ilion in connection with research into the extraction of lithium
from sea water. Research into the extraction of lithium from sea water was
minimal in fiscal 1998.
General and Administration. General and administration expenses increased
by NZ$207,318 (or 26.6%), from NZ$778,373 in fiscal 1997 to NZ$985,691 in fiscal
1998. This increase was primarily related to higher staffing costs.
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<PAGE> 105
Sales and Marketing. Sales and marketing costs increased by NZ$70,391
(97.9%) from NZ$71,869 in fiscal 1997 to NZ$142,260 in fiscal 1998. This
increase was primarily related to an increase in sales and marketing activities
once the lithium carbonate pilot plant was capable of production.
Depreciation. Depreciation increased by NZ$203,442 (100.0%) from
NZ$203,359 in fiscal 1997 to NZ$406,801 in fiscal 1998. This increase was
primarily related to the depreciation of the lithium carbonate plant, which
finished being built in fiscal 1998.
OTHER ITEMS
Other Income. Other income decreased by NZ$109,967 (75.8%) from to
NZ$145,114 in fiscal 1997 to NZ$35,147 in fiscal 1998. This decrease was
primarily related to less interest earned due to a lower level of cash on
deposit.
Loss Before Income Taxes. As a result of the foregoing factors and the
loss on abandonment of assets of NZ$703,141 in fiscal 1998 for property
associated with a property lease and construction of the abandoned project to
extract lithium from sea water, Ilion's net loss before income tax increased
NZ$1,213,837 (57.9%) from NZ$2,094,982 in fiscal 1997 to NZ$3,308,819 in fiscal
1998.
LIQUIDITY AND CAPITAL RESOURCES
Ilion has financed its cash requirements solely through the private
placements of equity securities in New Zealand, Singapore and Australia.
Nine Month Period Ended December 31, 1999 Compared to Nine Month Period
Ended December 31, 1998
Net cash used in operating activities increased by NZ$2,242,364 (120.9%)
from NZ$1,854,432 for the nine month period ended December 31, 1998 to
NZ$4,096,796 for the nine month period ended December 31, 1999. This increase
was primarily due to an increase of NZ$2,864,273 in payments to suppliers, which
included higher payments for lithium feedstock and higher general and
administration expenses, offset by an increase of NZ$622,466 in cash provided
from sales.
Net cash used in investing activities increased by NZ$1,875,516 (175.9%)
from NZ$1,066,499 for the nine month period ended December 31, 1998 to
NZ$2,942,015 for the nine month period ended December 31, 1999. This increase
was primarily due to the construction of the cathode pilot plant, an increase in
payments for the license of certain patents from MIT and the payment of
NZ$738,534 for the 50% share of Qinghai Lithium Limited, the joint venture
entity in China.
Net cash provided by financing activities increased by NZ$6,858,092
(194.5%) from NZ$3,525,270 for the nine month period ended December 31, 1998 to
NZ$10,383,362 for the nine month period ended December 31, 1999. This increase
was due to an increase in the amount of proceeds received from the issuance of
shares of Ilion.
Fiscal Year Ended March 31, 1999 Compared to Fiscal Year Ended March 31,
1998
Net cash used in operating activities decreased by NZ$71,131 (3.0%) from
NZ$2,380,973 in fiscal 1998 to NZ$2,309,842 in fiscal 1999. This decrease was
primarily due to a NZ$555,436 increase in payables.
Net cash used in investing activities increased by NZ$445,575 (60.3%) from
NZ$738,519 in fiscal 1998 to NZ$1,184,094 in fiscal 1999. This increase was
primarily due to an increase in the payments for the license for certain patents
from MIT.
95
<PAGE> 106
Net cash provided by financing activities increased by NZ$2,053,676
(116.3%) from NZ$1,766,472 in fiscal 1998 to NZ$3,820,148 in fiscal 1999. This
increase was due to an increase in the amount of proceeds received from the
issuance of shares of Ilion.
Fiscal Year Ended March 31, 1998 Compared to Fiscal Year Ended March 31,
1997
Net cash used in operating activities increased by NZ$627,321 (35.8%) from
NZ$1,753,652 in fiscal 1997 to NZ$2,380,973 in fiscal 1998. This increase was
primarily due to increased payments for lithium feedstock reflecting an increase
in the volume of lithium carbonate produced and an increase in labor costs due
to an increase in the number of employees.
Net cash used in investing activities decreased by NZ$1,441,649 (66.1%)
from NZ$2,180,168 in fiscal 1997 to NZ$738,519 in fiscal 1998. For fiscal 1997,
expenditure of NZ$2,180,168 was incurred to construct the lithium carbonate
plant in Auckland. In fiscal 1998, NZ$562,360 was spent completing the lithium
carbonate plant and NZ$176,159 was spent on the first payment for the license
from MIT.
Net cash provided by financing activities decreased by NZ$1,768,528 (50%)
from NZ$3,535,000 in fiscal 1997 to NZ$1,766,472 in fiscal 1998. This decrease
was due to a decrease in the amount of proceeds received from the issuance of
shares of Ilion.
Bridge Financing Provided to Lithium
Ilion provided operating funds of US$818,000 (NZ$1,573,846) to LTC in the
nine month period ended December 31, 1999. Pursuant to the terms of the merger
agreement, Ilion has agreed to provide additional short term funding to LTC,
which is expected to amount to US$1.8 million in calendar year 2000. The funding
is unsecured and interest free. In the event that the proposed merger does not
occur, Ilion converts the amount owed into new common stock of LTC at a price
of US$0.10 per share.
Future Capital Needs
Based upon Ilion's current business plan, Ilion believes that its existing
cash resources, operating cash flow and the estimated net proceeds of
approximately US$89 million from Ilion's initial public offering will provide
sufficient liquidity and capital resources over the next two years for working
capital needs and anticipated capital expenditures.
Anticipated Capital Expenditures
Ilion expects to have capital expenditures of US$10 million in fiscal
2001, including US$6 million to build the lithium polymer cell manufacturing
plant in the United States, US$4 million to build the pilot cathode material
plant in Auckland, New Zealand and US$50 million on strategic acquisitions. The
balance will be applied to operating deficits and subsequent capital
expenditures.
RECENTLY ISSUED ACCOUNTING ANNOUNCEMENTS
In January 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation, of which some provisions are already effective and certain
provisions of which become effective after July 1, 2000. Ilion does not believe
that the adoption of this pronouncement will have a material effect on its
financial statements.
96
<PAGE> 107
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement established accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts collectively referred to as derivatives,
and for hedging activities. This statement is effective for fiscal years
beginning after June 15, 2000. Ilion is in the process of assessing the effect
of this pronouncement and does not expect it to be material.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
All of Ilion's revenues have been denominated in U.S. dollars, while a
majority of the operating expenses have been denominated in New Zealand dollars.
Ilion's financial results are therefore affected by movements in the relative
values of the U.S. dollar and New Zealand dollar. However, over the last three
years, the total revenue and expenses have not been so high as to cause any
effects of currency movements to be significant. On completion of the merger
with LTC, substantially more of Ilion's operating expenses will be denominated
in U.S. dollars. Ilion has not entered into any hedging or derivative
transactions in the past, however, although currently Ilion has no intention of
entering into cross-currency contracts to hedge its exposure to movements in the
rate of exchange of New Zealand dollars into U.S. dollars, Ilion may do so in
the future.
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<PAGE> 108
OWNERSHIP OF ILION BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth, as of May 1, 2000 (as if Ilion had already
domesticated into Delaware), the amount and percentage of shares of Ilion common
stock that are deemed under the rules of the Commission to be "beneficially
owned" by (1) the Chief Executive Officer of Ilion, who is also a director, and
each other director of Ilion, (2) all directors and officers of Ilion as a group
and (3) each person known by Ilion to be the beneficial owner of more than five
percent of the outstanding shares of Ilion common stock. The table below also
sets forth the number and percentage of shares of Ilion common stock that will
be beneficially owned by such persons immediately after the merger, assuming the
ownership interest in shares of Ilion common stock does not otherwise change
from that which existed as of May 1, 2000.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Number of Number of Approximate
Shares of Shares of Percentage of
Common Common Stock Outstanding
Stock Percentage of Beneficially Common Stock
Beneficially Outstanding Owned After the After the
Name of Beneficial Owner Owned (1) Common Stock (2) Merger Merger (3)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Brian T. Hubbard (4) 3,066,000 12.7% 3,066,000 8.6%
Vertex Asia Pte Limited (5) 1,500,000 6.2% 1,500,000 4.2%
Robin T. Johannink (6) 3,051,000 12.6% 3,051,000 8.5%
Murray Haszard (7) 2,000,000 8.3% 2,000,000 5.6%
Keith Young (8) 80,000 * 80,000 *
All Directors and Executive
Officers as a group (9) 5,201,000 21.5% 5,201,000 14.6%
- --------------------------------------------------------------------------------------------------------
</TABLE>
* Represents less than 1%
(1) Under the rules of the Commission, a person is deemed to be the beneficial
owner of a security if such person has or shares the power to vote or
direct the voting of such security or the power to dispose or direct the
disposition of such security. A person is also deemed to be a beneficial
owner of any securities if that person has the right to acquire beneficial
ownership within 60 days. Accordingly, more than one person may be deemed
to be the beneficial owner of the same securities. Unless otherwise
indicated by footnote, the named individuals have sole voting and
investment power with respect to the shares of Ilion Common Stock
beneficially owned by them.
(2) Based on 24,193,079 shares of Ilion common stock outstanding as of May 1,
2000 plus shares subject to options that are currently exercisable or
exercisable within 60 days of the date of the table with respect to the
stockholder in question.
(3) Number of shares of Ilion common stock outstanding at the effective time
of the merger assumes (a) 3,500,000 shares of Ilion common stock issued to
Lithium shareholders pursuant to Clause 3.3 of the merger agreement and
(b) 8,000,000 shares of Ilion common stock issued in Ilion's initial
public offering.
(4) Brian T. Hubbard is the registered owner of 15,000 shares of Ilion common
stock and shares voting control of Phoenix Trust, which is the registered
owner of 3,051,000 shares of Ilion common stock. Mr. Hubbard disclaims
beneficial ownership of such shares, except to the extent of his pecuniary
interest, if any. Mr. Hubbard's address is 5A Long Bay Drive, Torbay,
Auckland, New Zealand.
(5) The address for Vertex Asia Pte Limited is 77 Science Park Drive, #02-15
Cintech III, Singapore Science Park, Singapore 118256.
(6) Mr. Johannink shares voting control of, and is a beneficiary of, Phoenix
Trust. Mr. Johannink is a director and shareholder of Phoenix Management
Limited. Mr. Johannink disclaims beneficial ownership of such shares,
except to the extent of his pecuniary interest, if any. Mr. Johannink's
address is 45 Ridings Rd, Remuera, Auckland.
98
<PAGE> 109
(7) Mr. Haszard's address is 7 Bourne Street, Mt Eden, Auckland, New Zealand.
(8) Consists of 30,000 shares of Ilion common registered in the name of the K
Young Family Trust and 50,000 shares of Ilion common stock under options
that are exercisable within 60 days of the date of this table. Mr. Young
shares voting control of and is a beneficiary of the K Young Family Trust.
Mr. Young disclaims beneficial ownership of such shares, except to the
extent of his pecuniary interest, if any. Mr. Young's address is Jones
Young, 55A Mt St John Avenue, Auckland, New Zealand.
(9) Includes an aggregate of 85,000 shares under stock options exercisable
within 60 days of the date of this table.
99
<PAGE> 110
CHAPTER NINE
ADDITIONAL INFORMATION FOR STOCKHOLDERS
WHERE YOU CAN FIND MORE INFORMATION
LTC files reports, proxy statements and other information with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended. These reports and information may be read and copied at the following
SEC locations:
Public Reference Room New York Regional Office
450 Fifth Street, N.W. 7 World Trade Center
Room 1024 Suite 1300
Washington, D.C. 20549 New York, NY 10048
Copies of the reports and information filed by LTC may also be obtained by
mail from the Public Reference Section of the SEC, 450 Fifth Street, Room 1024,
Washington, D.C. 20549, at prescribed rates. Further information on the
operation of the SEC's Public Reference Room may be obtained by calling the SEC
at 1-800-SEC-0330.
The SEC also maintains a world wide website that contains reports, proxy
statements and other information about registrants, such as us, that file
electronically with the SEC. The address of that website is http://www.sec.gov.
Ilion has filed a Registration Statement on Form S-4 to register with the
Securities and Exchange Commission the Ilion common stock to be issued to LTC
stockholders in the merger. This document is a part of that registration
statement and constitutes a prospectus of Ilion in addition to being part of the
special meeting proxy statement of LTC. As allowed by the rules of the
Securities and Exchange Commission, this proxy statement/prospectus does not
contain all the information you can find in the registration statement or the
exhibits to the registration statement.
No one is authorized to give any information or make any representation
about the proposals contained in this proxy statement/prospectus that is
different from or in addition to the information contained in this proxy
statement/prospectus or any of the attached or incorporated documents. The
information contained in this document speaks only as of the date of this
document unless the information specifically indicates that another date
applies.
Ilion has supplied all information contained or incorporated by reference
in this proxy statement and prospectus relating to Ilion and LTC has supplied
all such information relating to LTC.
100
<PAGE> 111
OTHER BUSINESS
You should rely only on the information contained in this proxy
statement/prospectus to vote on the merger described in this document. We have
not authorized anyone to provide you with information that is different from
what is contained in this proxy statement/prospectus. This proxy
statement/prospectus is dated ______________, 2000 You should not assume that
the information contained in this proxy statement/prospectus is accurate as of
any date other than that date, and neither the mailing of this proxy
statement/prospectus to stockholders nor the issuance of Ilion common stock in
the merger shall create any implication to the contrary.
LTC knows of no other matters that will come before the meeting. However,
if other matters do come before the meeting, the proxy holders will vote in
accordance with their best judgement.
By Order of the Board of Directors
_____________________________________
Gretchen Deming, Secretary
Plymouth Meeting, Pennsylvania
____________________ ____, 2000
<PAGE> 112
INDEX TO FINANCIAL STATEMENTS
PAGE
Consolidated Financial Statements of Lithium Technology Corporation
and Subsidiary........................................................... F-2
Independent Auditors' Reports.......................................... F-3
Consolidated Balance Sheet at December 31, 1999........................ F-5
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998 and the Period from July 21, 1989
(Date of Inception) to December 31, 1999............................... F-6
Consolidated Statements of Changes in Stockholders' Equity
(Deficiency) for the Period from July 21, 1989 (Date of Inception)
to December 31, 1999................................................... F-7
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998 and the period from July 21, 1989
(Date of Inception) to December 31, 1999............................... F-16
Notes to Consolidated Financial Statements............................. F-20
Financial Statements of Pacific Lithium Limited.......................... F-32
Independent Auditors Report............................................ F-33
Balance Sheets at March 31, 1998 and 1999 and December 31, 1998 and
1999................................................................... F-34
Statement of Operations for the years ended March 31, 1997, 1998
and 1999 and the nine months ended December 31, 1998 and 1999.......... F-35
Statement of Changes in Shareholders' Equity (Deficit) for the years
ended March 31, 1997, 1998 and 1999 and the nine months ended
December 31, 1998 and 1999............................................. F-36
Statement of Cash Flows for the years ended March 31, 1997, 1998
and 1999 and the nine months ended December 31, 1998 and 1999.......... F-38
Notes to Financial Statements.......................................... F-40
F-1
<PAGE> 113
CONSOLIDATED FINANCIAL STATEMENTS
of
Lithium Technology Corporation
and
Subsidiary
December 31, 1999
F-2
<PAGE> 114
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, 1999, 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, 1999, and for the period from July 21, 1989 (date
of inception) to December 31, 1999. 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 $40,895,000 for the period
July 21, 1989 (date of inception) through December 31, 1996. 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 auditing standards generally accepted
in the United States of America. 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, 1999, and the results of their operations
and their cash flows for each of the two years in the period ended December 31,
1999, and for the period from July 21, 1989 (date of inception) through December
31, 1999, in conformity with accounting principles generally accepted in the
United States of America.
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 3 to the financial statements, the Company's
operating losses since inception and lack of adequate financing to fund its
operations raise substantial doubt about its ability to continue as a going
concern. Management's plans concerning these matters are also described in Note
3. The financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
/s/ DELOITTE & TOUCHE, LLP
Philadelphia, PA
February 11, 2000
(March 31, 2000 as to Note 10)
F-3
<PAGE> 115
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 3 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 3. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ WISS & COMPANY, LLP
Woodbridge, New Jersey
January 22, 1997
F-4
<PAGE> 116
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalent $ 38,000
Accounts receivable 21,000
Other current assets 18,000
------------
Total Current Assets 77,000
------------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION OF $1,024,000 430,000
Security and equipment deposits 21,000
------------
Total assets $ 528,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 164,000
Accrued salaries 366,000
Other accrued expenses 100,000
------------
Total current liabilities 630,000
------------
LONG-TERM LIABILITIES
Convertible Promissory Notes 818,000
------------
Total liabilities 1,448,000
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock, par value $.01 per share
Authorized - 50,000,000 shares
Issued and outstanding 48,280,749 shares 483,000
Additional paid-in capital 46,357,000
Accumulated deficit (6,865,000)
Deficit accumulated during development stage (40,895,000)
------------
Total stockholders' equity (deficiency) (920,000)
------------
Total liabilities and stockholders'
equity (deficiency) $ 528,000
============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 117
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
AND PERIOD FROM JULY 21, 1989 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Year Ended Period From
December 31, July 21, 1989
------------------------------------- (Date of Inception) to
1999 1998 December 31, 1999
------------ ------------ ----------------------
<S> <C> <C> <C>
REVENUES:
Development contracts $ 69,000 $ 99,000 $ 168,000
------------ ------------ ------------
COSTS AND EXPENSES:
Engineering, research and development 1,385,000 1,899,000 8,396,000
General and administrative 1,501,000 1,770,000 11,884,000
Stock based compensation expense 1,769,000 -- 1,769,000
------------ ------------ ------------
4,655,000 3,669,000 22,049,000
------------ ------------ ------------
OTHER INCOME (EXPENSES):
Interest expense, net of interest income (7,000) (341,000) (1,823,000)
Interest expense related to beneficial
conversion feature -- -- (17,841,000)
Other non-operating income - Note 8 -- 650,000 650,000
------------ ------------ ------------
(7,000) 309,000 (19,014,000)
NET LOSS ($ 4,593,000) ($ 3,261,000) ($40,895,000)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING: 44,354,000 21,697,000
BASIC AND DILUTED NET LOSS PER SHARE: $ (.10) $ (.15)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 118
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIENCY)
PERIOD FROM JULY 21, 1989 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Series B Series C
Series A Convertible Preferred Convertible Preferred
Preferred Stock Stock 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 -- --
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 -- -- -- -- -- --
------- ----------
</TABLE>
F-7
<PAGE> 119
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
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 -- -- -- --
======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 120
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
BALANCES AT JULY 2,333,000 1,000 -- --
21, 1989
PERIOD YEAR ENDED
OCTOBER 31, 1989:
Net assets received in -- -- 210,000 1,000
reverses acquisition
(Note 1)
Change in par value -- 6,000 -- --
Exchange for debt
owed to officer
Shares sold to -- -- 697,000 1,000
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 2,333,000 7,000 907,000 2,000
YEAR ENDED
OCTOBER 31, 1990
Issuance of Class B
common stock for
cash to Investors -- -- 57,000 --
Exercise of Class B
common stock
warrants, net of
offering costs -- -- 15,000 --
NET INCOME (LOSS)
FOR THE YEAR -- -- -- --
--------- ------ --------- ------
BALANCE AT
OCTOBER 31, 1990 2,333,333 $7,000 979,000 $2,000
(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 --
Fair value of warrants
issued in
connection
with financial
consulting services -- -- -- --
Net loss -- -- -- --
--------- ------ --------- ------
BALANCES AT
OCTOBER 31, 1991 2,333,000 7,000 1,124,000 2,000
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During
Common Stock Paid-in Accumulated Development
Shares Amount Capital Deficit Stage
<S> <C> <C> <C> <C> <C>
BALANCES AT JULY -- (6,465,000) --
21, 1989
PERIOD YEAR ENDED
OCTOBER 31, 1989:
Net assets received in 36,000 --
reverses
acquisition
(Note 1)
Change in par value (6,000)
Exchange for debt
owed to officer
Shares sold to 7,000 --
financial
consultant in
conjunction
with financing
Expenses paid by 79,000 --
principal
shareholder
on behalf of
Lithium
Corporation
Net income (loss) for
the year -- 844,000 (502,000)
------- ----------- --------
BALANCES AT
OCTOBER 31, 1989 116,000 (5,621,000) (502,000)
YEAR ENDED
OCTOBER 31, 1990
Issuance of Class B
common stock for
cash to Investors 50,000 -- --
Exercise of Class B
common stock
warrants, net of
offering costs -- -- --
NET INCOME (LOSS)
FOR THE YEAR -- 569,000 (498,000)
------- ---------- ----------
BALANCE AT
OCTOBER 31, 1990 $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
$520,000 121,000 -- --
Fair value of warrants
issued in
connection
with financial
consulting services 30,000 -- --
Net loss -- (84,000) (560,000)
------- ---------- --------
BALANCES AT
OCTOBER 31, 1991 317,000 (5,136,000) 1,560,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 121
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
YEAR ENDED
OCTOBER 31, 1992:
Issuance of common
stock to certain
employees for
services rendered -- -- 96,000 --
Net loss -- -- -- --
---- ---- ------- ----
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During
Common Stock Paid-in Accumulated Development
Shares Amount Capital Deficit Stage
<S> <C> <C> <C> <C> <C>
YEAR ENDED
OCTOBER 31, 1992:
Issuance of common
stock to certain
employees for
services rendered 106,000
Net loss --
------- (23,000) (175,0000)
</TABLE>
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock Common Stock
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT
OCTOBER 31, 1992 2,333,000 7,000 1,220,000 2,000
YEAR ENDED
OCTOBER 31, 1993:
Net loss -- -- -- --
--------- ----- -------- ------
BALANCES AT
OCTOBER 31, 1993 2,333,000 $7,000 1,220,000 $2,000
========= ====== ========= ======
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During
Paid-in Accumulated Development
Capital Deficit Stage
<S> <C> <C> <C>
BALANCES AT
OCTOBER 31, 1992 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 $423,000 $(6,865,000) (1,801,000)
======== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Series A Series B
Preferred Stock Convertible Preferred Stock
Shares Amount Shares Amount
<S> <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 31, 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 of proceeds of public
offering -- -- -- --
Upon exercise of option -- -- -- --
For cash, less related costs of
$152,000 -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Series C
Convertible Preferred Stock
Shares Amount
<S> <C> <C>
BALANCES AT OCTOBER 31, 1993 -- --
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 -- --
Fair value of option issued in exchange
for certain legal services -- --
Net loss -- --
---- ----
BALANCE AT DECEMBER 31, 1993 -- --
YEAR ENDED DECEMBER 31, 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 of proceeds of public
offering -- --
Upon exercise of option -- --
For cash, less related costs of
$152,000 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 122
<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>
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 --
====== ======= ======= ======= ========== ==========
YEARS ENDED DECEMBER 31, 1995
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 $ --
======= ======= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Class A Class B Additional During
Common Stock Common Stock Common Stock 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 -- -- -- -- 3,659,000 -- --
Conversion of preferred stock to
common stock 1,000,000 3,000 667,000 1,000 3,296,000 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 123
<TABLE>
<CAPTION>
Deficit
Accumulated
Class A Class B Additional During
Common Stock Common Stock Common Stock Paid-in Accumulated Development
Shares Amount Shares Amount Shares Amount Capital Deficit Stage
--------- ------ --------- ------ ------ ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fair value of option issued in
exchange for certain legal
services -- -- -- -- 8,000 -- --
Net loss -- -- -- -- -- -- (67,000)
========= ====== ========= ====== ========== =========== ============
BALANCE AT DECEMBER 31, 1993: 3,333,000 10,000 1,887,000 3,000 7,386,000 (6,865,000) (1,868,000)
YEAR ENDED DECEMBER 31, 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 of
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)
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE> 124
<TABLE>
<CAPTION>
Deficit
Accumulated
Class A Class B Additional Accumu- During
Common Stock Common Stock Common Stock Paid-in lated Develop-
Shares Amount Shares Amount Shares Amount Capital Deficit ment Stage
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT
DECEMBER 31, 1994 3,333,000 10,000 3,249,000 10,000 11,863,000 (6,865,000) (5,644,000)
YEARS ENDED
DECEMBER 31, 1995:
Issuance of common
stock
Upon conversion of
convertible pre-
ferred stock -- -- 341,000 1,000 (1,000) -- --
Upon conversion of
7% convertible
promissory notes
and accrued in-
terest 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>
See accompanying notes to consolidated financial statements.
F-13
<PAGE> 125
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During
Common Stock Paid-In Accumulated Development
Shares Amount CAPITAL DEFICIT STAGE
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1995 7,543,000 75,000 $19,491,000 $(6,865,000) $(14,493,000)
YEAR ENDED DECEMBER 31, 1996
Issuance of common stock:
Upon conversion of convertible
preferred stock 454,000 4,000 (4,000) -- --
Upon conversion of 7% convertible
promissory notes and accrued interest
($20,000) and related costs of $41,000 152,000 2,000 277,000 -- --
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 1,612,000 -- --
For cash:
From consortium, net of placement
costs of $212,000 632,000 7,000 2,181,000 -- --
Upon exercise of stock options 193,000 2,000 95,000 -- --
Other 38,000 -- 19,000 -- --
In payment of accrued salaries and
accounts Payable 434,000 4,000 260,000 -- --
Upon exercise of warrants 196,000 2,000 98,000 -- --
In connection with costs relating to
the Issuance of 10% convertible notes 462,000 5,000 520,000 -- --
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 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 of 10% convertible notes 493,000 5,000 575,000
In connection with the sale of Escrowed
Shares by the Convertible Note 2,669,000 27,000 2,219,000
Purchasers
Upon exercise of warrants 100,000 1,000 13,000
In payment of accrued salaries and
accounts payable 646,000 6,000 369,000
Issuance of warrants for services
rendered 88,000
</TABLE>
See accompanying consolidated financial statements.
F-14
<PAGE> 126
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During
Common Stock Paid-In Accumulated Development
Shares Amount CAPITAL DEFICIT STAGES
<S> <C> <C> <C> <C> <C>
In connection with the sale of the 8.5%
Senior secured convertible notes 400,000
Issuance of the 8.5% senior secured
convertible notes 9,821,000
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)
---------- -------- ----------- ------------ -------------
YEAR ENDED DECEMBER 31, 1999:
Issuance of common stock:
In connection with conversion of
senior secured convertible notes 20,206,000 202,000 4,968,000
In connection with services rendered 523,000 5,000 211,000
In connection with repricing of warrants -- -- 602,000
In connection with private placement 4,500,000 45,000 1,573,000
Net loss: (4,593,000)
---------- -------- ----------- ------------ -------------
BALANCES AT DECEMBER 31, 1999 48,281,000 483,000 46,357,000 (6,865,000) (40,895,000)
---------- -------- ----------- ------------ -------------
</TABLE>
See accompanying financial statements.
F-15
<PAGE> 127
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
AND PERIOD FROM JULY 21, 1998 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Year Ended
December 31, Period From
July 21, 1989
(Date of Inception
1999 1998 Dec. 31, 1999)
==== ==== ==================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(4,593,000) $(3,261,000) $(40,895,000)
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 -- -- 17,841,000
Depreciation 227,000 232,000 1,026,000
Amortization of debt issue costs 8,000 142,000 1,070,000
Common stock issued at prices
below fair market value 1,167,000 -- 1,167,000
Repricing of outstanding warrants 602,000 -- 602,000
Reduction of accrued expenses -- (270,000) (270,000)
Common stock issued in lieu of
interest 159,000 468,000 1,915,000
Fair value of warrants and option
granted for services rendered -- -- 209,000
Common stock issued for services
provided 67,000 -- 273,000
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 56,000 (77,000) (21,000)
Other current assets (1,000) (2,000) (2,000)
Security and equipment deposits 74,000 (46,000) (21,000)
Accounts payable, accrued expenses
and customer deposits 125,000 45,000 2,147,000
Due to related parties -- -- (118,000)
=========== =========== ============
</TABLE>
F-16
<PAGE> 128
<TABLE>
<S> <C> <C> <C>
Net cash used in operating
activities (2,109,000) (2,644,000) (14,873,000)
=========== =========== ============
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of property and equipment (194,000) (273,000) (1,206,000)
Other -- -- 94,000
=========== =========== ============
Net cash provided by (used in)
investing activities (194,000) (273,000) (1,112,000)
=========== =========== ============
CASH FLOW FROM FINANCING
ACTIVITIES:
Proceeds received from Convertible
Promissory Notes 818,000 -- 818,000
Net advance repayable only out of
proceeds of public offering -- -- 471,000
Proceeds received upon issuance of
common stock 450,000 100,000 3,789,000
Proceeds received from issuance of
preferred stock, net of related Costs -- -- 100,000
Proceeds received upon exercise of
options and warrants, net of Costs -- 54,000 637,000
Net advances by former principal
Stockholder -- -- 321,000
Proceeds from sale of convertible debt -- 3,330,000 10,874,000
Debt issue costs -- -- (887,000)
Repayment of convertible debt -- -- (100,000)
=========== =========== ============
Net cash provided by financing
activities 1,268,000 3,484,000 16,023,000
=========== =========== ============
NET CHANGE IN CASH AND CASH
EQUIVALENTS (1,035,000) 567,000 38,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,073,000 506,000 --
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 38,000 $ 1,073,000 $ 38,000
----------- ----------- ------------
SUPPLEMENTAL CASH FLOW
INFORMATION
Contribution to capital by former
principal stockholder -- -- $ 3,659,000
Related party debt exchanged for
convertible debt -- -- $ 321,000
Exchange of indebtedness to former
principal stockholder for common
</TABLE>
F-17
<PAGE> 129
<TABLE>
<S> <C> <C> <C>
stock -- -- $ 445,000
Issuance of common stock for
services and accrued salaries $ 149,000 -- $ 501,000
Exchange of equipment and accrued
rent for common stock -- -- $ 271,000
Subordinated notes and related accrued
interest exchanged for Series A
preferred stock -- -- $ 3,300,000
Exchange of convertible debt for
convertible preferred stock -- -- $ 356,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE> 130
<TABLE>
<CAPTION>
Year Ended
December 31,
<S> <C> <C> <C>
Conversion of convertible debt and
accrued interest into common stock,
net of unamortized debt discount $ 5,171,000 -- $ 9,947,000
Exchange of advances repayable only
out of proceeds of public offering for
common stock -- -- $ 471,000
Deferred offering costs on warrants
exercised -- -- $ 88,000
Issuance of warrants in settlement of
litigation for debt issue costs and for
services rendered -- -- $ 364,000
Common stock issued for costs
related to 10% promissory notes -- -- $ 525,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE> 131
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - HISTORY OF THE BUSINESS
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 unique, solid-state, lithium ion-polymer rechargeable
cells. 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 cells. The Company's commercialization
focus is on the rapidly growing portable electronics market segment
(notebook and palmtop computers and wireless communications devices)
and hybrid electric vehicles market.
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.
On January 19, 2000, LTC and Pacific Lithium Limited ("PLL") of
Auckland, New Zealand signed an Agreement and Plan of Merger to merge
their respective companies (the "Merger"). The Merger will require the
approval of the stockholders of LTC and PLL.
PLL is an unlisted New Zealand public company with more than 600
shareholders and access to sources of capital in New Zealand,
Australia, Japan, Singapore and the U.S. PLL carries on research,
development and production of specialized lithium chemistries for use
in the lithium battery industry. PLL commercially produces high and
premium grade lithium carbonate using proprietary processes and has
developed or is the exclusive licensee of lithium manganese cathode
products, lithium polymers and their production processes. PLL has an
exclusive licensing arrangement with the Massachusetts Institute of
Technology (MIT) to commercialize MIT's proprietary electrode and
electrolyte polymers. PLL is a significant supplier of high quality
battery-specific lithium carbonate to Japanese cathode and electrolyte
suppliers.
Prior to the Merger, PLL will domesticate into the U.S. and become a
Delaware corporation pursuant to the provisions of Section 388 of the
Delaware Corporation Law (the "Domestication"), change its name to
Ilion Technology Corporation ("Ilion") and consummate an initial public
offering in the United States and NASDAQ listing of Ilion (the "Ilion
IPO"). PLL has indicated that it expects to complete the Domestication
in April 2000 and consummate the Ilion IPO during the year 2000,
depending upon market and other factors. The Merger will be closed
contemporaneously with the Ilion IPO. In the Merger LTC will merge with
and into Ilion and all of the outstanding shares of LTC common stock
will be exchanged for an aggregate of 3.5 million shares of Ilion (the
"Merger Securities") which will be issued to the LTC stockholders on a
pro-rata basis. Based on the capital structure of PLL at December 31,
1999, these shares approximate a 15% ownership interest of PLL's
outstanding shares of common stock. Such ownership percentage is not
guaranteed by the Merger Agreement and will be diluted after
considering the effects of the Ilion IPO of any other issuance of
common stock by PLL.
Pursuant to the terms of a Bridge Loan Financing Agreement entered into
as of November 29, 1999 (the "Bridge Loan"), PLL has agreed to advance
working capital to LTC. PLL has advanced a total of U.S.
F-20
<PAGE> 132
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$818,000 as of December 31, 1999 for working capital. These advances
are referred to as Convertible Promissory Notes on the Company's
balance sheet at December 31, 1999 (See Note 6). In addition, PLL has
agreed to advance to LTC funds required by LTC for ongoing employee,
operating and administrative expenses, excluding capital expenses
("LTC's Continuing Costs").
The consummation of the Merger is contingent upon certain closing
conditions being met by the parties including the approval of the
Merger by the stockholders of LTC and PLL and the closing of the Ilion
IPO. LTC will hold a meeting of the stockholders to consider and
approve the Merger and prior to the meeting LTC and PLL will mail a
proxy statement and prospectus to all of the LTC stockholders with
complete information on the Merger, PLL and the securities to be
received by the LTC stockholders in the Merger. The closing of the
Merger will occur contemporaneously with the Ilion IPO, assuming the
remaining closing conditions have been met. Pursuant to an extension
agreement (See Note 10), LTC is required to obtain the approval of the
Merger by the LTC stockholders by June 30, 2000, unless such date is
further extended by LTC and PLL. LTC and PLL currently have targeted a
closing to occur within 90 days of the LTC stockholder meeting. If the
expected consummation date for the Ilion IPO is after September 30,
2000 LTC and PLL intend to change the date of the LTC stockholder
meeting date so that the closing date will not be more than 90 days
after the LTC stockholder meeting date. While LTC and PLL currently
contemplate a June 30, 2000 LTC stockholder meeting date and a closing
date by September 30, 2000, the meeting and the closing dates may occur
on later dates, but in no event may the closing date be beyond February
28, 2002.
LTC has agreed that prior to the Merger Closing Date, it will use its
best efforts to cause all outstanding warrants and options issued by
LTC to be exercised by the holders thereof. In connection therewith,
LTC has repriced all outstanding warrants to $.15 and accelerated the
vesting of all outstanding warrants and options as an inducement to
their exercise by the holders thereof. (See Note 9)
LTC has agreed to terminate all LTC stock plans and outstanding and
unexercised stock options as of a date not later than immediately prior
to the closing date of the Merger. Any LTC warrants outstanding at the
Merger closing date that are not terminated, other than warrants held
by PLL, will be converted and adjusted at the Merger closing date into
warrants to purchase shares of Ilion in accordance with their terms.
In the event that any holder of LTC warrants or options exercises such
warrants or options prior to the Merger closing date, LTC has agreed to
use the proceeds thereof in the following order of priority: (1) first,
to pay a portion of the advances made by PLL to LTC pursuant to the
Bridge Loan in an aggregate amount up to $350,000, (ii) second, to pay
certain liabilities of LTC with respect to the accrued salary due and
owing to LTC's former Chairman and Chief Executive Officer in the
aggregate amount of $200,000, (iii) third, to purchase shares of PLL
Common at a price per share of $2.25 and (iv) to pay LTC's Continuing
Costs.
Upon the approval of the Merger Agreement by the stockholders of LTC
and until the closing of the Merger or the termination of the Merger
Agreement PLL has agreed to retain LTC as a consultant to PLL and LTC
has agreed to provide management and technical services to PLL. The
work product and new technology resulting from LTC's services to PLL
will belong exclusively to PLL. LTC may not, directly or indirectly,
engage in any conduct competitive to PLL during the term of the
consulting arrangement.
F-21
<PAGE> 133
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
If the Merger is not consummated for any reason or the Merger is not
approved by the LTC stockholders by June 30, 2000 (or such later date
agreed to by LTC and PLL) any advances from PLL to LTC under the Bridge
Loan Financing Agreement will be converted into LTC common stock at
$0.10 per share (the "Common Conversion Shares") and except in the
event of a PLL default under the Merger Agreement, PLL will be issued
three year warrants to purchase 7.5 million shares of LTC common stock
exercisable at $0.15 per share and PLL will have a first option to
purchase LTC's technologies and processes at market value if LTC sells,
goes into receivership, liquidation or the like. If the Merger
Agreement is terminated other than in the event of a default of PLL,
PLL will also have the right and option to purchase LTC's pilot plant
and equipment at book value as of the date of the Merger Agreement.
In connection with the Bridge Loan, LTC has granted PLL a non-exclusive
worldwide license to use LTC's thin film technology and manufacturing
methods solely as it relates to lithium-ion polymer batteries. Pursuant
to the licensing agreement, PLL will pay to LTC a royalty equal to the
higher of one percent of the net sales price of each licensed product
manufactured, sold or otherwise disposed of during the term of the
licensing agreement or the rate that applies to any license agreement
entered into subsequent to October 1, 1999 (which rate will apply
retroactively to October 1, 1999). The funds advanced by PLL to LTC
under the Bridge Loan will be deemed as an advance payment of royalty
fees due under the licensing agreement.
LTC has also agreed to enter into a Security Agreement and Assignment
of Lease in favor of PLL upon the approval of the Merger by the LTC
stockholders (the "Approval Date") pursuant to which LTC will grant PLL
a first priority security interest in all of the assets of LTC
effective from the Approval Date until the closing of the Merger (the
"Security Agreement"). The Security Agreement will grant PLL the right
to foreclose on all of LTC's assets in the event of any bankruptcy of
LTC or similar event. Pending the amendment of LTC's Certificate of
Incorporation to increase the number of authorized shares of Common
Stock, the Notes issued in connection with the bridge financing will be
convertible into shares of Preferred Stock having the economic and
voting equivalent of the Common Conversion Shares.
2. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements include the
accounts of LTC and Lithion. All significant intercompany accounts and
transactions have been eliminated.
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.
F-22
<PAGE> 134
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 the $5,500,000
Senior Secured Convertible Notes were capitalized. Such costs were
amortized over the term of the related debt using the straight-line
method. In 1999 debt issue costs of $488,500 were charged to additional
paid in capital in connection with the conversion of the Senior Secured
Convertible Notes.
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 - In accordance with Statement of Financial Accounting
Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation"
(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.
NET LOSS PER COMMON SHARE - The Company has presented net loss per
common share pursuant to SFAS 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, 1999 and
1998, 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, 1999 and
1998 were as follows:
POTENTIAL COMMON SHARES
<TABLE>
<CAPTION>
1999 1998
==== ====
<S> <C> <C>
Stock options 5,474,000 4,598,000
Warrants 4,590,000 4,590,000
Convertible Debt -- 19,643,000
Accrued interest on Convertible Debt -- 462,000
---------- ----------
Total 10,064,000 29,293,000
========== ==========
</TABLE>
F-23
<PAGE> 135
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(The table above does not give effect to the conversion of shares from
the convertible promissory notes with Pacific Lithium Limited as those
notes will only be convertible in the event the proposed merger is not
closed.)
COMPREHENSIVE INCOME - 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.
BUSINESS SEGMENTS - As a development stage enterprise, the Company
considers itself to have one operating segment.
RECENT ACCOUNTING PRONOUNCEMENTS - 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, 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. In June
1999, the FASB issued SFAS No. 137 which extends the effective date of
SFAS No. 133 to fiscal quarters of fiscal years beginning after June
15, 2000 and should not be applied retroactively to financial statement
of prior periods. 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.
NOTE 3 - 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. 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 the Bridge Loan and the closing of the merger described
in Note 1. 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.
F-24
<PAGE> 136
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 and operating 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 and
marketing capabilities, technological advances, the status of
competitors and the ability of the Company, including PLL, subsequent
to the merger to establish collaborative arrangements with other
companies to provide an expanded capacity to market and manufacture the
Company's products.
The Company has raised approximately $16,000,000 since inception
through various sales of convertible debt and common and preferred
stock. Management believes that, as of December 31, 1999, the Bridge
Loan commitments from PLL are sufficient to meet the Company's
obligations through the next year.
There can be no assurance that the merger will occur and the Company
would be able to attain other capital needed to attain commercial
viability of the Company's battery technology. If the merger is not
consummated and 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 4 - PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1999 is summarized as follows:
<TABLE>
<CAPTION>
1999
----------
<S> <C>
Laboratory equipment $1,311,000
Furniture and office equipment 98,000
Leasehold improvements 45,000
----------
$1,454,000
Less: Accumulated depreciation and amortization 1,024,000
----------
$ 430,000
==========
</TABLE>
F-25
<PAGE> 137
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - OTHER ACCRUED EXPENSES:
The Company is currently in default on a $100,000 note for a research
and development funding agreement. Under the agreement the Company was
supposed to pay a total of $150,000 for principal and interest through
January 2004. The Company has not made the 1999 payments required by
the note. In the event of default, the principal amount can be due
immediately. The note is secured by the intellectual property rights
and equipment developed from the funds provided by this agreement.
Management is in the process of renegotiating the payment terms of this
note.
NOTE 6 - CONVERTIBLE PROMISSORY NOTES:
On November 29, 1999, in connection with Bridge Loan, PLL has advanced
to LTC working capital of $818,000 in the form of Convertible
Promissory Notes which have no stated interest rate (See Note 1). If
the Merger, as described in Note 1, is not consummated for any reason
or the Merger is not approved by the LTC stockholders by June 30, 2000
(or such later date agreed to by LTC and PLL), the notes (as amended,
See Note 10) convert into shares of LTC common stock at a price of
$0.10 per share. In the event of conversion, the Company will recognize
interest expense related to the beneficial conversion feature of the
note. In addition, the principal amount of the notes will be decreased
by any royalties PLL owes to LTC under their non-exclusive worldwide
license to use LTC's thin film technology and manufacturing methods
related to lithium-ion polymer batteries.
NOTE 7 - 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 $8,492,000 at
December 31, 1999.
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, 1999.
At December 31, 1999, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $20,500,000 expiring
in the years 2004 through 2014 and net operating loss carryforwards of
approximately $15,300,000 for state income tax purposes, expiring in
the years 2000 through 2002.
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 9), there exists substantial risk that the
Company's use of net operating losses may be severely limited under the
Internal Revenue Code.
F-26
<PAGE> 138
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
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 pursuant to a Lease Agreement dated July
22, 1994, between PMP Whitemarsh Associates and the Company and
Addendum thereto dated July 22, 1994, as extended.
The lease had an initial five year term (which expired on October 31,
1999) and has an additional five year extension option. The Company is
required to give six months notice of its intention to exercise the
five year extension or of its intention not to extend the lease. PMP
Whitemarsh Associate has agreed by letter, dated February 3, 2000, to
give the Company until June 30, 2000 to exercise the lease option or
give the six month notice of termination.
EMPLOYMENT AGREEMENTS - The Company has an employment agreement with
its Director of Research providing for annual compensation of $125,000
through February, 2001.
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 was extended through October 1999. Effective November 1,
1999, the Chief Executive Officer resigned. The officer had voluntarily
elected to defer his compensation in 1997 and 1998. At December 31,
1999, $211,416 of deferrals from 1997 and 1998 have been included in
accrued salaries in the accompanying financial statements. In 1999, the
Board of Directors approved payment of the officer's $366,000 deferred
salary fifty percent in cash and fifty percent in common stock at fair
value on the date of issuance.
Effective November 1, 1999, the Company extended the employment
agreements with its President/Chief Operating Officer and its Executive
Vice President of Operations/Chief Technical Officer at annual salaries
of $165,000 and $155,000, respectively, plus other incentives,
including performance bonuses and stock options until the later of
February 8, 2002 or one year after the merger with Pacific Lithium
Limited.
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 in 1998.
NOTE 9 - 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.
F-27
<PAGE> 139
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1999.
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 accrued at 8.5% and
was 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. In January 1999 the notes plus remaining accrued
interest were converted into 20,205,504 shares of the Company's Common
Stock at a conversion price of $.28 per share.
ACCOUNTS PAYABLE - In December 1999, the Company issued 523,000 shares
of its Common Stock in settlement of accounts payable of $149,000. The
fair value of the shares was $216,000. Additional expense of $67,000
was recognized as a result of the transaction.
PRIVATE PLACEMENT OFFERING - During 1999, the Company held a private
placement offering of common stock of the Company. As a result of the
offering, 4,500,000 shares were issued at a price of $0.10 per share.
The Company recognized additional compensation expense of $1,167,000 as
a result of this 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 were reserved and available for
grants. On December 2, 1997, shares of common stock available for grant
were increased to 5,333,334. Stock options permitting the holder to
purchase a specified number of shares of common stock are to 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.
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 are reserved and available
for grant. Stock options permitting the holder to purchase a specified
number of shares of common stock are to 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
F-28
<PAGE> 140
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 are 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.
In September of 1999, the Company decreased the exercise price of all
outstanding options issued under the 1994 Stock Plan to an exercise
price of $0.26. The repricing did not result in any additional expense
to the Company. Subsequent to December 31, 1999 all options become
fully vested (See Note 10). Options under the 1994 Stock Plan, the
Directors Plan and the 1998 Plan as of December 31 are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------ -----------------------------
Weighted Weighted
Average Average
Options Exercise Price Options Exercise Price
<S> <C> <C> <C> <C>
Outstanding, beginning of year 4,598,000 $0.55 2,909,000 $0.73
Granted 946,000 $0.27 2,103,000 $0.32
Exercised (98,000) $0.55
Cancelled (70,000) $0.57 (316,000) $0.65
--------- ----- --------- -----
Outstanding, end of year 5,474,000 $0.27 4,598,000 $0.55
--------- ----- --------- -----
Options exercisable, end of year 4,025,000 $0.27 2,615,000 $0.52
--------- ----- --------- -----
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Weighted
Weighted Average Weighted
Range of Average Remaining Average
Exercise Options Exercise Contractual Options Exercise
Prices Outstanding Price Life Exercisable Price
<S> <C> <C> <C> <C> <C>
$.26 3,465,000 $.26 10 years 2,549,000 $.26
$.28 1,958,000 $.28 9 years 1,448,000 $.28
$.31-$.90 51,000 $.56 7-10 years 28,000 $.76
----------- -----------
5,474,000 4,025,000
</TABLE>
F-29
<PAGE> 141
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 1999 and 1998 was $.27 and $.25 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, 1999 and
1998 would have been $3,843,000 ($.09 per share) and $3,726,000 ($.17
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:
1999 - no dividend yield, expected volatility of 103%, risk-free
interest rate of 6.3% and expected life of 5 years; 1998 - no dividend
yield, expected volatility of 103%, risk-free interest rate of 4.8% and
expected life of 5 years.
WARRANTS -
Warrants as of December 31 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
==== ====
Weighted Weighted
Average Average
Exercise Exercise
Warrants Price Warrants Price
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 4,590,000 $.15 4,590,000 $1.52
Outstanding, end of year 4,590,000 $.15 4,590,000 $0.93
--------- ---- --------- -----
Exercisable 4,590,000 $.15 3,233,000 $0.86
--------- ---- --------- -----
</TABLE>
There were no warrants granted or exercised during 1999 or 1998. In November of
1999, the Company decreased the exercise price of all of the outstanding
warrants to $0.15. The Company recognized an expense of $602,000 in connection
with the repricing. The following table summarizes information about warrants
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Weighted Weighted Average Weighted
Range of Warrants Average Remaining Warrants Average
Exercise Price Outstanding Exercise Price Contractual Life Exercisable Exercise Price
- -------------- ----------- -------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$.15 4,590,000 $.15 1.45 years 4,590,000 $.15
</TABLE>
F-30
<PAGE> 142
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - SUBSEQUENT EVENTS -
On January 19, 2000, LTC and Pacific Lithium Limited of Auckland, New
Zealand signed an agreement to merge their respective companies (See
Note 1). In January and February of 2000, Pacific Lithium Limited
advanced to LTC an additional $282,000 under the Bridge Loan.
On February 2, 2000, the Board of Directors approved the immediate
vesting of all outstanding options not currently vested. The Board of
Directors has also approved the extension of the reduction in the
exercise price of the warrants to $.15 (See Note 9) until the earlier
of the original termination date of the warrant or 30 days prior to the
closing of the merger with Pacific Lithium Limited.
In February 2000, options to purchase 1,710,086 shares of the Company's
common stock were exercised, resulting in proceeds of $470,000 to the
Company.
On March 31, 2000, LTC and PLL amended the merger agreement, the
Convertible Promissory Notes, and related documents to change the date
by which the LTC shareholders must vote on the proposed merger from May
30, 2000 to June 30, 2000.
F-31
<PAGE> 143
FINANCIAL STATEMENTS
of Pacific Lithium Limited
Fiscal Year Ended
March 31, 1999
and
Nine Months Ended
December 31, 1999
F-32
<PAGE> 144
To the Board of Directors and Shareholders of
Pacific Lithium Limited
We have audited the accompanying statements of financial position of Pacific
Lithium Limited as of March 31, 1999, 1998 and 1997 and the related statements
of operations, changes in shareholders' equity and cash flows for each of the
years in the three year period ended March 31, 1999, all expressed in New
Zealand dollars. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on out audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatements. 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 our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in all
material respects the financial position of Pacific Lithium Limited at March 31,
1999 and 1998 and the results of its operations and their cash flows for each of
the three years in the period ended March 31, 1999 (all expressed in New Zealand
dollars), in conformity with accounting principles generally accepted in the
United States.
Horwath Porter Wigglesworth
Auckland, New Zealand
May 11, 1999
F-33
<PAGE> 145
PACIFIC LITHIUM LIMITED
BALANCE SHEETS
MARCH 31, 1998 AND 1999 AND DECEMBER 31, 1998 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31, NINE MONTHS ENDED DECEMBER 31,
1998 1999 1999 1998 1999 1999
NZ$ NZ$ US$ NZ$ NZ$ US$
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 243,774 $ 569,986 $ 298,331 $ 848,113 $ 3,914,537 $ 2,048,869
Trade Receivables (including $255,027 435,974 970,008 507,702 603,442 506,272 264,983
in December 1999 - related party)
Inventory 478,964 303,943 159,084 395,601 137,086 71,751
Prepaid Expenses 5,000 -- -- -- -- --
----------- ------------ ----------- ----------- ------------ -----------
TOTAL CURRENT ASSETS 1,163,712 1,843,937 965,117 1,847,156 4,557,895 2,385,603
----------- ------------ ----------- ----------- ------------ -----------
PROPERTY
Property and equipment 2,233,692 2,779,803 1,454,949 2,706,670 3,548,351 1,857,207
INVESTMENTS
Investment in Qinghai JV -- -- -- -- 734,418 384,394
OTHER ASSETS
Patents Pending -- 206,034 107,838 128,983 193,640 101,351
Licenses 176,159 1,187,392 621,481 1,187,392 2,240,191 1,172,516
Deferred offering costs -- -- -- -- 80,000 41,872
Due from Lithium Technology
Corporation Limited -- -- -- -- 1,573,846 823,751
----------- ------------ ----------- ----------- ------------ -----------
TOTAL OTHER ASSETS 176,159 1,393,426 729,319 1,316,375 4,087,677 2,139,490
----------- ------------ ----------- ----------- ------------ -----------
$ 3,573,563 $ 6,017,166 $ 3,149,385 $ 5,870,201 $ 12,928,341 $ 6,766,694
=========== ============ =========== =========== ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables $ 269,976 $ 998,997 $ 522,875 $ 731,164 $ 437,791 $ 229,140
Capital Lease Current Portion 13,526 15,584 8,157 15,081 5,473 2,865
Accrued License Costs -- -- -- -- 181,622 95,061
----------- ------------ ----------- ----------- ------------ -----------
TOTAL CURRENT LIABILITIES 283,502 1,014,581 531,032 746,245 624,886 327,066
----------- ------------ ----------- ----------- ------------ -----------
NON CURRENT LIABILITIES
Capital Lease 18,400 2,816 1,474 6,895 1,408 737
----------- ------------ ----------- ----------- ------------ -----------
TOTAL NON CURRENT LIABILITIES 18,400 2,816 1,474 6,895 1,408 737
----------- ------------ ----------- ----------- ------------ -----------
COMMITMENTS AND CONTINGENCIES -- -- -- -- -- --
SHAREHOLDERS' EQUITY
6,000,000 Class A shares 6,000 6,000 3,140 6,000 6,000 3,140
15,302,934 Class B shares 10,361,482 15,496,631 8,110,937 14,339,029 26,128,193 13,675,496
Stock Options Outstanding -- 613,800 321,263 520,800 537,460 281,307
Retained Earnings (7,095,821) (10,877,629) (5,693,351) (9,541,585) (14,193,038) (7,428,636)
----------- ------------ ----------- ----------- ------------ -----------
3,271,661 5,238,802 2,741,989 5,324,244 12,478,615 6,531,307
Unearned Stock Option Compensation -- (239,033) (125,110) (207,183) (176,568) (92,416)
----------- ------------ ----------- ----------- ------------ -----------
TOTAL SHAREHOLDERS' EQUITY 3,271,661 4,999,769 2,616,879 5,117,061 12,302,047 6,438,891
----------- ------------ ----------- ----------- ------------ -----------
$ 3,573,563 $ 6,017,166 $ 3,149,385 $ 5,870,201 $ 12,928,341 $ 6,766,694
=========== ============ =========== =========== ============ ===========
</TABLE>
F-34
<PAGE> 146
PACIFIC LITHIUM LIMITED
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
AND THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31, NINE MONTHS ENDED DECEMBER 31,
1997 1998 1999 1999 1998 1999 1999
NZ$ NZ$ NZ$ US$ NZ$ NZ$ US$
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 80,488 $ 715,919 $ 775,950 $ 406,132 $ 645,206 $ 946,409 $ 495,350
Cost of Sales (Exclusive of
Depreciation Below) 122,529 1,260,636 1,121,532 587,010 884,262 1,214,938 635,899
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross Profit/(Loss) (42,041) (544,717) (345,582) (180,878) (239,056) (268,529) (140,549)
OPERATING EXPENSES
Research and Development 948,371 548,462 1,040,625 544,663 555,470 728,055 381,064
Royalty Expense -- -- -- -- -- 188,680 98,755
General and Administration 778,373 985,691 1,819,812 952,490 1,223,434 1,813,104 948,979
Sales and Marketing 71,869 142,620 240,257 125,751 208,974 227,920 119,293
Depreciation 203,359 406,801 374,053 195,779 269,938 456,001 238,671
----------- ----------- ----------- ----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 2,001,972 2,083,574 3,474,747 1,818,683 2,257,816 3,413,760 1,786,762
LOSS FROM OPERATIONS (2,044,013) (2,628,291) (3,820,329) (1,999,561) (2,496,872) (3,682,289) (1,927,311)
OTHER EXPENSE (INCOME)
Other Income (145,114) (35,147) (42,062) (22,015) (53,958) (372,277) (194,850)
Interest Expense -- 12,534 3,541 1,853 2,850 1,281 670
Loss on Abandonment
of Assets 196,083 703,141 -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (2,094,982) (3,308,819) (3,781,808) (1,979,399) (2,445,764) (3,311,293) (1,733,131)
AND SHARE OF EQUITY LOSS
Income Taxes -- -- -- -- -- -- --
Equity Earnings (Loss) -- -- -- -- -- (4,116) (2,154)
----------- ----------- ----------- ----------- ----------- ----------- -----------
NET LOSS $(2,094,982) $(3,308,819) $(3,781,808) $(1,979,399) $(2,445,764) $(3,315,409) $(1,735,285)
=========== =========== =========== =========== =========== =========== ===========
Weighted Average Number of
Common Shares Outstanding 13,069,000 15,499,946 17,273,161 17,273,161 17,089,320 20,180,240 20,180,240
------------------------------------------------------------------------------------------------
BASIC & DILUTED NET LOSS
PER SHARE $ (0.16) $ (0.21) $ (0.22) $ (0.11) $ (0.14) $ (0.16) $ (0.09)
</TABLE>
F-35
<PAGE> 147
PACIFIC LITHIUM LIMITED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS B CLASS B CAPITAL RAISING RETAINED TOTAL
STOCK STOCK STOCK STOCK FROM EARNINGS
STOCK OPTIONS (DEFICIT)
# NZ$ # NZ$ NZ$ NZ$ NZ$
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
As of April 1, 1996 6,000,000 6,000 6,000,000 4,750,000 (1,692,020) 3,063,980
New Capital Issues
September 1996 1,000,000 1,250,000 1,250,000
November 1996 1,000,000 1,250,000 1,250,000
March 1997 828,000 1,035,000 1,035,000
Net Loss (2,094,982) (2,094,982)
--------------------------------------------------------------------------------------------------
As of March 31, 1997 6,000,000 6,000 8,828,000 8,285,000 -- (3,787,002) 4,503,998
New Capital Issues
May 1997 172,000 215,000 215,000
August 1997 273,000 764,400 764,400
November 1997 210,500 589,400 589,400
January 1998 978,284 880,456 880,456
Capital Raising Costs (372,774) (372,774)
Net Loss (3,308,819) (3,308,819)
--------------------------------------------------------------------------------------------------
As of March 31, 1998 6,000,000 6,000 10,461,784 10,361,482 -- (7,095,821) 3,271,661
New Capital Issues
April 1998 416,250 828,925 828,925
August 1998 175,000 507,500 507,500
October 1998 4,400 17,600 17,600
November 1998 499,875 1,935,500 1,935,500
December 1998 213,625 854,500 854,500
February 1999 31,500 126,000 126,000
March 1999 298,250 1,167,461 1,167,461
Employee Stock Options Issued 613,800 613,800
Capital Raising Costs (302,337) (302,337)
Net Loss (3,781,808) (3,781,808)
--------------------------------------------------------------------------------------------------
As of March 31, 1999 6,000,000 6,000 12,100,684 15,496,631 613,800 (10,877,629) 5,238,802
==================================================================================================
US$ 3,140 US$ 8,110,937 US$ 321,263 US$ (5,693,351) US$ 2,741,989
==================================================================================================
</TABLE>
F-36
<PAGE> 148
PACIFIC LITHIUM LIMITED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS B CLASS B CAPITAL RAISING RETAINED TOTAL
STOCK STOCK STOCK STOCK FROM EARNINGS
STOCK OPTIONS (DEFECIT)
# NZ$ # NZ$ NZ$ NZ$ NZ$
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
As of April 1, 1998 6,000,000 6,000 10,461,784 10,361,482 (7,095,821) 3,271,661
New Capital Issues
April 1998 416,250 828,925 828,925
August 1998 175,000 507,500 507,500
October 1998 4,400 17,600 17,600
November 1998 499,875 1,935,500 1,935,500
December 1998 213,625 854,500 854,500
Employee Stock Options Issued 520,800 520,800
Capital Raising Costs (166,478) (166,478)
Net Loss (2,445,764) (2,445,764)
---------------------------------------------------------------------------------------------------
As of December 31, 1998 6,000,000 6,000 11,770,934 14,339,029 520,800 (9,541,585) 5,324,244
===================================================================================================
As at April 1, 1999 6,000,000 6,000 12,100,684 15,496,631 613,800 (10,877,629) 5,238,802
New Capital Issues
May 1999 2,168,250 8,049,771 8,049,771
August 1999 29,000 116,000 116,000
December 1999 950,000 2,850,000 2,850,000
Employee Stock Options Issued 55,860 55,860
Capital Raising Costs (570,859) (570,859)
Received on Exercise of
Employee Stock Options 55,000 186,650 (132,200) 54,450
Net Loss (3,315,409) (3,315,409)
---------------------------------------------------------------------------------------------------
As of December 31, 1999 6,000,000 6,000 15,302,934 26,128,193 537,460 (14,193,038) 12,478,615
===================================================================================================
US$ 3,140 US$ 13,675,496 US$ 281,307 US$ (7,428,636) US$ 6,531,307
===================================================================================================
</TABLE>
F-37
<PAGE> 149
PACIFIC LITHIUM LIMITED
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND
THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
1997 1998 1999 1999
NZ$ NZ$ NZ$ US$
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash was provided from:
Sales 80,488 615,359 464,779 243,265
Interest Received 150,119 35,147 40,440 21,166
Dividends Received -- -- 4,176 2,186
Sales Tax Refunds 393,261 384,288 210,947 110,410
---------- ---------- ---------- ----------
623,868 1,034,794 720,342 377,027
Cash was applied to:
Payments to Employees (850,100) (1,064,667) (1,260,860) (659,934)
Payments to Suppliers (1,527,420) (2,351,100) (1,769,324) (926,064)
---------- ---------- ---------- ----------
(2,377,520) (3,415,767) (3,303,184) (1,585,998)
---------- ---------- ---------- ----------
Net Cash Outflow From
Operating Activities (1,753,652) (2,380,973) (2,309,842) (1,208,971)
---------- ---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Cash was applied to:
Purchase of Property (2,180,168) (562,360) (480,354) (251,417)
Purchase of License MIT -- (176,159) (703,740) (368,338)
Purchase of Shares in Qinghai JV -- -- -- --
---------- ---------- ---------- ----------
Net Cash Outflow From
Investing Activities (2,180,168) (738,519) (1,184,094) (619,755)
---------- ---------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Cash was provided from:
Issue of Shares 3,535,000 1,766,472 3,820,148 1,999,465
---------- ---------- ---------- ----------
Net Cash Inflow from
Financing Activities 3,535,000 1,766,472 3,820,148 1,999,465
---------- ---------- ---------- ----------
TOTAL NET CASH INFLOW/(OUTFLOW) (398,820) (1,353,020) 326,212 170,739
---------- ---------- ---------- ----------
PLUS CASH AT BEGINNING OF YEAR 1,995,614 1,596,794 243,774 127,592
---------- ---------- ---------- ----------
CASH AT END OF YEAR 1,596,794 243,774 569,986 298,331
========== ========== ========== ==========
RECONCILIATION WITH NET LOSS
Net Loss For Year (2,094,982) (3,308,819) (3,781,808) (1,979,398)
Add non-cash items:
Stock based compensation cost -- -- 374,767 196,153
Depreciation 203,359 406,801 374,053 195,779
Foreign exchange loss -- -- -- --
Other -- -- -- --
Loss (gain) on asset disposals 196,083 703,141 2,554 1,337
---------- ---------- ---------- ----------
399,442 1,109,942 751,374 393,269
ADD/(LESS) CHANGES TO WORKING CAPITAL ITEMS:
Increase in Receivables (19,271) (8,459) (14,033) (7,345)
Decrease in Inventory (488,285) 127,342 179,189 93,788
Increase in Payables 449,444 (300,979) 555,436 290,715
---------- ---------- ---------- ----------
(58,112) (182,096) 720,592 377,158
---------- ---------- ---------- ----------
NET CASH OUTFLOW FROM
OPERATING ACTIVITIES (1,753,652) (2,380,973) (2,309,842) (1,208,971)
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
1998 1999 1999
NZ$ NZ$ US$
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash was provided from:
Sales 401,161 1,023,607 535,756
Interest Received 36,135 151,877 79,492
Dividends Received 4,176 -- --
Sales Tax Refunds 131,673 290,381 151,985
---------- ----------- ----------
573,145 1,465,865 767,233
Cash was applied to:
Payments to Employees (906,092) (1,176,903) (615,991)
Payments to Suppliers (1,521,485) (4,385,758) (2,295,506)
---------- ----------- ----------
(2,427,577) (5,562,661) (2,911,497)
---------- ----------- ----------
Net Cash Outflow From
Operating Activities (1,854,432) (4,096,796) (2,144,264)
---------- ----------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Cash was applied to:
Purchase of Property (362,759) (1,142,341) (597,901)
Purchase of License MIT (703,740) (1,061,140) (555,401)
Purchase of Shares in Qinghai JV -- (738,534) (386,549)
---------- ----------- ----------
Net Cash Outflow From
Investing Activities (1,066,499) (2,942,015) (1,539,851)
---------- ----------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Cash was provided from:
Issue of Shares 3,525,270 10,383,362 5,434,652
---------- ----------- ----------
Net Cash Inflow from
Financing Activities 3,525,270 10,383,362 5,434,652
---------- ----------- ----------
TOTAL NET CASH INFLOW/(OUTFLOW) 604,339 3,344,551 1,750,537
PLUS CASH AT BEGINNING OF YEAR 243,774 569,986 298,332
---------- ----------- ----------
CASH AT END OF YEAR 848,113 3,914,537 2,048,869
========== =========== ==========
RECONCILIATION WITH NET LOSS
Net Loss For Year (2,445,764) (3,315,409) (1,735,285)
Add non-cash items:
Stock based compensation cost 313,617 118,325 61,931
Depreciation 269,938 456,001 238,671
Foreign exchange loss -- 32,748 17,140
Other -- 8,116 4,248
Loss (gain) on asset disposals (13,647) 1,235 646
---------- ----------- ----------
569,908 616,425 322,636
ADD/(LESS) CHANGES TO WORKING CAPITAL ITEMS:
Increase in Receivables (510,191) (1,110,863) (581,426)
Decrease in Inventory 83,363 166,857 87,333
Increase in Payables 448,252 (453,806)
---------- ----------- ----------
21,424 (1,397,812) (731,615)
---------- ----------- ----------
NET CASH OUTFLOW FROM
OPERATING ACTIVITIES (1,854,432) (4,096,796) (2,144,264)
========== =========== ==========
</TABLE>
F-38
<PAGE> 150
PACIFIC LITHIUM LIMITED
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999 AND
THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
CASH PAID FOR INTEREST
Cash was applied to interest as follows Years ended: March 31, 1997 - zero,
March 31, 1998 - NZ$12,534, March 31, 1999 - NZ$3541 Nine months ended: December
31, 1998 - NZ$2850, December 31, 1999 - NZ$1281
NON CASH INVESTMENT TRANSACTIONS
Shares have been issued as part of the following transactions:
9 Months ended December 31, 1998; Year ended March 31, 1999
200,000 shares valued at NZ$4.00 per share were issued to M.I.T. as a component
of the total License cost.
9 Months ended December 31, 1999
20,000 shares valued at NZ$4.00 per share were issued to an investment advisor
and were recorded as Deferred Offering Costs.
F-39
<PAGE> 151
PACIFIC LITHIUM LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
AND THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS
Pacific Lithium Limited, referred to as the "Company", is a New Zealand based
company engaged in the production and sale of lithium carbonate, the research
and development of manganese cathode materials and the design of cathode
production facilities to further develop lithium-polymer rechargeable battery
technologies.
The Company operates within one operating segment.
Accounting Principles
The financial statements are prepared in conformity with generally accepted
accounting principles in the United States.
CONVENIENCE TRANSLATION
The financial statements are expressed in New Zealand dollars unless otherwise
specified. The amounts pertaining to the most recent interim and fiscal
financial periods are also expressed in United States dollars, the latter being
presented solely for convenience and translated from New Zealand dollars, as a
matter of arithmetical computation only, at a rate of NZ$1.00 = US$0.5234 based
on the noon buying rate in New York City for cable transfers in foreign
currencies as certified for customs purposes by the Federal Reserve Bank of New
York on December 31, 1999.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results, as determined at a later date, could differ from those
estimates.
FINANCIAL INSTRUMENTS
Financial instruments include cash and cash equivalents, accounts receivable,
other assets and accounts payable. Management believes that the amounts reported
for financial instruments are reasonable approximations of their fair values due
to their short-term nature. The Company does not utilise derivative financial
instruments.
INVESTMENTS ACCOUNTED FOR UNDER EQUITY METHOD
The financial statements include the accounts of Pacific Lithium Limited and its
investment in a 50% owned joint venture with the Qinghai Institute of Salt Lakes
which is accounted for using the equity method; the Company's share of the joint
venture's operating results is reflected in equity earnings. Adjustments
resulting from translating the joint ventures foreign functional currency
financial statements from Renminbi (official currency of China) into New Zealand
dollars are included in the currency translation adjustment in shareholders'
equity.
F-40
<PAGE> 152
CASH
Cash comprises cash and demand deposits with money center banks or other sound
financial institutions and highly liquid investments, which are readily
convertible into cash and have maturities of three months or less.
PROPERTY AND EQUIPMENT
Plant, machinery and vehicles are recorded at cost. Depreciation is determined
principally on a declining balance basis for machinery and vehicles, based upon
estimated useful lives ranging from 4 to 10 years.
The carrying value of a long-lived asset is considered impaired when the
anticipated undiscounted cash flow from such asset is less than its carrying
value. In that event, a loss is recognized based on the amount by which the
carrying value exceeds the fair market value of the long-lived asset. Fair
market value is determined primarily using the anticipated cash flows discounted
at a rate commensurate with the risk involved.
PATENTS PENDING
Patents application costs are recorded as Patents Pending as incurred.
Amortization of a patent commences on grant, for the lesser of its expected life
or ten years. Should the patent not be awarded, accumulated cost is written off
immediately.
LICENCE ASSET
Licence costs are recorded as assets where direct future economic benefit is
anticipated. Amortisation is over 10 years 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.
CAPITAL LEASES
Capital leases are capitalised to reflect the term borrowing incurred and the
cost of the acquired asset. The finance cost portion of lease payments is
written off to earnings.
REVENUE RECOGNITION
Revenue is recognized when products are shipped to customers.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
OTHER INCOME
Other income consists primarily of bank interest received and foreign exchange
gains.
F-41
<PAGE> 153
EMPLOYEE STOCK OPTIONS
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. The stock option plan was determined to be compensatory. The
compensation expense for non-vested stock options is accounted for using a
graded vesting calculation which weights compensation more heavily in the
earliest vesting periods.
RECENT ACCOUNTING PRONOUNCEMENTS
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. This statement is effective for fiscal years
beginning after June 15, 2000. The Company does not utilise derivative financial
instruments and therefore does not expect the effect of this pronouncement to be
material.
In January 2000, the Financial Accounting Standards Board issued Interpretation
No. 44, Accounting for Certain Transactions involving Stock Compensation, of
which some provisions are already effective and certain provisions of which
become effective from July 1, 2000. The Company does not believe that the
adoption of this pronouncement will have a material effect on its financial
statements.
NOTE 2 - NET LOSS PER COMMON SHARE
Basic net loss per common share is based upon the weighted average number of
outstanding common shares. For the fiscal years ended March 31, 1997, 1998 and
1999 and the unaudited nine month periods ended December 31, 1998 and 1999 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 for the purpose of calculating
diluted net loss per common share. The maximum potential common shares resulting
from stock options and warrants that would be used to determine diluted earnings
per share were as follows (Table in New Zealand dollars, except for share
amounts).
<TABLE>
<CAPTION>
March 31, March 31, March 31, December 31, December 31,
1997 1998 1999 1998 1999
(unaudited) (unaudited)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Employee Stock Options 624,000 594,000 683,000
Shareholder Options 540,500 401,875 2,350,000
----------------------------------------------------------------------------------------
Maximum Potential
Dilutive Shares 1,164,500 995,875 3,033,000
========================================================================================
Basic and Diluted Net Loss per Common
Share $ (0.16) $ (0.21) $ (0.22) $ (0.14) $ (0.16)
Net loss (numerator) $ (2,094,982) $ (3,308,819) $ (3,781,808) $ (2,445,764) $ (3,315,409)
Weighted Average Common Shares
Outstanding (Denominator) 13,069,000 15,499,946 17,273,161 17,089,320 20,180,240
</TABLE>
F-42
<PAGE> 154
During the first three months of the calendar year 2000 there have been new
shares issued as follows.
<TABLE>
<CAPTION>
Date Issued Number of Shares
----------------
<S> <C>
February 1, 2000 471,659
March 14, 2000 1,643,986
</TABLE>
NOTE 3 - UNUSUAL ITEMS
ABANDONMENT OF EXTRACTION PROCESS
In the fiscal year ended March 31, 1997 a plant designed for the salt water
extraction process was considered to be impaired and costs incurred to date were
expensed.
In the fiscal year ended March 31, 1998 property associated with a property
lease and construction of the abandoned project to extract Lithium salts from
saltwater were written off at the close of the project.
NOTE 4 - CASH
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, 1999
1998 1999 1998 (UNAUDITED)
(UNAUDITED)
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash $243,774 $ 569,986 $ 815,113 $ 314,537
Short term deposits 33,000 3,600,000
---------------------------------------------------------------
Total $243,774 $ 569,986 $ 848,113 $ 3,914,537
===============================================================
</TABLE>
A foreign exchange gain of $211,801 on a U.S. dollar denominated bank account
was recorded as Other Income in the Operating Statement in the nine month period
ended December 31, 1999. Foreign Exchange losses for the years ended March 31,
1997, 1998 and 1999, and the nine months ended December 31, 1998 were not
material.
NOTE 5 - ACCOUNTS RECEIVABLE AND PURCHASES OF RAW MATERIAL
The Company is subject to a concentration of credit risk through the level of
sales to and amounts receivable from a major customer who holds a 4.1%
shareholder interest as follows:
The Company currently purchases its lithium feedstock from one source of supply.
<TABLE>
<CAPTION>
Customer account: MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999 1998 (UNAUDITED) 1999 (UNAUDITED)
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Percentage of sales 99.89% 60.12% 15.10% 16.00% 63.02%
Account receivable $ -- $ 68,317 $ -- $ -- $ 225,077
</TABLE>
The Company does not generally require collateral for its trade accounts
receivable and, as it does not expect any loss, has not made provision for
doubtful debts.
NOTE 6 - DUE FROM LITHIUM TECHNOLOGY CORPORATION LIMITED ("LTC")
(PROPOSED ACQUIREE)
Operating funding of US$818,400 was provided to LTC in the nine month period
ended December 31, 1999. The Company has agreed to provide additional short term
funding to LTC which is expected to amount to approximately US$1.8 million in
the next year.
F-43
<PAGE> 155
The funding is unsecured and interest free. In the event that the proposed
merger between the Company and LTC (see note 15) is not completed through no
cause of the company, this funding converts to LTC common stock at US$0.10 per
share.
NOTE 7 - INVENTORY
Inventory is valued using the FIFO method. Due to the strict requirements in
materials processing a quarterly quality review is carried out and any
deteriorated material is disposed of and the accounts adjusted accordingly.
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1998 1999 1998 (UNAUDITED) 1999 (UNAUDITED)
---------------------------------------------------------
<S> <C> <C> <C> <C>
Raw Materials $203,916 $ 43,601 $125,873 $110,783
Finished Goods 275,048 260,342 269,727 26,303
---------------------------------------------------------
Total $478,964 $303,943 $395,600 $137,086
=========================================================
</TABLE>
NOTE 8 - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1998 1999 1998 (UNAUDITED) 1999 (UNAUDITED)
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Plant and Equipment $2,670,147 $3,594,482 $3,481,947 $4,711,870
Motor Vehicles 120,547 14,222 14,222 14,222
----------------------------------------------------------------
Total Cost $2,790,694 $3,608,704 $3,496,169 $4,726,092
----------------------------------------------------------------
Accumulated Depreciation
Plant & Equipment $ 490,312 $ 822,477 $ 755,168 $1,170,054
Motor Vehicles 66,690 6,424 5,887 7,687
----------------------------------------------------------------
Total Accumulated Depreciation $ 557,002 $ 828,901 $ 761,055 $1,177,741
----------------------------------------------------------------
Total Net Book Value $2,233,692 $2,779,803 $2,735,114 $3,548,351
================================================================
</TABLE>
NOTE 9 - PATENTS PENDING
Patent application costs associated with the development of the lithium
manganese cathode materials and production have been recorded as an asset. No
amortization has been recorded as the patents have yet to be granted.
NOTE 10 - LICENSE ASSET
The Company is licensed by the Massachusetts Institute of Technology ("MIT") to
use certain of its patents. The Company has a license from Energy Ventures Inc.
("EVI") to use certain patents developed by the National Research Council of
Canada ("NRC"). All costs associated with these license agreements were
capitalized.
The licensing agreement with MIT began in February 1998 with the Company
entering into an exclusive worldwide license for certain anode, cathode and
electrolyte technologies developed by MIT. The agreement was amended in December
1998, so that Ilion's license for anode patents is now non-exclusive and a
sponsored research component was also abandoned. The license term matches the
life of the patents concerned, with the
F-44
<PAGE> 156
Company having the right to terminate upon six months notice. The license was
negotiated in US$ with consideration consisting of US$450,000 and the issue of
200,000 of the Company's shares, which have been valued at NZ$4.00 per share in
the accounts. Annual costs include a license maintenance fee of US$100,000 per
annum, which is credited for royalties owed to MIT which accrue at 5% of net
revenues from licensed products and 50% of any sublicense fees Ilion receives
from the licensed patents.
The Company is also subject to the following minimum performance obligations:
- - Ilion must raise at least $100 million from the sale of its shares by
December 31, 2000, or demonstrate that Ilion owns the production capacity
to produce at least 5,000,000 batteries based on licensed products per
annum, or that Ilion has signed multi year contracts for the contract
manufacture of at least 5,000,000 batteries based on licensed products per
annum;
- - Ilion is required to develop working prototypes of lithium batteries for
electric vehicle applications by January 2004 and working prototypes of
large energy storage systems or large energy leveling systems by January 1,
2008; and
- - Ilion is required to have net revenues on sales of licensed products of
2,500,000 per annum by December 31, 2000 and $15,000,000 per annum by
December 31, 2001.
If Ilion does not fulfil the above obligations MIT will have the right to
terminate the agreement. Ilion is currently renegotiating the terms of the
agreement with MIT.
The Company entered into an agreement with EVI dated as of October 13, 1999,
whereby the Company gained an option to exclusive and non-exclusive rights to
exploit material chemistries developed by NRC. EVI is the exclusive worldwide
licensee and/or owner of the proprietary rights in certain products and
processes comprising lithium manganese oxide compounds for use as cathodes in
battery applications developed or owned by NRC. The Company has since paid the
initial contribution of US$200,000 to EVI and exercised its option effective
March 31, 2000. The Company will issue 100,000 shares to EVI in April 2000 as a
result of exercising its option. There is no specified term and the Company may
give 12 months minimum notice to cancel the agreement. While the contract is in
effect royalties due to EVI are calculated at 4% of Net Sales with minimum sums
set at US$100,000 for contract years ending 2001 and 2002, rising to US$200,000
for 2003, US$400,000 for 2004, US$1,000,000 for 2005, US$2,000,000 for 2006 and
US$3,000,000 thereafter.
NOTE 11 - INVESTMENTS
In October 1999, the Company paid $738,534 for a 50% interest in the ownership
and earnings of Qinghai Lithium Limited ("Qinghai"). Qinghai is a joint venture
between the Company and the Qinghai Institute of Salt Lakes of China, set up to
develop and utilize the resources of East Taijinaier Salt Lake located in
Qinghai Province, China. Qinghai is establishing a plant to develop and utilize
the salt lake resources. The expected additional cost of the project to be borne
by the Company over the next 12-18 months is expected to be US$375,000. Funding
is primarily applied to long-lived assets. The Company expects no additional
taxes or barriers to repatriation of funds as a result of this structure.
In the nine month period ended December 31, 1999, no distributions were received
from Qinghai and the Company recorded an equity earnings loss of NZ$4,116. There
was no significant adjustment in the period resulting from translation to New
Zealand dollars.
NOTE 12 - RELATED PARTY TRANSACTIONS
Phoenix Management Limited, owned by the Company's Chief Executive Officer,
charges the Company for the use of motor vehicles and various office furniture,
and the salary costs of the executive officers of the Company:
F-45
<PAGE> 157
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999 1998 (UNAUDITED) 1999 (UNAUDITED)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Charges for:
Motor vehicles and
office furniture $ 31,850 $ 31,200 $ 31,200 $ 23,400 $ 23,400
Salary costs $266,200 $309,400 $432,860 $382,280 $294,445
</TABLE>
Included in the Accounts Receivable at December 31, 1998 and 1999 were the
amounts due of $68,317 and $225,077 on normal trading terms from a shareholder
in the Company. These amounts were subsequently paid.
To assist in ongoing research and development during fiscal 1998 the Company
borrowed $100,000 each from two of its directors. The amounts were repaid on
October 30, 1997 together with interest of $4,000 each.
F-46
<PAGE> 158
NOTE 13 - 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 as
follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999 1998 (UNAUDITED) 1999 (UNAUDITED)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net operating loss
carryforwards $ 2,093,000 $ 4,637,000 $ 7,239,000 $ 7,083,000 $ 10,550,000
===========================================================================================
Income tax effect at 33
percent 690,700 1,530,210 2,388,870 2,337,390 3,481,500
Valuation allowance (690,700) (1,530,210) (2,388,870) (2,337,390) (3,481,500)
-------------------------------------------------------------------------------------------
Net deferred tax asset $ -- $ -- $ -- $ -- $ --
===========================================================================================
</TABLE>
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, that a full valuation allowance
is appropriate for all periods presented.
Under New Zealand tax law, the net operating loss carryforwards do not expire.
However, current tax law limits the use of net operating loss carryforwards
after there has been a substantial change in ownership.
NOTE 14 - SHAREHOLDERS' EQUITY
COMMON STOCK
The Company has 2 classes of common stock; Class A and Class B. Both classes
have the same entitlements to voting (one vote per share) and dividends, and
rank equally in any liquidation. The Class A shares differ only in that they
vote for A Class directors and correspondingly B Class shares vote for B Class
directors. At any stage the board is to consist of an equal number of each Class
of director. To date no dividends have been declared.
In accordance with the New Zealand Companies Act 1993, the Company's shares have
no par value and the Company does not have a fixed amount of authorized capital.
SHAREHOLDER OPTIONS
Options over Class B shares have been issued to investors in conjunction with
some new issues of Class B shares on the basis of one option for each share
subscribed. 401,875 options exercisable at $4.00 per share were issued in
September 1998 and 1,948,125 options exercisable at $4.00 per share were
authorized in February 1999. No compensation was ascribed to these options.
The options are exercisable for a period of 45 days after the Company has
announced that it has committed to public listing of its shares. On February 29,
2000 the Company issued such notice.
EMPLOYEE STOCK OPTIONS
The Company established the Pacific Lithium Employee Share Option Plan on April
1, 1998 and it will continue until terminated by the Board of Directors. Under
the terms of the plan the Board of Directors
F-47
<PAGE> 159
nominates employees who may participate in the plan and in respect of each
nomination the Board determines the number of options and class of share to
which they relate, and the option issue and exercise prices. The maximum number
of options that may be issued to an employee is 120,000. In addition, the
maximum total number of options that may be issued in a 5-year period by the
Company is limited to 5 percent of the total number of shares in each class of
share. Options granted generally vest one-third upon each anniversary of the
grant date. Options granted are cancelled if not exercised within 2 weeks of the
termination of the grantee's employment or association with the Company, except
in certain situations such as death or disability.
No stock options were issued or outstanding in the years ended March 31, 1998
and 1997.
Options under the plan are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999
(UNAUDITED) (UNAUDITED)
--------------------------------------------------------------------------------
Number Option Price / Number Weighted Number Weighted
Range Average Average
Exercise Price Exercise Price
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at the beginning of
the period -- $ -- -- $ -- 624,000 $ 0.99
Options granted during period
- - exercise price less than market price 633,000 $ 0.99 603,000 $ 0.99 144,000 $ 3.60
- - exercise price greater than market price -- -- -- -- 50,000 $ 4.80
Options exercised -- -- -- -- 55,000 $ 0.99
Options lapsed -- -- -- -- -- --
Options forfeited 9,000 $ 0.99 9,000 $ 0.99 80,000 $ 0.99
--------------------------------------------------------------------------------
Options outstanding at end of the period 624,000 $ 0.99 594,000 $ 0.99 683,000 $ 1.82
================================================================================
Options exercisable at end of period
268,000 120,000 263,000
Options not exercisable due to exercise
period not yet reached 356,000 474,000 420,000
Weighted average expected remaining life 4-1 years 4-3 years 3.7 years
of outstanding options
Compensation cost recognized in earnings $ 374,767 $ 313,617 $ 118,325
Weighted average fair value of options granted
during the period
- - exercise price less than market price $ 1.21 $ 1.09 $ 0.79
- - exercise price greater than market price -- -- $ --
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock option plans. Accordingly,
compensation cost has been recognized on the stock option plans based on the
intrinsic value method, since the non-compensatory provisions of APB25 do not
apply. Calculating compensation cost using the fair value method as required by
FASB Statement 123 would not increase the recorded costs materially.
F-48
<PAGE> 160
NOTE 15 - SUBSEQUENT EVENTS
LITHIUM TECHNOLOGY CORPORATION MERGER
Subsequent to December 31, 1999 the Company entered into an Agreement and Plan
of Merger with Lithium Technology Corporation (LTC) on January 19, 2000 to
acquire its assets and liabilities. The agreement is subject to the shareholder
approval of both companies, which is expected by July 31, 2000. Under the
agreement LTC would merge its assets and operations into the Company in exchange
for the issuance of at least 3.5 million of the Company's class B shares to LTC
shareholders. The exact number is subject to possible increase of up to 638,267
additional shares under certain circumstances relating to the number of LTC
options and warrants exercised prior to the merger. The Company will offer
employment to all LTC employees and also offer to them a minimum of 300,000
options over the Company's shares exercisable at US$2.25, which shall vest on
the closing date of the merger. The merger is intended to occur
contemporaneously with an initial public offering by the Company in the second
half of calendar 2000.
In the event that the merger does not proceed:
- - The Bridge Financing provided to LTC (refer note 6) will convert into
new common stock of LTC at a price of US$0.10 per share.
- - The Company will obtain warrants to buy 7.5 million shares of LTC stock
at US$0.15 per share;
- - LTC shall grant the Company a non-exclusive, worldwide license to use
LTC's thin film technology and manufacturing methods; and
- - The Company shall have a first option to purchase LTC's technologies
and processes at market value if LTC sells these, or goes into
receivership, liquidation or the like.
It is the intent of the Company to re-domicile to the Delaware, USA, merge with
Ilion Technology Corporation, its wholly owned Delaware non-operating
corporation, and change its name to Ilion Technology Corporation in anticipation
of the merger.
NOTE 16 - SEGMENTAL INFORMATION
The Company operates entirely in one industry segment, being the production and
sale of lithium carbonate, the research and development of manganese cathode
materials and the design of cathode production facilities to further develop
lithium-polymer rechargeable battery technologies
The Company's geographic data for continuing operations are as follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999 1998 (UNAUDITED) 1999 (UNAUDITED)
---------- ---------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues
New Zealand $ -- $ 34,706 $ 51,895 $ 35,615 $ 66,248
Foreign 80,488 681,213 724,055 609,591 880,161
---------- ---------- ---------- ---------- ----------
Total revenues $ 80,488 $ 715,919 $ 775,950 $ 645,206 $ 946,409
========== ========== ========== ========== ==========
Long lived assets:
New Zealand 2,893,895 2,233,692 2,779,803 2,706,670 3,548,351
Foreign -- -- -- -- 734,418
---------- ---------- ---------- ---------- ----------
Total long-lived assets 2,893,895 2,233,692 2,779,803 2,706,670 4,282,769
========== ========== ========== ========== ==========
</TABLE>
Refer note 5 for information about major customers.
F-49
<PAGE> 161
APPENDIX A
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
by and between
PACIFIC LITHIUM LIMITED
and
LITHIUM TECHNOLOGY CORPORATION
Dated as of January 19, 2000
A-1
<PAGE> 162
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS.................................................................................................. A-5
ARTICLE I DEFINITIONS..................................................................................... A-5
1.1 Definitions................................................................................ A-5
ARTICLE II THE MERGER..................................................................................... A-11
2.1 The Merger................................................................................. A-11
2.2 Effective Time............................................................................. A-11
2.3 Effect of the Merger....................................................................... A-12
2.4 Certificate of Incorporation............................................................... A-12
2.5 Bylaws..................................................................................... A-12
2.6 Directors and Officers..................................................................... A-12
ARTICLE III CONVERSION OF SECURITIES .................................................................... A-12
3.1 Shares of the Surviving Corporation....................................................... A-12
3.2 No Conversion of PLL Common................................................................ A-12
3.3 Conversion of LTC Common; Assumption of Warrants........................................... A-12
3.4 Exchange Agent............................................................................. A-13
3.5 No Fractional Shares....................................................................... A-13
3.6 Rights of the LTC Shareholders............................................................. A-13
3.7 Exchange................................................................................... A-13
3.8 Closing of Stock Transfer Books............................................................ A-14
3.9 Changes in PLL or LTC Common............................................................... A-14
ARTICLE IV CLOSING AND CLOSING DELIVERIES................................................................. A-14
4.1 The Closing................................................................................ A-14
4.2 Deliveries of LTC.......................................................................... A-14
4.3 Deliveries by PLL.......................................................................... A-15
ARTICLE V REPRESENTATIONS AND WARRANTIES OF LTC........................................................... A-16
5.1 Corporate Existence and Power.............................................................. A-16
5.2 Corporate Authorization; Enforceability.................................................... A-16
5.3 Governmental Authorization................................................................. A-16
5.4 Non-Contravention; Consents................................................................ A-16
5.5 Capitalization............................................................................. A-17
5.6 Subsidiaries............................................................................... A-17
5.7 LTC Financial Statements; Book and Records................................................. A-17
5.8 No Undisclosed Liabilities................................................................. A-18
5.9 Tax Matters................................................................................ A-17
5.10 Absence of Certain Changes................................................................. A-19
5.11 Contracts.................................................................................. A-19
5.12 Insurance Coverage......................................................................... A-20
5.13 Litigation................................................................................. A-21
5.14 Compliance with Laws; Permits.............................................................. A-21
5.15 Properties; Sufficiency of Assets.......................................................... A-21
5.16 Intellectual Property...................................................................... A-22
5.17 Environmental Matters...................................................................... A-22
5.18 Plans and Material Documents............................................................... A-23
5.19 Affiliate Transactions..................................................................... A-24
</TABLE>
A-2
<PAGE> 163
<TABLE>
<S> <C>
5.20 Employee Matters........................................................................... A-24
5.21 Finders' Fees.............................................................................. A-25
5.22 Millennium Compliance...................................................................... A-25
5.23 SEC Filings................................................................................ A-25
5.24 Registration Statement, Other Documents.................................................... A-26
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PLL.......................................................... A-26
6.1 Corporate Existence and Power.............................................................. A-26
6.2 Corporate Authorization; Enforceability.................................................... A-26
6.3 Governmental Authorization................................................................. A-26
6.4 Non-Contravention; Consents................................................................ A-27
6.5 Capitalization............................................................................. A-27
6.6 Subsidiaries............................................................................... A-27
6.7 PLL Financial Statements; Books and Records................................................ A-27
6.8 No Undisclosed Liabilities................................................................. A-28
6.9 Tax Matters................................................................................ A-28
6.10 Absence of Certain Changes................................................................. A-29
6.11 Contracts.................................................................................. A-29
6.12 Insurance Coverage......................................................................... A-29
6.13 Litigation................................................................................. A-29
6.14 Compliance with Laws; Permits.............................................................. A-29
6.15 Properties; Sufficiency of Assets.......................................................... A-30
6.16 Intellectual Property...................................................................... A-30
6.17 Environmental Matters...................................................................... A-31
6.18 Plans and Material Documents............................................................... A-31
6.19 Affiliate Transactions..................................................................... A-32
6.20 Employee Matters........................................................................... A-32
6.21 Finders' Fees.............................................................................. A-32
6.22 Millennium Compliance...................................................................... A-32
6.23 New Zealand Filings........................................................................ A-32
6.24 Registration Statement, Other Documents.................................................... A-32
6.25 Available Funds............................................................................ A-33
ARTICLE VII CERTAIN COVENANTS............................................................................. A-33
7.1 Conduct of Business of LTC................................................................. A-33
7.2 Exclusive Dealing.......................................................................... A-34
7.3 Review of LTC; Confidentiality............................................................. A-34
7.4 Reasonable Best Efforts.................................................................... A-35
7.5 Transfer of Employees and Benefit Plans.................................................... A-36
7.6 Proxy and Registration Statements.......................................................... A-36
7.7 LTC SEC Filings; Disclosure of Material Information........................................ A-37
7.8 Transfer Taxes............................................................................. A-37
7.9 Further Assurances......................................................................... A-37
7.10 Insurance.................................................................................. A-37
7.11 Transfer of Intellectual Property Rights................................................... A-38
7.12 Board of Directors......................................................................... A-38
7.13 Repricing of Options and Warranties; Purchase of Additional Stock.......................... A-38
7.14 Bridge Financing; Additional Security...................................................... A-38
7.15 Line of Business; Non-Compete.............................................................. A-38
7.16 IPO; Reincorporation....................................................................... A-39
7.17 Consulting Services........................................................................ A-39
</TABLE>
A-3
<PAGE> 164
<TABLE>
<S> <C>
ARTICLE VIII CONDITIONS TO CLOSING........................................................................ A-40
8.1 Conditions to Obligations of PLL........................................................... A-40
8.1.1 Representations, Warranties and Covenants of LTC................................. A-40
8.1.2 No Injunction, etc............................................................... A-41
8.1.3 No Proceedings................................................................... A-41
8.1.4 Ancillary Closing Agreements..................................................... A-41
8.1.5 Third-Party Consents; Governmental Approvals..................................... A-41
8.1.6 No Material Adverse Change....................................................... A-41
8.1.7 Transfer of Intellectual Property Rights......................................... A-41
8.1.8 SEC Filings...................................................................... A-41
8.1.9 Due Diligence.................................................................... A-41
8.1.10 IPO Closing..................................................................... A-41
8.1.11 46
8.2 Conditions to Obligations of LTC........................................................... A-41
8.2.1 Representations, Warranties and Covenants of PLL................................. A-41
8.2.2 No Injunction, etc............................................................... A-42
8.2.3 No Proceedings................................................................... A-42
8.2.4 Ancillary Closing Agreements..................................................... A-42
8.2.5 Third-Party Consents; Governmental Approvals..................................... A-42
8.2.6 No Material Adverse Change....................................................... A-42
8.2.7 IPO Closing...................................................................... A-42
8.2.8 Fairness Opinion................................................................. A-42
8.2.9 Tax Opinion...................................................................... A-42
ARTICLE IX TERMINATION; REMEDIES.......................................................................... A-42
9.1 Termination................................................................................ A-42
9.2 Remedies................................................................................... A-43
ARTICLE X MISCELLANEOUS................................................................................... A-43
10.1 Non-Survival of Representations and Warranties............................................. A-43
10.2 Notices.................................................................................... A-43
10.3 Waiver..................................................................................... A-44
10.4 Amendments, Supplements, Etc............................................................... A-44
10.5 Delegation................................................................................. A-44
10.6 Expenses................................................................................... A-44
10.7 Successors and Assigns..................................................................... A-44
10.8 No Third-Party Beneficiaries............................................................... A-44
10.9 Governing Law.............................................................................. A-45
10.10 Jurisdiction............................................................................... A-45
10.11 WAIVER OF JURY TRIAL....................................................................... A-45
10.12 Public Announcements....................................................................... A-45
10.13 Counterparts............................................................................... A-45
10.14 Table of Contents; Headings................................................................ A-45
10.15 Entire Agreement........................................................................... A-45
10.16 Severability; Injunctive Relief............................................................ A-45
10.17 Certain Interpretive Matters............................................................... A-46
</TABLE>
A-4
<PAGE> 165
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
January 19, 2000, by and between PACIFIC LITHIUM LIMITED, a New Zealand
corporation (together with its successors is referred to herein as "PLL"), and
LITHIUM TECHNOLOGY CORPORATION, a Delaware corporation ("LTC") as amended and
restated by the parties as of May 12, 2000.
RECITALS
WHEREAS, LTC is engaged in the business of developing and
commercializing proprietary battery cell structures and processes to manufacture
"thin film" rechargeable solid-state, lithium-ion polymer and lithium metal
polymer batteries.
WHEREAS, PLL desires to domesticate into the United States and become a
Delaware corporation pursuant to the provisions of Section 388 of the Delaware
General Corporation Law ("DGCL") (the "Domestication"), change its name to Ilion
Technology Corporation and consummate an IPO (as herein defined);
WHEREAS, PLL and LTC desire that after the Domestication LTC merge with
and into PLL under and pursuant to the DGCL, upon the terms and conditions
hereinafter set forth (the merger described in this Agreement and the
Certificate of Merger (as defined in Section 2.1) herein called the "Merger");
WHEREAS, the Board of Directors of PLL has adopted resolutions
approving this Agreement and the Certificate of Merger and the consummation of
the transactions contemplated hereby and thereby and authorizing the execution
and delivery of this Agreement and the Certificate of Merger attached as Exhibit
A;
WHEREAS, the Board of Directors of LTC has adopted resolutions
approving this Agreement and the Certificate of Merger and the consummation of
the transactions contemplated hereby and thereby and authorizing the execution
and delivery of this Agreement and the Certificate of Merger;
WHEREAS, it is intended that the Merger will be a tax-free
reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended;
WHEREAS, PLL and LTC have entered into Bridge Loan Financing Agreements
(as herein defined) pursuant to which PLL has agreed to advance funds to LTC in
the amounts set forth therein;
NOW, THEREFORE, in consideration of these premises and the mutual
agreements, provisions and covenants contained in this Agreement, PLL and LTC
agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere herein, the
following terms, as used herein, have the following meanings when used herein
with initial capital letters:
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control with
the first Person and, if such first Person is an individual, any member of the
immediate family (including parents, spouse and children) of such individual and
any trust whose principal beneficiary is such individual or one or more members
of such immediate family and any Person who is controlled by any such member or
trust. For the purposes of this Agreement, "control," when used with respect to
any Person, means the possession, directly or indirectly, of the power to (a)
vote 10% or
A-5
<PAGE> 166
more of the securities having ordinary voting power for the election of
directors (or comparable positions) of such Person or (b) direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agreement" means this Merger Agreement, as the same may be amended
from time to time in accordance with the terms hereof.
"Ancillary Closing Agreements" means (i) the Certificate of Merger,
(ii) the Employment Agreements; and (iii) all other instruments, certificates
and other agreements entered into in connection with the consummation of the
transactions contemplated by this Agreement.
"Benefit Plan" means any employee benefit plan within the meaning of
Section 3(3) of ERISA, and any other plan, program, agreement, arrangement,
policy, contract, commitment or scheme, written or oral, statutory or
contractual, that provides for compensation or benefits, including, but not
limited to, any deferred compensation, executive compensation, bonus or
incentive plan, any cafeteria plan or any holiday or vacation plan or practice.
"Bonuses" has the meaning ascribed to such term in Section 5.20(g).
"Bridge Loan Financing Agreements" means (i) the Bridge Loan Financing
Agreement, dated as of November 29, 1999, between LTC and PLL (the "Bridge Loan
Financing Agreement"), (ii) the Convertible Bridge Notes, (iii) the Convertible
Operating Notes, (iv) the License and Option Agreement, (v) the Packaging
Security Agreement and (vi) the LTC Warrants.
"Business" means the business of LTC as currently conducted or proposed
to be conducted.
"Business Day" means a day that is not a Saturday, Sunday or a day on
which commercial banking institutions located in New York City, New York or
Auckland, New Zealand are authorized or required to close.
"Capitalized Lease Obligations" means, for any applicable period, the
obligations of such Person that are required to be classified and accounted for
as capital lease obligations under GAAP, together with all obligations to make
termination payments under such capitalized lease obligations.
"Capital Stock" means (a) with respect to any Person that is a
corporation, any and all shares, interests, participation or other equivalents
(however designated and whether or not voting) of corporate stock, including,
but not limited to, the common stock and the preferred stock and the preferred
stock of such Person and (b) with respect to any Person that is not a
corporation, any and all partnership or other equity interests of such Person.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, 42 U.S.C. Sections 9601, et seq., as amended.
"Certificate of Merger" has the meaning ascribed to such term in
Section 2.1.
"Closing" has the meaning ascribed to such term in Section 4.1.
"Closing Date" has the meaning ascribed to such term in Section 4.1.
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Computer Systems" has the meaning ascribed to such term in Section
5.22.
A-6
<PAGE> 167
"Constituent of Concern" means any substance defined as a "hazardous
substance", hazardous waste, hazardous material, pollutant or contaminant by any
Environmental Law, any petroleum hydrocarbon and any degradation product of a
petroleum hydrocarbon, asbestos, PCB or similar substance, the generation,
recycling, use, treatment, storage, transportation, Release, disposal or
exposure of or to which is subject to regulation under any Environmental Law.
"Contracts" has the meaning ascribed to such term in Section 5.11(a).
"Convertible Bridge Notes" means (i) the Convertible Secured Promissory
Note, dated as of November 29, 1999, made by LTC in favor of PLL, in the amount
of $125,000 and (ii) the Convertible Promissory Note, dated as of January 10,
2000, made by LTC in favor of PLL, in the amount of $975,000 delivered in
connection with the Bridge Loan Financing Agreements.
"Convertible Operating Notes" means the convertible promissory notes
made by LTC in favor of PLL and delivered in connection with the Bridge Loan
Financing Agreements.
"Dissenting Shares" has the meaning ascribed to such term in Section
3.3.
"Effective Time" has the meaning ascribed to such term in Section 2.2.
"Employment Agreements" means the employment agreements, dated as of
the Closing Date, between PLL and each of David Cade and George Ferment,
substantially in the standard form used by PLL and attached hereto as Exhibits B
and C, respectively.
"Environmental Claims" means administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, citations, summonses,
notices of non-compliance or violation, requests for information, investigations
or proceedings relating in any way to the Release of Constituents of Concern or
any Environmental Law or any Permit issued under any such Law, including (a)
Environmental Claims by Governmental Authorities for enforcement, cleanup,
removal, response, remedial or other actions or damages pursuant to any
applicable Environmental Law and (b) Environmental Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Constituents of Concern or arising from alleged
injury or threat of injury to human health and safety or the environment.
"Environmental Condition" means a condition with respect to the
environment which has resulted or could reasonably be expected to result in a
material loss, liability, cost or expense.
"Environmental Law" means any Law, judicial or administrative
interpretation, judicial or administrative order, consent decree or judgment,
relating to the environment, human health and safety, including CERCLA; and any
state and local counterparts or equivalents.
"Environmental Permits" means all Permits, licenses, authorizations,
certificates and approvals of Governmental Authorities relating to or required
by Environmental Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor thereto.
"ERISA Affiliate" means any Person that, together with LTC, would be
considered a single employer within the meaning of Section 4001 of ERISA or
Section 414 of the Code.
A-7
<PAGE> 168
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"GAAP" means U.S. or New Zealand, as the case may be, generally
accepted accounting principles, consistently applied.
"Governmental Authority" means any domestic or foreign governmental or
regulatory agency, authority, bureau, commission, department, official or
similar body or instrumentality thereof, or any governmental court, arbitral
tribunal or other body administering alternative dispute resolution.
"Indebtedness" means with respect to any Person, at any date, without
duplication, (a) all obligations of such Person for borrowed money, including,
without limitation, all principal, interest, premiums, fees, expenses,
overdrafts and penalties with respect thereto, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all obligations of such Person to pay the deferred purchase price of the
property or services, except trade payables incurred in the Ordinary Course of
Business, (d) all obligations of such Person to reimburse any bank or other
Person in respect of amounts paid under a letter of credit or similar
instrument, (e) all Capitalized Lease Obligations, (f) all other obligations of
a Person which would be required to be shown as indebtedness on a balance sheet
of such Person prepared in accordance with GAAP, and (g) all indebtedness of any
other Person of the type referred to in clauses (a) to (f) above directly or
indirectly guaranteed by such Person or secured by any assets of such Person,
whether or not such Indebtedness has been assumed by such Person.
"Intellectual Property Right" means any trademark, service mark, trade
name, product designation, logo, slogan, invention, patent, trade secret,
copyright, know-how, proprietary design or process, computer software and
database, Internet address or domain name (including any registrations or
applications for registration or renewal of any of the foregoing), research in
progress, or any other similar type of proprietary intellectual property right,
including, but not limited to, the intellectual property rights set forth on
Schedule 5.16(a) hereto, of LTC, whether existing on the date hereof or acquired
thereafter.
"Interim Agreements" means the Bridge Loan Financing Agreements and the
Security Agreement and Assignment of Lease.
"IPO" means an initial public offering and sale of common stock of
Ilion Technology Corporation, in the United States public markets (and
potentially in certain other markets) which results in aggregate gross proceeds
to PLL in an amount which, when added to the aggregate gross proceeds of all
equity funding received by PLL at any time during the period from September 29,
1999 until the time of the IPO, equals at least twenty-five million dollars
($25,000,000).
"IPO Date" means the date on which PLL closes an IPO.
"IRS" means the Internal Revenue Service.
"Law" means any federal, foreign, state or local statute, law, rule,
regulation, ordinance, code, permit, license, policy or rule of common law.
"Lien" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse claim of
any kind in respect of such property or asset. For the purposes of this
Agreement, a Person will be deemed to own, subject to a Lien, any property or
asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such property or asset.
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<PAGE> 169
"License and Option Agreement" means the License and Option Agreement,
effective as of October 1, 1999, made by LTC in favor of PLL and delivered in
connection with the Bridge Loan Financing Agreements.
"LTC Audited Financials" means the audited balance sheet of LTC for its
fiscal year ended December 31, 1998, together with the related statement of
income, retained earnings and cash flows for such period.
"LTC Common" means all the issued and outstanding shares of common
stock, par value $0.01 per share, of LTC as of the Effective Time.
"LTC's Continuing Costs" means LTC's continuing corporate costs as
agreed with PLL for the period from the Closing Date to the IPO Date as set
forth in Section 2(d) of the Bridge Loan Financing Agreement.
"LTC Interim Financials" means the unaudited balance sheet of LTC for
the quarter ended September 30, 1999, together with the related unaudited
statement of income, retained earnings and cash flows for such period.
"LTC Warrants" means the warrants to purchase 7.5 million shares of
common stock of LTC at $.15 per share delivered by LTC to PLL pursuant to the
Bridge Loan Financing Agreements.
"Material Adverse Effect" means a material adverse effect on the
business, assets, liabilities, condition (financial and other), results of
operations or prospects of LTC and its subsidiaries, taken as a whole, or PLL
and its subsidiaries, taken as a whole, as the context in which such term is
used may require.
"Merger Consideration" means the Merger Securities and the cash payable
in lieu of fractional shares as provided by Section 3.5 hereto.
"Merger Securities" has the meaning ascribed to such term in Section
3.3.
"Millennium Compliance" means that the Computer Systems are capable of
the following, before, during and after January 1, 2000: (a) handling date
information involving all and any dates (including the recording of February 29,
2000), including accepting input, providing output and performing date
calculations in whole or in part; (b) operating accurately without interruption
on and in respect of any and all dates and without change in performance; (c)
responding to and processing two digit year input without creating any ambiguity
as to the century; and (d) storing and providing date input information without
creating any ambiguity as to the century.
"Mitsubishi Materials" means the agreements set forth on Schedule 5.4.
"Monthly Financial Statements" means the unaudited monthly balance
sheets of LTC at the end of each calendar month beginning January 1, 2000
through and including the Closing Date, together with the related monthly
statements of earnings and cash flows.
"Options" has the meaning ascribed to such term in Section 7.5(c).
"Order" means any judgment, injunction, judicial or administrative
order or decree.
"Ordinary Course of Business" means, with respect to any Person, the
ordinary course of business of such Person, consistent with such Person's past
practice and custom, including, with respect to any category, quantity or dollar
amount, term and frequency of payment, delivery, accrual, expense or any other
accounting entry.
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<PAGE> 170
"Packaging Security Agreement" means the Security Agreement dated
November 29, 1999 delivered by LTC in favor of PLL in connection with the Bridge
Loan Financing Agreements pursuant to which LTC granted PLL a security interest
in the packaging equipment described therein.
"Permit" has the meaning ascribed to such term in Section 5.14(b).
"Permitted Lien" means (a) mechanics', workmen's, carriers',
repairmen's or other like Liens arising or incurred in the Ordinary Course of
Business in respect of obligations that are not overdue, (b) statutory liens for
Taxes, assessments and other similar governmental charges that are not overdue,
or (c) Liens that arise under zoning, land use and other similar imperfections
of title that arise in the Ordinary Course of Business and that, in the
aggregate, do not materially affect the value, use or marketability of the
property subject thereto.
"Person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust or other entity or
organization or Governmental Authority.
"PLL Audited Financials" means the audited balance sheet of PLL for its
fiscal year ended March 31, 1999, together with the related statement of income,
retained earnings and cash flows for such period.
"PLL Interim Financials" means the unaudited balance sheet of PLL for
the six month period ended September 30, 1999, together with the related
unaudited statements of income, retained earnings and cash flows for such
period.
"PLL Common" has the meaning ascribed to such term in Section 3.3.
"Pre-Closing Tax Period" means any Tax period (or portion thereof) that
ends on or before the Closing Date.
"Property" means any real property and improvements at any time owned,
leased, used, operated or occupied (whether for storage, disposal or otherwise)
by LTC or PLL, as applicable.
"Proxy Statement" has the meaning ascribed to such term in Section
5.24.
"Public Documents" means LTC's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1998 and LTC's Quarterly Reports on Form 10-QSB
for the quarters ended March 31, 1999, June 30, 1999 and September 30, 1999.
"Real Property" has the meaning ascribed to such term in Section
5.15(b).
"Registration Statement" has the meaning ascribed to such term in
Section 5.24.
"Release" means any release, spill, emission, discharge, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the environment (including, without limitation, ambient air,
surface water, groundwater and surface or subsurface strata) or into or out of
any property, including the movement of Constituents of Concern through or in
the air, soil, surface water, groundwater or property.
"Returns" has the meaning ascribed to such term in Section 5.9(a)(i).
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement and Assignment of Lease" means the Security
Agreement and Assignment of Lease made by LTC in favor of PLL in the form
attached as Exhibit G to the Bridge Loan Financing Agreement.
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"Shareholders' Meetings" has the meaning ascribed to such term in
Section 5.24.
"Subsidiary" means, with respect to any Person, (a) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation have or might have voting power by reason of the happening of
any contingency) is at the time owned by such Person, directly or indirectly
through Subsidiaries, and (b) any partnership, limited liability company,
association, joint venture, trust or other entity in which such Person, directly
or indirectly through Subsidiaries, is either a general partner, has a 50% or
greater equity interest at the time or otherwise owns a controlling interest.
"Surviving Corporation" means PLL after the Domestication and after the
Merger.
"Tax" means (a) any net income, alternative or add-on minimum tax,
gross income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, withholding on amounts paid to or by a party to
this Agreement, payroll, employment, excise, severance, stamp, occupation,
premium, property, environmental or windfall profit tax, custom, duty or other
tax, governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest, penalty, addition to tax or additional amount
imposed by any Taxing Authority, (b) any liability of a party to this Agreement
for the payment of any amounts of any of the foregoing types as a result of
being a member of an affiliated, consolidated, combined or unitary group, or
being a party to any agreement or arrangement whereby liability of a party to
this Agreement for payment of such amounts was determined or taken into account
with reference to the liability of any other Person, and (c) any liability of a
party to this Agreement for the payment of any amounts as a result of being a
party to any Tax-Sharing Agreements or with respect to the payment of any
amounts of any of the foregoing types as a result of any express or implied
obligation to indemnify any other Person.
"Tax-Sharing Agreements" means all existing Tax-sharing agreements or
arrangements (whether or not written) binding on a party to this Agreement.
"Taxing Authority" means any Governmental Authority having jurisdiction
over the assessment, determination, collection or other imposition of any Tax.
"Third-Party Claim" means any claim, demand, action, suit or proceeding
made or brought by any Person who or which is not a party to this Agreement or
who or which is not an Affiliate of any party to this Agreement.
"Transferred Employees" has the meaning ascribed to such term in
Section 7.5(a).
ARTICLE II
THE MERGER
2.1 The Merger. Prior to the Closing, each of the parties shall execute
and deliver the Certificate of Merger in substantially the form set forth in
Exhibit A to this Agreement (the "Plan of Merger").
2.2 Effective Time. As soon as practicable after satisfaction or waiver
of all conditions to the Merger, including, but not limited to, the
Domestication and the IPO, the Certificate of Merger shall be certified,
executed, acknowledged and filed in accordance with Section 256 of the DGCL. The
Merger shall be effective at such time as a certificate of merger is issued by
the Secretary of State of Delaware in accordance with Section 256 of the DGCL
(the "Effective Time").
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2.3 Effect of the Merger. At the Effective Time, the separate existence
of LTC shall cease, and PLL, as the surviving corporation (the "Surviving
Corporation"), (i) shall continue to possess all of its assets, rights, powers
and property as constituted immediately prior to the Effective Time, (ii) shall
be subject to all actions previously taken by its and LTC's Board of Directors,
(iii) shall succeed, without other transfer, to all of the assets, rights,
powers and property of LTC in the manner as more fully set forth in Section 259
of the Delaware General Corporation Law, (iv) shall continue to be subject to
all of its debts, liabilities and obligations as constituted immediately prior
to the Effective Time, and (v) shall succeed, without other transfer, to all of
the debts, liabilities and obligations of LTC in the same manner as if PLL had
itself incurred them, all as more fully provided under the applicable provisions
of the Delaware General Corporation Law and the laws of New Zealand.
2.4 Certificate of Incorporation. Upon the effectiveness of the Merger,
the Certificate of Incorporation of PLL as in effect immediately prior to the
Effective Time shall continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
2.5 Bylaws. The Bylaws of PLL as in effect immediately prior to the
Effective Time shall continue in full force and effect as the Bylaws of the
Surviving Corporation until duly amended in accordance with the provisions
thereof and applicable law.
2.6 Directors and Officers. The directors and officers of PLL
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation until their respective successors shall have been duly
elected and qualified or as otherwise provided by law or the Certificate of
Incorporation of the Surviving Corporation or the Bylaws of the Surviving
Corporation.
ARTICLE III
CONVERSION OF SECURITIES
3.1 Shares of the Surviving Corporation. The authorized number and par
value of shares of all classes of capital stock of PLL immediately prior to the
Effective Time shall be the authorized number and par value of shares of the
classes of capital stock of the Surviving Corporation (as defined in the Plan of
Merger) from and after the Effective Time.
3.2 No Conversion of PLL Common. Each share of Common Stock, par value
per share, of PLL issued and outstanding immediately prior to the Effective Time
shall continue to be an issued and outstanding share of Common Stock, par value
$0.01 per share, of the Surviving Corporation from and after the Effective Time.
3.3 Conversion of LTC Common; Assumption of Warrants.
At the Effective Time, all of the then issued and outstanding shares of
LTC Common, other than shares of LTC Common (i) held in the treasury of LTC,
which shall not be considered as outstanding for purposes of this Agreement or
the Plan of Merger, (ii) held by PLL, (iii) held by any wholly owned subsidiary
of PLL or LTC (other than shares held in a fiduciary capacity) or (iv) as to
which the holder has commenced as of the Effective Time all procedures necessary
through the Effective Time to assert dissenters' rights in accordance with the
DGCL ("Dissenting Shares"), shall, by virtue of the Merger, be converted into an
aggregate of 3.5 million shares of Common Stock of PLL plus the additional
number of shares of Common Stock of PLL as set forth in Section 7.13(b) of this
Agreement (the "Merger Securities"). The Merger Securities shall be issued to
the LTC shareholders on a pro-rata basis. Each share of LTC Common held (i) in
the treasury of LTC, (ii) by PLL or (iii) by any wholly owned subsidiary of PLL
or LTC (other than shares held in a fiduciary capacity)
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immediately prior to the Effective Time shall, by virtue of the Merger,
forthwith and without any action on the part of the holder thereof be canceled
and retired and all rights in respect thereof shall cease to exist. Holders of
Dissenting Shares shall, upon the effectiveness of the Merger with respect to
such Dissenting Shares, have only such rights, if any, as they may have pursuant
to the DGCL, and any amounts required by the DGCL to be paid to any holder of
Dissenting Shares with respect to such Dissenting Shares shall be paid by the
Surviving Corporation. The assumption of warrants, if any, and the
non-assumption of options of LTC shall be governed by Sections 7.5 and 7.13.
3.4 Exchange Agent. A national or state bank as mutually agreed upon by
PLL and LTC shall be engaged to act as agent for purposes of mailing and
receiving transmittal letters and distributing certificates for PLL Common to
LTC shareholders (the "Exchange Agent").
3.5 No Fractional Shares. Notwithstanding any other provision of this
Agreement or the Plan of Merger, neither certificates nor scrip for fractional
shares of PLL Common shall be issued in the Merger. Each holder of shares of LTC
Common who otherwise would have been entitled to a fraction of a share of PLL
Common shall receive in lieu thereof cash in an amount determined by multiplying
the fractional share interest to which such holder would otherwise be entitled
by the fair market value of such fraction on the date of conversion (as
determined in good faith by the Board of Directors of PLL).
3.6 Rights of the LTC Shareholders. At the Effective Time, each holder
of an outstanding certificate or certificates for shares of LTC Common shall
cease to have any rights as a shareholder of LTC, except such rights, if any, as
such holder may have with respect to Dissenting Shares. Each such holder of any
outstanding certificate or certificates for shares of LTC Common converted in
the Merger, upon proper surrender of each such certificate (accompanied by a
duly completed and executed letter of transmittal in the form to be sent to all
former LTC shareholders and such other evidences of authority and documentation
as PLL or the Exchange Agent may require and subject to any required
withholdings of taxes) to the Exchange Agent, shall receive promptly in exchange
for each such certificate Merger Securities and cash in lieu of fractional
shares as provided by this Agreement. Pending such surrender and exchange, such
holder's certificate or certificates for shares of LTC Common shall be deemed
for all corporate purposes, by virtue of the Merger and without any action on
the part of the holder thereof, to evidence Merger Securities subject to the
provisions of this Agreement and the Plan of Merger and the right to receive
cash in lieu of fractional shares as provided by this Agreement and the Plan of
Merger. The registered owner on the books and records of PLL or the Exchange
Agent of any shares of stock represented by such outstanding certificate shall,
until such certificate shall have been surrendered for transfer or conversion or
otherwise accounted for to PLL or the Exchange Agent, have and be entitled to
exercise any voting and other rights with respect to and to receive dividends
and other distributions upon the shares of capital stock of PLL represented by
such outstanding certificate as provided above. Neither PLL nor the Exchange
Agent shall pay any applicable stock transfer taxes incurred by any shareholder
in connection with the Merger.
3.7 Exchange. As soon as practicable at or after the Effective Time,
the Exchange Agent shall distribute Merger Securities and cash in lieu of
fractional shares as provided by this Agreement and the Plan of Merger. PLL
shall deliver to the Exchange Agent one or more certificates representing in the
aggregate the number of Merger Securities to be delivered in connection with the
Merger in sufficient time for the Exchange Agent to make such distribution. The
obligation of PLL to exchange Merger Securities for LTC Common and distribute
cash in lieu of fractional shares as provided herein shall not be discharged,
reduced or otherwise affected by the failure of the Exchange Agent to make such
exchanges and distributions for any reason whatsoever. The Exchange Agent shall
not be entitled to vote or to exercise any rights of ownership with respect to
the Merger Securities held by it from time to time hereunder, except that it
shall receive and hold all dividends or other distributions paid or distributed
with respect to such shares for the account of the persons entitled thereto. One
hundred eighty days following the Effective Time, the Exchange Agent shall
deliver to PLL any Merger Securities and funds (including any interest received
with respect thereto) which PLL has made available to the Exchange Agent and
which have not been disbursed to holders of certificates representing
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shares of LTC Common, and thereafter such holders shall be entitled to look to
the Surviving Corporation (subject to abandoned property, escheat or other
similar laws) with respect to the Merger Securities and cash in lieu of
fractional shares deliverable or payable upon due surrender of their
certificates. Notwithstanding the foregoing neither the Exchange Agent nor any
party hereto shall be liable to any holder of shares of LTC Common for any
consideration paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
3.8 Closing of Stock Transfer Books. The stock transfer books of LTC
shall be closed at the close of business on the business day immediately
preceding the date of the Effective Time. In the event of a transfer of
ownership of LTC Common which is not registered in the transfer records of LTC,
the consideration to be distributed pursuant to this Agreement and the Plan of
Merger may be delivered to a transferee, if the certificate representing such
LTC Common is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by payment of any applicable
stock transfer taxes. PLL and the Exchange Agent shall be entitled to rely upon
the stock transfer books of LTC to establish the identity of those persons
entitled to receive the Merger Consideration specified in this Agreement and the
Plan of Merger for their shares of LTC Common, which books shall be conclusive
with respect to the ownership of such shares. In the event of a dispute with
respect to the ownership of any such shares, PLL and the Exchange Agent shall be
entitled to deposit any consideration represented thereby in escrow with an
independent party and thereafter be relieved with respect to any claims to such
consideration.
3.9 Changes in PLL or LTC Common. If between the date of this Agreement
and the Effective Time, the shares of PLL Common shall be changed into a
different number of shares by reason of any reclassification, recapitalization,
split-up, combination or exchange of shares, or if a stock dividend thereon
shall be declared with a record date within said period, the number of shares of
PLL Common delivered pursuant to this Agreement shall be adjusted accordingly.
ARTICLE IV
CLOSING AND CLOSING DELIVERIES
4.1 The Closing. The closing of the Merger (the "Closing") will take
place at the offices of Jones, Day, Reavis & Pogue located at 599 Lexington
Avenue, New York, N.Y. 10022, at 10:00 a.m., New York time, three Business Days
after satisfaction or waiver of the conditions to Closing set forth in Article
XIII, other than Section 8.1.10 and contemporaneously with the closing of the
IPO, unless the parties agree in writing to change the Closing to another time,
date or place. The date upon which the Closing occurs is herein called the
"Closing Date".
4.2 Deliveries of LTC At the Closing, LTC will deliver to PLL:
(i) certificate of the Chief Executive Officer of LTC
confirming LTC's compliance with the condition set forth in Section
8.1.1;
(ii) certificate of LTC's Secretary or Assistant Secretary
certifying as to LTC's certificate of incorporation, bylaws or other
comparable documents and to the due adoption of resolutions adopted by
its Board of Directors authorizing the execution of this Agreement, the
Interim Agreements and each Ancillary Closing Agreements to which it
will be a party at Closing and the taking of any and all actions deemed
necessary or advisable to consummate the transactions contemplated
herein and therein;
(iii) the opinion of Gallagher, Briody & Butler, counsel to
LTC, dated the Closing Date, relating to corporate fundamentals as
customary for transactions of the type described herein;
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(iv) evidence or copies of any consents, approvals, orders,
qualifications or waivers required by any third party or Governmental
Authority to consummate the transactions contemplated by this
Agreement;
(v) each Ancillary Closing Agreements required to be duly
executed and delivered by parties other than PLL or its Affiliates;
(vi) if PLL deems it necessary, evidence of Transfer of all
Intellectual Property Rights to an entity formed in the Netherland
Antilles or any similar jurisdiction, for tax purposes;
(vii) evidence of approval by the shareholders of LTC of the
Merger and this Agreement;
(viii) a non-foreign person affidavit as required by Section
1445 of the Code;
(ix) evidence of transfer of all Environmental Permits or
applications thereof listed on Schedule 6.14(b) from LTC to PLL;
(x) a copy of the Agreement and Plan of Merger duly executed
by LTC for filing with the Secretary of State of the State of Delaware
in connection with the Closing; and
(xi) such other documents and instruments as may be reasonably
required to consummate the transactions contemplated by this Agreement
and the Ancillary Closing Agreements and to comply with the terms
hereof and thereof.
4.3 Deliveries by PLL. At the Closing, PLL will deliver or cause to be
delivered to LTC:
(i) certificate of the Chief Executive Officer of PLL
confirming PLL's compliance with the condition set forth in Section
8.2.1;
(ii) certificate of PLL's Secretary or Assistant Secretary
certifying as to PLL's certificate of incorporation, bylaws or other
comparable documents and to the due adoption of resolutions adopted by
its Board of Directors authorizing the execution of this Agreement, the
Interim Agreements and each Ancillary Closing Agreements to which it
will be a party at Closing and the taking of any and all actions deemed
necessary or advisable to consummate the transactions contemplated
herein and therein and to effectuate the Domestication;
(iii) evidence or copies of any consents, approvals, orders,
qualifications or waivers required by any third party or Governmental
Authority to consummate the transactions contemplated by this
Agreement;
(iv) the opinions of Jones Young, New Zealand counsel to PLL
and Jones, Day, Reavis & Pogue, special United States counsel to PLL,
dated the Closing Date, relating to corporate fundamentals as customary
for transactions of the type described herein;
(v) the duly executed Option Agreements for the Transferred
Employees who are being granted Options;
(vi) evidence of approval by the shareholders of PLL of the
Domestication and the transactions contemplated under this Agreement,
the Interim Agreements and the Ancillary Closing Agreements (as
applicable);
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(vii) each Ancillary Closing Agreements required to be duly
executed and delivered by PLL or its Affiliates;
(viii) a copy of the Agreement and Plan of Merger duly
executed by PLL (or its successor) for filing with the Secretary of
State of the State of Delaware in connection with the Closing; and
(ix) such other documents and instruments as may be reasonably
required to consummate the transactions contemplated by this Agreement
and the Ancillary Closing Agreements and to comply with the terms
hereof and thereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF LTC
LTC represents and warrants to PLL as of the date hereof as follows,
subject to any exceptions set forth in a Schedule hereto referencing the number
of the Section to which it relates:
5.1 Corporate Existence and Power. LTC is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. LTC has all corporate power and all governmental licenses,
authorizations, Permits, consents and approvals required to carry on its
business as now conducted. LTC is duly qualified to conduct business as a
foreign corporation and is in good standing in each jurisdiction where such
qualification is necessary, except for those jurisdictions where the failure to
be so qualified or in good standing could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. LTC has heretofore
delivered to PLL true and complete copies of the certificate of incorporation
and bylaws of LTC, in each case as amended to date.
5.2 Corporate Authorization; Enforceability. The execution, delivery
and performance by LTC of this Agreement, the Interim Agreements and each of the
Ancillary Closing Agreements to which it will be a party are within LTC's
corporate powers and have been duly authorized by the board of directors of LTC
and, subject to the approval by the shareholders of LTC, no other corporate
action on the part of LTC is necessary to authorize this Agreement, the Interim
Agreements or any of the Ancillary Closing Agreements to which LTC will be a
party at the Closing. This Agreement, the Bridge Loan Financing Agreements, each
of the Ancillary Closing Agreements and Interim Agreements to which LTC will be
a party will be duly executed and delivered by LTC Assuming the due execution
and delivery of this Agreement and each of the Ancillary Closing Agreements and
Interim Agreements to which LTC will be a party and assuming approval by the
shareholders of LTC, this Agreement constitutes, and each Ancillary Closing
Agreements and Interim Agreements to which LTC will be a party will constitute,
valid and binding agreements of LTC, enforceable against LTC in accordance with
their terms, except to the extent that their enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity.
5.3 Governmental Authorization. The execution, delivery and performance
by LTC of this Agreement and each Ancillary Closing Agreements and Interim
Agreements to which LTC will be a party require no consent, approval, order,
authorization or action by or in respect of, or filing with, any Governmental
Authority other than filings pursuant to the Securities Act and applicable state
securities and corporate laws and the approval of the shareholders of LTC
5.4 Non-Contravention; Consents. The execution, delivery and
performance by LTC of this Agreement and each Ancillary Closing Agreement to
which LTC will be a party at the Closing, and the consummation of the
transactions contemplated hereby and thereby do not and will not at the Closing,
except as set forth on Schedule 5.4, (a) violate the certificate of
incorporation or bylaws of LTC, (b) violate any applicable Law or Order, (c)
require any filing with or Permit, consent or approval of, or the giving of any
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notice to, any Person (including filings, consents or approvals required under
any Permits of LTC or any licenses to which LTC is a party), (d) result in a
violation or breach of, conflict with, constitute (with or without due notice or
lapse of time or both) a default under, or give rise to any right of
termination, cancellation or acceleration of any right or obligation of LTC or
to a loss of any benefit to which LTC is entitled under, any Contract, agreement
or other instrument binding upon LTC or any license, franchise, Permit or other
similar authorization held by LTC, or (e) result in the creation or imposition
of any Lien on any asset of LTC
5.5 Capitalization. The authorized, issued and outstanding Capital
Stock of LTC as of December 1, 1999 is as follows: LTC has 50,100,000 shares,
par value $0.01 per share of authorized capital stock of which 50,000,000 shares
are designated "Common Stock" and 100,000 shares are designated "Preferred
Stock", of which 48,280,749 shares of Common Stock and no shares of Preferred
Stock are outstanding, and no shares of Preferred Stock will become outstanding
prior to the Effective Time except in accordance with the Bridge Loan Financing
Agreement. All of the outstanding shares of Capital Stock of LTC are duly
authorized, validly issued and fully paid and nonassessable. There are no
existing subscriptions, options, warrants, calls, commitments, agreements,
conversion rights or other rights of any character (contingent or otherwise) to
purchase or otherwise acquire from LTC at any time, or upon the happening of any
stated event, any shares of the capital stock of LTC whether or not presently
issued or outstanding, except as set forth on Schedule 5.5.
5.6 Subsidiaries. (a) Each of LTC's Subsidiaries listed in Schedule 5.6
is a corporation or other legal entity duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each of LTC's
Subsidiaries has all corporate or similar powers and all governmental licenses,
authorizations, Permits, consents and approvals required to carry on its
business as now conducted. Each of LTC's Subsidiaries is duly qualified to
conduct business as a foreign corporation or other legal entity and is in good
standing in each jurisdiction where such qualification is necessary, except for
those jurisdictions where the failure to be so qualified or in good standing
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. LTC has heretofore delivered to PLL true and complete
copies of the certificate of incorporation, bylaws or comparable constituent
documents of each of LTC's Subsidiaries, in each case as amended to date. LTC
does not own, beneficially or of record, any stock or ownership interests in any
entity other than the Subsidiaries listed in Schedule 5.6.
(b) All the outstanding shares of Capital Stock of each such Subsidiary
have been validly issued and are fully paid and nonassessable and are owned
directly or indirectly by LTC, free and clear of all Liens. There are no
outstanding convertible or exchangeable securities or Contracts giving any
Person any right to acquire shares of Capital Stock of such Subsidiaries and no
voting trusts or other Contracts restricting the voting, dividend rights or
disposition of shares of such Subsidiaries.
5.7 LTC Financial Statements; Book and Records. (a) LTC has heretofore
furnished PLL with a true and complete copy of the LTC Audited Financials and
the LTC Interim Financials which have been prepared in accordance with United
States GAAP consistently applied. The LTC Audited Financials and the LTC Interim
Financials fairly present in all material respects the financial position of LTC
at the respective dates thereto and the results of the operations and cash flows
of LTC for the respective periods then ended.
(b) Since September 30, 1999, there have been no changes in LTC's
reserve, accrual or other material accounting policies.
(c) The books of account, minute books, stock record books and other
records of LTC, all of which have been made available to PLL, are complete and
correct in all material respects and have been maintained in accordance with
sound business practices and under an adequate system of internal controls. The
minute books of LTC contain accurate and complete records of all meetings held
of, and corporate and stockholder action taken by, the stockholders, Board of
Directors and committees of the Board of Directors of LTC, and no meeting of any
such stockholders, Board of Directors or committee of the Board of Directors has
been held for which minutes have not been prepared and are not contained in such
minute books.
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5.8 No Undisclosed Liabilities. There are no liabilities or any facts
or circumstances which could give rise to liabilities, whether accrued,
contingent, absolute, determined, determinable or otherwise, of LTC other than
(a) liabilities fully disclosed in LTC's Public Documents, (b) liabilities
specifically disclosed in Schedule 5.8, and (c) other undisclosed liabilities
incurred since September 30, 1999 in the Ordinary Course of Business which,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
5.9 Tax Matters. (a) (i) All Tax returns, statements, reports and forms
(including estimated tax or information returns and reports) required to be
filed by or on behalf of LTC or any of LTC's Subsidiaries with any Taxing
Authority with respect to any Pre-Closing Tax Period (collectively, the
"Returns") have, to the extent required to be filed on or before the date
hereof, been filed and, to the extent required to be filed between the date
hereof and the Closing Date, will have been filed before the Closing, when due
in accordance with all applicable Laws and all Taxes owed by LTC or any of LTC's
Subsidiaries (whether or not shown as due and payable on the Returns that have
been filed) have been timely paid or will have been timely paid prior to the
Closing Date, or withheld (including withholding for independent contractors,
consultants and other employees) and remitted to the appropriate Taxing
Authority, or will have been timely withheld and remitted to the appropriate
Taxing Authority prior to the Closing Date;
(ii) The Returns correctly reflect in all material respects,
the facts regarding the income, business, assets, operations, and
activities and status of LTC and any of LTC's Subsidiaries;
(iii) Any reserves established for Taxes with respect to LTC
or any of LTC's Subsidiaries for any Pre-Closing Tax Period (including
any Pre-Closing Tax Period for which no Return has yet been filed)
reflected on the books of LTC or any of LTC's Subsidiaries are adequate
in accordance with GAAP;
(iv) Neither LTC nor any of LTC's Subsidiaries is delinquent
in the payment of any Tax or has requested any extension of time within
which to file any Return except for extensions granted as a matter of
right;
(v) Neither LTC nor any of LTC's Subsidiaries (or any member
of any affiliated, consolidated, combined or unitary group of which LTC
or any of LTC's Subsidiaries is or has been a member) has granted any
extension or waiver of the statute of limitations period applicable to
any Return, which period (after giving effect to such extension or
waiver) has not yet expired;
(vi) There is no action, suit, proceeding, audit or
investigation pending or, to the knowledge of LTC, threatened against
or with respect to LTC or any of LTC's Subsidiaries in respect of any
Tax. Since January 1, 1997, no claim has been made by any Taxing
Authority in any jurisdiction in which LTC or any of its Subsidiaries
does not file a Tax Return that it is or may be subject to taxation by
that jurisdiction and no such claim exists which has not been resolved
by a determination by such Taxing Authority that LTC or any of LTC's
Subsidiaries is not so subject to taxation;
(vii) Neither LTC nor any of LTC's Subsidiaries nor any other
Person on behalf of LTC or any of LTC's Subsidiaries has entered into
any agreement or consent pursuant to Section 341(f) of the Code;
(vii) There are no Liens for Taxes upon the assets of LTC or
any of LTC's Subsidiaries, except Liens for current Taxes not yet due;
(ix) Neither LTC nor any of LTC's Subsidiaries will be
required to include any adjustment in taxable income for any
Post-Closing Tax Period under Section 481(c) of the Code (or any
similar provision of the Tax Laws of any jurisdiction) as a result of a
change in method of accounting for a Pre-Closing Tax Period or pursuant
to the provisions of any agreement entered into with any Taxing
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Authority with regard to the Tax liability of LTC or any of LTC's
Subsidiaries for any Pre-Closing Tax Period; and
(x) Neither LTC nor any of LTC's Subsidiaries has been a
member of an affiliated, consolidated, combined or unitary group or
participated in any other arrangement whereby any income, revenues,
receipts, gain or loss of LTC or any of LTC's Subsidiaries was
determined or taken into account for Tax purposes with reference to or
in conjunction with any income, revenues, receipts, gain, loss, asset
or liability of any other Person.
(xi) No property owned by LTC or any of LTC's Subsidiaries (a)
is or will be required to be treated as owned by another person under
Section 168(f)(8) of the Internal Revenue code of 1954, as in effect
immediately prior to the enactment of the Tax Reform Act of 1986, (b)
is "tax-exempt use" property within the meaning of Section 168(h)(l) of
the Code, or (c) is "tax-exempt bond financed property" within the
meaning of Section 168(g) of the Code.
(xii) Neither LTC nor any of LTC's Subsidiaries is or has at
any time been a "United States real property holding corporation"
within the meaning of Section 897(c) of the Code.
(b) Schedule 5.9(b) contains a list of all jurisdictions (whether
foreign or domestic) to which any Tax imposed is properly payable by LTC or any
of LTC's Subsidiaries in connection with LTC's conduct of the Business.
5.10 Absence of Certain Changes. Except as set forth in Schedule 5.10,
since September 30, 1999, there has not been any event, occurrence, development,
circumstances or state of facts which (a) has had or which could reasonably be
expected to have a Material Adverse Effect or (b) would have constituted a
violation of any covenant of LTC hereunder (including Section 7.1) had such
covenant applied to any of them since September 30, 1999. Since September 30,
1999, there has not occurred any damage, destruction or casualty loss (whether
or not covered by insurance) with respect to any of the Purchased Assets. LTC
has not sold, transferred, disposed of, or incurred a Lien upon, any
Intellectual Property Right or LTC's assets since September 30, 1999 except in
connection with the Bridge Financing Agreements.
5.11 Contracts. (a) Except as set forth on Schedule 5.11(a), LTC is
neither a party to nor bound by any lease, agreement, contract, commitment or
other legally binding contractual right or obligation (whether written or oral)
(collectively, "Contracts") that is of a type described below:
(i) any lease (whether of real or personal property);
(ii) any agreement for the purchase of materials, supplies,
goods, services, equipment or other assets;
(iii) any sales, distribution or other similar agreement
providing for the sale by LTC of materials, supplies, goods, services,
equipment or other assets;
(iv) any partnership, joint venture or other similar agreement
or arrangement;
(v) any Contract pursuant to which any third party has rights
to own or use any material asset of LTC, including, without limitation,
any Intellectual Property Right of LTC;
(vi) any agreement relating to the acquisition or disposition
of any business (whether by merger, sale of stock, sale of assets or
otherwise) or granting to any Person a right of first refusal, first
offer or other right to purchase any of the Purchased Assets;
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(vii) any agreement relating to Indebtedness (in any case,
whether incurred, assumed, guaranteed or secured by any asset);
(viii) any license, franchise or similar agreement;
(ix) any agency, dealer, sales representative, marketing or
other similar agreement;
(x) any Contract that may not be terminated by LTC without
payment of penalty on more than 90 days' prior notice;
(xi) any agreement that limits the freedom of LTC to compete
in any line of business, geographic area or with any Person or which
would so limit the freedom of PLL after the Closing Date;
(xii) any agreement with (A) any stockholder of LTC or any
other Affiliate of LTC, or (B) any director or officer of LTC or with
any "associate" or any member of the "immediate family" (as such terms
are respectively defined in Rules 12b-2 and 16a-1 of the Exchange Act)
of any such director or officer;
(xiii) any management service, consulting or any other similar
type of agreement;
(xiv) any warranty, guaranty or other similar undertaking with
respect to any contractual performance (or LTC's standard forms of any
of the foregoing) or agreement to indemnify any Person;
(xv) any employment, deferred compensation, severance, bonus,
retirement or other similar agreement or plan in effect as of the date
hereof and entered into or adopted by LTC;
(xvi) any other agreement, commitment, arrangement or plan not
made in the Ordinary Course of Business of LTC that is material to LTC
(b) Each Contract disclosed in or required to be disclosed in Schedule
5.11(a) is a valid and binding agreement of LTC and, to the knowledge of LTC,
each other party thereto, enforceable in accordance with their respective terms,
except to the extent that their enforceability may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
the enforcement of creditors' rights generally and by general equitable
principles. Neither LTC nor, to the knowledge of LTC, any other party to any
such Contract is in default or breach (with or without due notice or lapse of
time or both) in any material respect under the terms of any such Contract. To
the knowledge of LTC, there is no event, occurrence, condition or act which,
with the giving of notice or the passage of time or both, or the happening of
any other event or condition, could reasonably be expected to become a material
default or event of default under any such Contract. LTC has delivered or made
available to PLL true and complete originals or copies of all Contracts
disclosed in or required to be disclosed in Schedule 5.11(a).
5.12 Insurance Coverage. Schedule 5.12 contains a list of all of the
insurance policies and fidelity bonds covering the assets, Business, operations,
employees, officers and directors of LTC There is no material claim by LTC
pending under any of such policies or bonds as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or bonds.
All premiums due and payable under all such policies and bonds have been paid
and LTC has complied in all material respects with the terms and conditions of
all such policies and bonds. Such policies of insurance and bonds (or other
policies and bonds providing substantially similar insurance coverage) are in
full force and effect and are of the type and in amounts deemed by the
management of LTC to be sufficient in light of the business of LTC No insurance
coverage with respect to any of LTC's assets, Business, operations, employees,
officers or directors has lapsed for any period due to a failure to timely make
any premium payment or renewal or otherwise, nor has LTC been refused by any
insurance carrier to which it has applied for any such insurance. LTC has no
knowledge of any threatened
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termination of, or premium increase with respect to, any of such policies or
bonds. Since the last renewal date of any insurance policy, there has not been
any material adverse change in the relationship of LTC with its respective
insurers or the premiums payable pursuant to such policies.
5.13 Litigation. There is no action, suit, investigation, arbitration
or administrative or other proceeding pending or, to the knowledge of LTC,
threatened, against or affecting LTC or its properties before any court or
arbitrator or any Governmental Authority or which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay the transactions
contemplated by this Agreement, the Interim Agreements and the Ancillary Closing
Agreements to which LTC will be a party at Closing. LTC does not know of any
valid basis for any such action, proceeding or investigation. There are no
outstanding judgments, orders, injunctions, decrees, stipulations or awards
(whether rendered by a court, administrative agency, arbitral body or
Governmental Authority) against LTC, LTC's assets or the Business.
5.14 Compliance with Laws; Permits. (a) LTC is not in violation of, has
not been given notice of or been charged by any Governmental Authority with, or,
to LTC's knowledge, under investigation with respect to, any applicable Law or
Order that could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
(b) Schedule 5.14(b) sets forth a list of each government or regulatory
license, authorization, permit, franchise, consent and approval (the "Permits")
issued and held by or on behalf of LTC or required to be so issued and held to
carry on the Business as currently conducted. Except as disclosed in Schedule
5.14(b), each Permit is valid and in full force and effect and will not be
terminated or impaired (or become terminated or impaired) as a result of the
transactions contemplated hereby. LTC is not in default under, and no condition
exists that with notice or lapse of time or both could constitute a default or
could give rise to a right of termination, cancellation or acceleration under,
any material Permit held by LTC
5.15 Properties; Sufficiency of Assets. (a) Except for inventory
disposed of in the Ordinary Course of Business of LTC, LTC has good title to, or
in the case of leased property has valid leasehold interests in, the property
and assets of LTC (whether real or personal, tangible or intangible) reflected
in the LTC Public Documents or acquired after the date thereof, free and clear
of all Liens, except for Permitted Liens and Liens disclosed in Schedule
5.15(a).
(b) Schedule 5.15(b) sets forth a list of all real property assets
owned or leased ("Real Property") by LTC All such leases of Real Property are
valid and binding agreements of LTC and, to the knowledge of LTC, each other
party thereto, enforceable in accordance with their respective terms, except to
the extent that their enforceability may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles.
LTC is a tenant or possessor in good standing thereunder and all rents due under
such leases have been paid. Neither LTC nor, to the knowledge of LTC, any other
party to any such lease is in default or breach (with or without due notice or
lapse of time or both) in any material respect under the terms of any such
lease. To the knowledge of LTC, there is no event, occurrence, condition or act
which, with the giving of notice or the passage of time or both, or the
happening of any other event or condition, could reasonably be expected to
become a material default or event of default under any such lease. LTC is in
peaceful and undisturbed possession of the space and/or estate under each lease
of which it is a tenant and has good and valid rights of ingress and egress to
and from all the Real Property from and to the public street systems for all
usual street, road and utility purposes. LTC has not received any notice of any
appropriation, condemnation or like proceeding, or of any violation of any
applicable zoning Law or Order relating to or affecting the Real Property, and
to LTC's knowledge, no such proceeding has been threatened or commenced.
(c) The tangible personal property of LTC has been maintained by LTC
since January 1, 1997 in all material respects in good repair and operating
condition in accordance with LTC's general maintenance policies (normal wear and
tear excepted).
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(d) The assets of LTC constitute all of the assets used or held for use
in connection with the Business and are adequate to conduct the Business as
currently conducted.
5.16 Intellectual Property. (a) Schedule 5.16(a) sets forth a list of
all Intellectual Property Rights which are owned by LTC or any of LTC's
Subsidiaries or which LTC or any of LTC's Subsidiaries is a licensor or
licensee, and all material licenses, sublicenses and other written agreements as
to which LTC or any of its Affiliates is a party and pursuant to which any
Person is authorized to use such Intellectual Property Right, including the
identity of all parties thereto.
(b) (i) All of the Intellectual Property Rights necessary for or
used in the conduct of the Business are set forth in Schedule 5.16(a).
(ii) The conduct of the Business by LTC as currently conducted
does not infringe upon any Intellectual Property Right of any third
party. There is no claim, suit, action or proceeding that is either
pending or, to the knowledge of LTC, threatened, that, in either case,
involves a claim of infringement by LTC of any Intellectual Property
Right of any third party, or challenging LTC's ownership, right to use,
or the validity of any Intellectual Property Right listed or required
to be listed in Schedule 5.16(a). LTC has no knowledge of any basis for
any such claim of infringement and no knowledge of any continuing
infringement by any other Person of any of the Intellectual Property
Rights listed or required to be listed in Schedule 5.16(a);
(iii) No Intellectual Property Right listed or required to be
listed in Schedule 5.16(a) is subject to any outstanding order,
judgment, decree, stipulation or agreement restricting the use thereof
by LTC or restricting the licensing thereof by LTC to any Person except
as set forth in Schedule 5.16(a);
(iv) LTC has not entered into any agreement to indemnify any
other Person against any charge of infringement of any Intellectual
Property Right;
(v) LTC has duly maintained all registrations for any
Intellectual Property Rights listed or required to be listed in
Schedule 5.16(a); and
(vi) LTC has obtained all assignments of any rights, title and
interest in the Intellectual Property Rights held by any Person other
than LTC except as set forth in Schedule 5.16(a).
5.17 Environmental Matters. (a) (i) Constituents of Concern have not
been generated, recycled, used, treated or stored on, transported to or from, or
Released or disposed on, LTC Property or, to the knowledge of LTC, any property
adjoining or adjacent to any LTC Property, except in compliance with
Environmental Laws;
(ii) LTC has not disposed of Constituents of Concern from LTC
Property at any off-site facility except in compliance with
Environmental Laws;
(iii) LTC is in compliance in all material respects with
Environmental Laws and the requirements of Permits issued under such
Environmental Laws with respect to the LTC Property;
(iv) There are no pending or, to the knowledge of LTC,
threatened Environmental Claims against LTC or any LTC Property;
(v) LTC has no knowledge of any facts, circumstances,
conditions or occurrences regarding LTC's past or present business or
operations or with respect to any LTC Property or any property
adjoining any LTC Property that could reasonably be expected (i) to
form the basis of an Environmental Claim against LTC or any of the LTC
Property or assets or (ii) to cause any LTC Property or assets to be
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subject to any restrictions on its ownership, occupancy, use or
transferability under any Environmental Law;
(vi) To the knowledge of LTC there are no underground storage
tanks or sumps located on any LTC Property or on any property that
adjoins or is adjacent to any LTC Property;
(vii) Neither LTC nor any LTC Property is listed or, to the
knowledge of LTC, proposed for listing on the National Priorities List
under CERCLA or CERCLIS (as defined in CERCLA) or on any similar
federal, state or foreign list of sites requiring investigation or
clean-up and LTC has not received any requests for information pursuant
to 104(e) of CERCLA or any state counterpart or equivalent;
(viii) LTC has obtained all required Environmental Permits and
is in compliance with the terms of each Environmental Permit in all
material respects. There are no Environmental Permits of LTC that are
nontransferable or require consent, notification or other action to
remain in full force and effect following the consummation of the
transactions contemplated hereby; and
(ix) LTC has no liability under any Environmental Law
(including an obligation to remediate any Environmental Condition
whether caused by LTC or any other Person).
(b) LTC has delivered or made available to PLL true and complete copies
of all environmental investigations, studies, audits, tests, reviews or other
analyses commenced or conducted by or on behalf of LTC (or by a third party of
which LTC has knowledge) in relation to the current or prior business of LTC or
any LTC Property.
(c) For purposes of this Section 5.17, the term "LTC" (including the
use of such term in the term "LTC Property") will include any entity which is,
in whole or in part, a predecessor of LTC
5.18 Plans and Material Documents. (a) Schedule 5.18(a) sets forth a
list of all Benefit Plans with respect to which LTC or any ERISA Affiliate has
or has had in the past any obligation or liability or which are or were in the
past maintained, contributed to or sponsored by LTC or any ERISA Affiliate for
the benefit of any current or former employee, officer or director of LTC or any
ERISA Affiliate. With respect to each Benefit Plan subject to ERISA, LTC has
delivered or made available to PLL a true and complete copy of each such Benefit
Plan (including all amendments thereto) and a true and complete copy of each
document (including all amendments thereto) prepared in connection with each
such Benefit Plan including, without limitation, (i) a copy of each trust or
other funding arrangement, (ii) each summary plan description and summary of
material modifications, (iii) the most recently filed IRS Form 5500 for each
such Benefit Plan, if any, and (iv) the most recent determination letter
referred to in Section 5.18(d). Neither LTC nor any of LTC's Subsidiaries has
any express or implied commitment to create, incur liability with respect to or
cause to exist any Benefit Plan or to modify any Benefit Plan, other than as
required by Law.
(b) None of the Benefit Plans is a plan that is or has ever been
subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code.
None of the Benefit Plans is a "multiemployer plan" as defined in Section 3(37)
of ERISA. Except as disclosed in Schedule 5.18(b), none of the Benefit Plans
provides for the payment of separation, severance, termination or similar-type
benefits to any person or provides for or, except to the extent required by Law,
promises retiree medical or life insurance benefits to any current or former
employee, officer or director of LTC or any ERISA Affiliate.
(c) Each Benefit Plan is in compliance in all material respects with,
and has always been operated in all material respects in accordance with, its
terms and the requirements of all applicable Laws, and LTC and the ERISA
Affiliates have satisfied in all material respects all of their statutory,
regulatory and contractual obligations with respect to each such Benefit Plan.
No legal action, suit or claim is pending or, to the knowledge of LTC,
threatened with respect to any Benefit Plan (other than claims for benefits in
the ordinary
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course) and no fact or event exists that could reasonably be expected to give
rise to any such action, suit or claim.
(d) Each Benefit Plan or trust which is intended to be qualified or
exempt from taxation under Section 401(a), 401(k) or 501(a) of the Code has
received a favorable determination letter from the IRS that it is so qualified
or exempt, and nothing has occurred since the date of such determination letter
that would adversely affect the qualified or exempt status of any Benefit Plan
or related trust.
(e) There has been no non-exempt prohibited transaction (within the
meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any
Benefit Plan. Neither LTC nor any ERISA Affiliate has incurred any material
liability for any excise tax arising under the Code with respect to a Benefit
Plan and no fact or event exists which could reasonably be expected to give rise
to such liability.
(f) All material contributions, premiums or payments required to be
made with respect to any Benefit Plan have been made on or before their due
dates. For completed plan years of such Benefit Plans, all such contributions
have been fully deducted for income tax purposes and no such deduction has been
challenged or disallowed by any Governmental Authority, and no fact or event
exists which could give rise to any such challenge or disallowance.
(g) There has been no amendment to, written interpretation of or
announcement (whether or not written) by LTC or any of LTC's Subsidiaries
relating to, or change in employee participation or coverage under, any Benefit
Plan that would increase materially the expense of maintaining such Benefit Plan
above the level of the expense incurred in respect thereto for the most recent
fiscal year ended prior to the date hereof.
(h) Except as set forth in Schedule 5.18(h), no employee or former
employee of LTC or any of LTC's Subsidiaries will become entitled to any bonus,
retirement, severance, job security or similar benefit or enhanced such benefit
(including acceleration of vesting or exercise of an incentive award) as a
result of the transactions contemplated by this Agreement.
5.19 Affiliate Transactions. (a) Except as set forth in Schedule
5.19(a), there are no outstanding payables, receivables, loans, advances and
other similar accounts between LTC, on the one hand, and any of its Affiliates,
on the other hand, relating to the Business.
(b) To the knowledge of LTC, no director, officer or employee of LTC
possesses, directly or indirectly, any ownership interest in, or is a director,
officer or employee of, any Person which is a supplier, customer, lessor,
lessee, licensor, developer, competitor or potential competitor of LTC Ownership
of 5% or less of any class of securities of a Person will not be deemed to be an
ownership interest for purposes of this Section 5.19.
5.20 Employee Matters. (a) The relationships of LTC with the employees
of LTC are good working relationships and except as disclosed in Schedule
5.20(a) no employee has terminated or notified LTC of any intention to terminate
or materially alter its relationship with LTC since December 31, 1998 and LTC
has no reason to believe that there will be any such change as a result of the
transactions contemplated by this Agreement.
(b) LTC is not a party to any labor or collective bargaining agreement;
there are no labor or collective bargaining agreements which pertain to any
current employee; and no current employee is represented by any labor
organization.
(c) No labor organization or group of LTC employees has made a pending
demand for recognition, there are no representation proceedings or petitions
seeking a representation proceeding presently pending or, to the knowledge of
LTC, threatened to be brought or filed with the National Labor Relations Board
or other labor
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relations tribunal, and there is no organizing activity involving LTC pending
or, to the knowledge of LTC, threatened by any labor organization or group of
LTC employees.
(d) There are no (i) strikes, work stoppages, slow-downs, lockouts or
arbitrations or (ii) grievances or other labor disputes pending or, to the
knowledge of LTC, threatened against or involving LTC
(e) There are no complaints, charges or claims against LTC pending or,
to the knowledge of LTC, threatened to be brought by or filed with any
Governmental Authority based on, arising out of, in connection with, or
otherwise relating to the employment by LTC, of any LTC Employee, including any
claim for workers' compensation.
(f) LTC is in material compliance with all Laws and Orders in respect
of employment and employment practices and the terms and conditions of
employment and wages and hours, and has not, and is not, engaged in any unfair
labor practice.
(g) Schedule 5.20(g) contains a complete and accurate list of the
following information for each employee, officer or director of LTC, including
each employee on leave of absence or layoff status: employer; name; job title;
current compensation paid or payable and any change in compensation since
December 31, 1998; vacation accrued as of a recent date; and service credited as
of a recent date for purposes of vesting and eligibility to participate under
any pension, retirement, profit-sharing, thrift-savings, deferred compensation,
stock bonus, stock option, cash bonus, employee stock ownership (including
investment credit or payroll stock ownership), LTC severance pay, insurance,
medical, welfare, or vacation plan or other Benefit Plan of LTC; and all bonuses
and any other amounts to be paid by LTC at or in connection with the Closing
("Bonuses").
(h) To the knowledge of LTC, no former or current employee, officer or
director of LTC is a party to, or is otherwise bound by, any confidentiality,
non-competition, proprietary rights agreement or similar agreement that would
affect (i) the performance of his or her duties as an employee, officer or
director or (ii) the ability of PLL to conduct the Business after the Closing
Date.
5.21 Finders' Fees. Except as set forth on Schedule 5.21, there is no
investment banker, broker, finder or other intermediary which has been retained
by or is authorized to act on behalf of LTC who might be entitled to any fee or
other commission in connection with the transactions contemplated by this
Agreement or any of the Ancillary Closing Agreements.
5.22 Millennium Compliance. Schedule 5.22 sets forth the measures that
have been implemented to determine the extent to which the computer systems used
by LTC in its business (the "Computer Systems") are not in Millennium
Compliance, a complete description of the Computer Systems that are not or may
not be in Millennium Compliance and the material details of any program to be
undertaken with a view towards causing any Computer Systems that are not
Millennium Complaint to achieve Millennium Compliance. To the knowledge of LTC,
the cost of achieving Millennium Compliance for the Computer Systems will not
exceed the amounts budgeted therefore as previously disclosed to PLL.
5.23 SEC Filings. The Annual Reports on Form 10-KSB of LTC for the
fiscal years ended (December 31, 1996, 1997 and 1998) filed under the Exchange
Act, and all other reports and proxy statements required to be filed by LTC
under the Exchange Act since January 1, 1997, have been duly and timely filed by
LTC, were in compliance with the requirements of their respective reports forms
and were complete and correct in all material respects, as of the dates at which
the information was furnished, and contained no untrue statement of a material
fact nor omitted to state a material fact required to be included therein or
necessary in light of the circumstances under which it was made in order to make
the statements made therein not misleading. LTC has disclosed to PLL all
material information relating to the transactions contemplated by this Agreement
and the Ancillary Closing Agreements, LTC, its predecessors (including, but not
limited to, Hope Technologies) or LTC's assets and all such disclosed
information is true and accurate.
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5.24 Registration Statement, Other Documents. None of the information
supplied or to be supplied by LTC for inclusion, or included, in (i) the
registration statement to be filed by LTC and PLL with the SEC in connection
with the Merger and the distribution of the Merger Securities (the "Registration
Statement"); (ii) the proxy statements to be mailed to LTC's stockholders and
PLL's shareholders in connection with the meetings (the "Shareholders'
Meetings") to be called to consider the Merger (the "Proxy Statements"); and
(iii) any other documents to be filed with the SEC or any regulatory agency in
connection with the transactions contemplated hereby shall, at the respective
time such documents are filed and, in the case of the Registration Statement,
when it becomes effective and, with respect to the Proxy Statements, when
mailed, be false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements therein not
misleading or, in the case of the Proxy Statements or any amendment thereof or
supplement thereto, at the time of the Shareholders' Meetings, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for the Shareholders Meetings. All documents which
LTC is responsible for filing with the SEC and any regulatory agency in
connection with the Merger shall comply as to form and substance in all material
respects with the provisions of applicable law.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PLL
PLL represents and warrants to LTC as of the date hereof as follows,
subject to any exceptions set forth in a Schedule hereto referencing the number
of the Section to which it relates:
6.1 Corporate Existence and Power. PLL is a corporation duly organized,
validly existing and in good standing under the laws of New Zealand and prior to
the Closing Date, PLL shall domesticate in the United States and shall be a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. PLL has all corporate or similar power and all
governmental licenses, authorizations, Permits, consents and approvals required
to carry on its business as now conducted. PLL is duly qualified to conduct
business as a foreign corporation and is in good standing in each jurisdiction
where such qualification is necessary, except for those jurisdictions where the
failure to be so qualified or in good standing could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. PLL has
heretofore delivered to LTC true and complete copies of its certificate of
incorporation and bylaws or other similar constituent documents, in each case as
amended to date.
6.2 Corporate Authorization; Enforceability. The execution, delivery
and performance by PLL of this Agreement, the Interim Agreements and each of the
Ancillary Closing Agreements to which it will be a party are within PLL's
corporate power and have been duly authorized by the board of directors and,
subject to the approval by the shareholders of PLL, no other corporate action on
the part of PLL is necessary to authorize this Agreement, the Interim Agreements
or any of the Ancillary Closing Agreements to which PLL will be a party at the
Closing. This Agreement has been, and each of the Ancillary Closing Agreements
and Interim Agreements to which PLL will be a party will be duly executed and
delivered by PLL. Assuming the due execution and delivery of this Agreement and
each of the Ancillary Closing Agreements and Interim Agreements to which PLL
will be a party, this Agreement constitutes, and each Ancillary Closing
Agreements and Interim Agreements to which PLL will be a party will constitute
valid and binding agreements of PLL, enforceable against PLL in accordance with
their terms, except to the extent that their enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity.
6.3 Governmental Authorization. The execution, delivery and performance
by PLL of this Agreement, the Interim Agreements and each of the Ancillary
Closing Agreements to which PLL will be a party require no consent, approval,
order, authorization or action by or in respect of, or filing with, any
Governmental Authority
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other than filings pursuant to the Securities Act and applicable state
securities laws and the approval of the shareholders of PLL.
6.4 Non-Contravention; Consents. The execution, delivery and
performance by PLL of this Agreement and each Ancillary Closing Agreement to
which PLL will be a party at the Closing and the consummation of the
transactions contemplated hereby and thereby, do not and will not at the Closing
(a) violate the certificate of incorporation or bylaws or other similar
constituent documents of PLL, (b) violate any applicable Law or Order, (c)
require any filing with or Permit, consent or approval of, or the giving of any
notice to, any Person (including filings, consents or approvals required under
any Permits of PLL or any licenses to which PLL is a party), (d) result in a
violation or breach of, conflict with, constitute (with or without due notice or
lapse of time or both) a default under, or give rise to any right of
termination, cancellation or acceleration of any right or obligation of PLL or
to a loss of any benefit to which PLL is entitled under, any Contract, agreement
or other instrument binding upon PLL or any license, franchise, Permit or other
similar authorization held by PLL, or (e) result in the creation or imposition
of any Lien on any asset of PLL.
6.5 Capitalization. The authorized, issued and outstanding Capital
Stock of PLL as of December 1, 1999 is as follows: PLL has 21,302,934 authorized
shares of which 6,000,000 shares are designated, issued and outstanding as Class
A shares and 15,302,934 shares are designated, issued and outstanding as Class B
shares. All of the outstanding shares of Capital Stock of PLL are duly
authorized, validly issued and fully paid and nonassessable. The shares of PLL
Common to be delivered at Closing, when issued and delivered in accordance with
the terms of this Agreement will be duly authorized, validly issued, fully paid,
nonassessable and free and clear of any Lien or other limitation or restriction.
There are no existing subscriptions, options, warrants, calls, commitments,
agreements, conversion rights or other rights of any character (contingent or
otherwise) to purchase or otherwise acquire from PLL at any time, or upon the
happening of any stated event, any shares of the capital stock of PLL whether or
not presently issued or outstanding, except as set forth on Schedule 6.5. It is
understood that nothing set forth in this Section 6.5 shall restrict PLL from
issuing new Capital Stock or any rights thereto.
6.6 Subsidiaries. (a) Each of PLL's Subsidiaries listed in Schedule 6.6
is a corporation or other legal entity duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each of PLL's
Subsidiaries has all corporate or similar powers and all governmental licenses,
authorizations, Permits, consents and approvals required to carry on its
business as now conducted. Each of PLL's Subsidiaries is duly qualified to
conduct business as a foreign corporation or other legal entity and is in good
standing in each jurisdiction where such qualification is necessary, except for
those jurisdictions where the failure to be so qualified or in good standing
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. PLL has heretofore delivered to LTC true and complete
copies of the certificate of incorporation, bylaws or comparable constituent
documents of each of PLL's Subsidiaries, in each case as amended to date. PLL
does not own, beneficially or of record, any stock or ownership interests in any
entity other than the Subsidiaries listed in Schedule 6.6.
(b) All the outstanding shares of Capital Stock of each such Subsidiary
have been validly issued and are fully paid and nonassessable and are owned
directly or indirectly by PLL, free and clear of all Liens. There are no
outstanding convertible or exchangeable securities or Contracts giving any
Person any right to acquire shares of Capital Stock of such Subsidiaries and no
voting trusts or other Contracts restricting the voting, dividend rights or
disposition of shares of such Subsidiaries.
6.7 PLL Financial Statements; Books and Records. (a) PLL heretofore
furnished LTC with true and complete copies of the PLL Audited Financials and
the PLL Interim Financials which have been prepared in accordance with New
Zealand GAAP consistently applied. The PLL Audited Financials and the PLL
Interim Financials fairly present in all material respects the financial
position of PLL at the respective dates thereto and the results of the
operations and cash flows of PLL for the respective periods then ended.
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(b) Since September 30, 1999, there have been no changes in PLL's
reserve, accrual or other material accounting policies.
(c) The books of account, minute books, stock record books and other
records of PLL, all of which have been made available to LTC, are complete and
correct in all material respects and have been maintained in accordance with
sound business practices and under an adequate system of internal controls. The
minute books of PLL contain accurate and complete records of all meetings held
of, and corporate and stockholder action taken by, the stockholders, Board of
Directors and committees of the Board of Directors of PLL and no meeting of any
such stockholders, Board of Directors or committee of the Board of Directors has
been held for which minutes have not been prepared and are not contained in such
minute books.
6.8 No Undisclosed Liabilities. There are no liabilities or any facts
or circumstances which could give rise to liabilities, whether accrued,
contingent, absolute, determined, determinable or otherwise, of PLL other than
(a) liabilities fully disclosed in PLL's Audited Financials and Interim
Financials in accordance with New Zealand GAAP, (b) liabilities specifically
disclosed in Schedule 6.8, and (c) other undisclosed liabilities incurred since
March 31, 1999 in the Ordinary Course of Business which, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
6.9 Tax Matters. (a)(i) All Returns have, to the extent required to be
filed on or before the date hereof, been filed and, to the extent required to be
filed between the date hereof and the Closing Date, will have been filed before
the Closing, when due in accordance with all applicable Laws and all Taxes owed
by PLL or any of PLL's Subsidiaries (whether or not shown as due and payable on
the Returns that have been filed) have been timely paid or will have been timely
paid prior to the Closing Date, or withheld (including withholding for
independent contractors, consultants and other employees) and remitted to the
appropriate Taxing Authority, or will have been timely withheld and remitted to
the appropriate Taxing Authority prior to the Closing Date;
(ii) The Returns correctly reflect in all material respects,
the facts regarding the income, business, assets, operations, and
activities and status of PLL and any of PLL's Subsidiaries;
(iii) Any reserves established for Taxes with respect to PLL
or any of PLL's Subsidiaries for any Pre-Closing Tax Period (including
any Pre-Closing Tax Period for which no Return has yet bee filed)
reflected on the books of PLL or any of PLL's Subsidiaries are adequate
in accordance with New Zealand GAAP;
(iv) Neither PLL nor any of PLL's Subsidiaries is delinquent
in the payment of any Tax or has requested any extension of time within
which to file any Return except for extensions granted as a matter of
right;
(v) Neither PLL nor any of PLL's Subsidiaries (or any member
of any affiliated, consolidated, combined or unitary group of which PLL
or any of PLL's Subsidiaries is or has been a member) has granted any
extension or waiver of the statute of limitations period applicable to
any Return, which period (after giving effect to such extension or
waiver) has not yet expired;
(vi) There is no action, suit, proceeding, audit or
investigation pending or, to the knowledge of PLL, threatened against
or with respect to PLL or any of PLL's Subsidiaries in respect of any
Tax. Since January 1, 1997, no claim has been made by any Taxing
Authority in any jurisdiction in which PLL or any of its Subsidiaries
does not file a Tax Return that it is or may be subject to taxation by
that jurisdiction and no such claim exists which has not been resolved
by a determination by such Taxing Authority that PLL or any of PLL's
Subsidiaries is not so subject to taxation;
(vii) There are no Liens for Taxes upon the assets of PLL or
any of PLL's Subsidiaries, except Liens for current Taxes not yet due;
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(b) Schedule 6.9 contains a list of all jurisdictions (whether foreign
or domestic) to which any tax imposed is properly payable by PLL or any of PLL's
Subsidiaries in connection with PLL's conduct or the business of PLL.
6.10 Absence of Certain Changes. Since September 30, 1999, there has
not been any event, occurrence, development, circumstance or state of facts
which (a) has had or which could reasonably be expected to have a Material
Adverse Effect or (b) would have constituted a violation of any covenant of PLL
hereunder (including Section 7.1) had such covenant applied to PLL since
September 30, 1999. Since September 30, 1999, there has not occurred any damage,
destruction or casualty loss (whether or not covered by insurance) with respect
to the business of PLL. PLL has not sold, transferred, disposed of, or incurred
a Lien upon, any Intellectual Property Right or PLL asset since September 30,
1999.
6.11 Contracts. (a) Each material lease, agreement, contract,
commitment or other legally binding contractual right or obligation to which PLL
is a party (whether written or oral) (collectively, the "PLL Contracts") is a
valid and binding agreement of PLL and, to the knowledge of PLL, each other
party thereto, enforceable in accordance with their respective terms, except to
the extent that their enforceability may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles.
Neither PLL nor, to the knowledge of PLL, any other party to any PLL Contract is
in default or breach (with or without due notice or lapse of time or both) in
any material respect under the terms of any such PLL Contract. To the knowledge
of PLL, there is no event occurrence, condition or act which, with the giving of
notice or the passage of time or both, or the happening of any other event or
condition, could reasonably be expected to become a material default or event of
default under any such PLL Contract. PLL has delivered or made available to PLL
true and complete originals or copies of all PLL Contracts.
6.12 Insurance Coverage. PLL has adequate insurance policies and
fidelity bonds covering the assets, business and operations of PLL. There is no
material claim by PLL pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and PLL has complied in all material respects with the
terms and conditions of all such policies and bonds. Such policies of insurance
and bonds (or other policies and bonds providing substantially similar insurance
coverage) are in full force and effect and are of the type and in amounts deemed
by the management of PLL to be sufficient in light of the business of PLL.
6.13 Litigation. There is no action, suit, investigation, arbitration
or administrative or other proceeding pending or, to the knowledge of PLL,
threatened against or affecting PLL or any of PLL's properties before any court
or arbitrator or any Governmental Authority which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay the transactions
contemplated by this Agreement, the Interim Agreements and the Ancillary Closing
Agreements to which PLL will be a party at Closing. PLL does not know of any
valid basis for any such action, proceeding or investigation.
6.14 Compliance with Laws; Permits. (a) PLL is not in violation of, has
not been given notice of or been charged by any Governmental Authority with, or,
to PLL's knowledge, under investigation with respect to, any applicable Law or
Order that could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
(b) Schedule 6.14(b) sets forth a list of each government or regulatory
license, authorization, permit, franchise, consent and approval (the "Permits")
issued and held by or on behalf of PLL or required to be so issued and held to
carry on the PLL's business as currently conducted. Except as disclosed in
Schedule 6.14(b), each Permit is valid and in full force and effect and will not
be terminated or impaired (or become terminated or impaired) as a result of the
transactions contemplated hereby. PLL is not in default under, and no condition
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exists that with notice or lapse of time or both could constitute a default or
could give rise to a right of termination, cancellation or acceleration under,
any material Permit held by PLL.
6.15 Properties; Sufficiency of Assets. (a) Except for inventory
disposed of in the Ordinary Course of Business of PLL, PLL has good title to or
in the case of leased property has valid leasehold interests in the property and
assets (whether real or personal, tangible or intangible) reflected in the PLL
Audited Financials or acquired after the date thereof, free and clear of all
Liens, except for Permitted Liens and Liens disclosed in Schedule 6.15(a).
(b) Schedule 6.15(b) sets forth a list of all Real Property owned or
leased by PLL. All such leases of PLL Real Property are valid and binding
agreements of PLL and, to the knowledge of PLL, each other party thereto,
enforceable in accordance with their respective terms, except to the extent that
their enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles. PLL is a tenant
or possessor in good standing thereunder and all rents due under such leases
have been paid. Neither PLL nor, to the knowledge of PLL, any other party to any
such lease is in default or breach (with or without due notice or lapse of time
or both) in any material respect under the terms of any such lease. To the
knowledge of PLL, there is no event, occurrence, condition or act which, with
the giving of notice or the passage of time or both, or the happening of any
other event or condition, could reasonably be expected to become a material
default or event of default under any such lease. PLL is in peaceful and
undisturbed possession of the space and/or estate under each lease of which it
is a tenant and has good and valid rights of ingress and egress to and from all
the Real Property from and to the public street systems for all usual street,
road and utility purposes. PLL has not received any notice of any appropriation,
condemnation or like proceeding, or of any violation of any applicable zoning
Law or Order relating to or affecting the Real Property, and to PLL's knowledge,
no such proceeding has been threatened or commenced.
(c) The assets of PLL are adequate to conduct the business of PLL as
currently conducted.
6.16 Intellectual Property. (a) Schedule 6.16(a) sets forth a list of
all Intellectual Property Rights which are owned by PLL or any of PLL's
Subsidiaries or to which PLL or any of PLL's Subsidiaries is a licensor or
licensee, and all material licenses, sublicenses and other written agreements as
to which PLL or any of its Affiliates is a party and pursuant to which any
Person is authorized to use such Intellectual Property Right, including the
identity of all parties thereto.
(a) (i) All of the Intellectual Property Rights necessary for or used
in the conduct of the Business are set forth in Schedule 6.16(a).
(ii) The conduct of the Business by PLL as currently conducted
does not infringe upon any Intellectual Property Right of any third
party. There is no claim, suit, action or proceeding that is either
pending or, to the knowledge of PLL, threatened, that, in either case,
involves a claim of infringement by PLL of any Intellectual Property
Right of any third party, or challenging PLL's ownership, right to use,
or the validity of any Intellectual Property Right listed or required
to be listed in Schedule 6.16(a). PLL has no knowledge of any basis for
any such claim of infringement and no knowledge of any continuing
infringement by any other Person of any of the Intellectual Property
Rights listed or required to be listed in Schedule 6.16(a);
(iii) No Intellectual Property Right listed or required to be
listed in Schedule 6.16(a) is subject to any outstanding order,
judgment, decree, stipulation or agreement restricting the use thereof
by PLL or restricting the licensing thereof by PLL to any Person;
(iv) PLL has not entered into any agreement to indemnify any
other Person against any charge of infringement of any Intellectual
Property Right;
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(v) PLL has duly maintained all registrations for any
Intellectual Property Rights listed or required to be listed in Schedule
6.16(a); and
(vi) PLL has obtained all assignments of any rights, title and
interest in the Intellectual Property Rights held by any Person other than PLL.
6.17 Environmental Matters. (a) (i) Constituents of Concern have not
been generated, recycled, used, neared or stored on, transported to or from, or
Released or disposed on, PLL Property or, to the knowledge of PLL, any property
adjoining or adjacent to any PLL Property, except in compliance with
Environmental Laws;
(ii) PLL has not disposed of Constituents of Concern from PLL
Property at any off-site facility except in compliance with
Environmental Laws;
(iii) PLL is in compliance in all material respects with
Environmental Laws and the requirements of Permits issued under such
Environmental Laws with respect to the PLL Property;
(iv) There are no pending or, to the knowledge of PLL,
threatened Environmental Claims against PLL or any PLL Property;
(v) PLL has no knowledge of any facts, circumstances,
conditions or occurrences regarding PLL's past or present business or
operations or with respect to any PLL Property or any property
adjoining any PLL Property that could reasonably be expected (i) to
form the basis of an Environmental Claim against PLL or any of the PLL
Property or assets or (ii) to cause any PLL Property or assets to be
subject to any restrictions on its ownership, occupancy, use or
transferability under any Environmental Law;
(vi) To the knowledge of PLL, there are no underground storage
tanks or sumps located on any PLL Property or on any property that
adjoins or is adjacent to any PLL Property;
(vii) PLL has obtained all required Environmental Permits and
is in compliance with the terms of each Environmental Permit in all
material respects; and
(viii) PLL has no liability under any Environmental Law
(including an obligation to remediate any Environmental Condition
whether caused by PLL or any other Person).
(b) PLL has delivered or made available to PLL true and complete copies
of all environmental investigations, studies, audits, tests, reviews or other
analyses commenced or conducted by or on behalf of PLL (or by a third party of
which PLL has knowledge) in relation to the current or prior business of PLL or
any PLL Property,
(c) For purposes of this Section 6.17, the term "PLL" (including the
use of such term in the term "PLL Property") will include any entity which is,
in whole or in part, a predecessor of PLL.
6.18 Plans and Material Documents. Schedule 6.18 sets forth a list of
all PLL Benefit Plans. Each PLL Benefit Plan is in compliance in all material
respects with, and has always been operated in all material respects in
accordance with, its terms and the requirements of all applicable Laws, and PLL
has satisfied in all material respects all of its statutory, regulatory and
contractual obligations with respect to each such Benefit Plan. No legal action,
suit or claim is pending or, to the knowledge of PLL, threatened with respect to
any Benefit Plan (other than claims for benefits in the ordinary course) and no
fact or event exists that could reasonably be expected to give rise to any such
action, suit or claim.
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6.19 Affiliate Transactions. (a) There are no outstanding payables,
receivables, loans, advances and other similar accounts between PLL, on the one
hand, and any of its Affiliates, on the other hand, relating to the business of
PLL.
(b) To the knowledge of PLL, no director, officer or employee of LTC
possesses, directly or indirectly, any ownership interest in, or is a director,
officer or employee of, any Person which is a supplier, customer, lessor,
lessee, licensor, developer, competitor or potential competitor of PLL.
Ownership of 5% or less of any class of securities of a Person will not be
deemed to be an ownership interest for purposes of this Section 6.19.
6.20 Employee Matters. (a) The relationships of PLL with the employees
of PLL are good working relationships and PLL has no reason to believe that
there will be any such change as a result of the transactions contemplated by
this Agreement.
(b) PLL is not a party to any labor or collective bargaining agreement.
(c) There are no (i) strikes, work stoppages, slow-downs, lockouts or
arbitrations or (ii) grievances or other labor disputes pending or, to the
knowledge of PLL, threatened against or involving PLL.
(d) PLL is in material compliance with all Laws and Orders in respect
of employment and employment practices and the terms and conditions of
employment and wages and hours, and has not and is not, engaged in any unfair
labor practice.
6.21 Finders' Fees. Except for US Capital Consultants Pty Ltd. (whose
fees and expenses will be paid by PLL), there is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of PLL who might be entitled to any fee or other commission in
connection with the transactions contemplated by this Agreement or any of the
Ancillary Closing Agreements.
6.22 Millennium Compliance. Schedule 6.22 sets forth the measures that
have been implemented to determine the extent to which the computer systems used
by PPL in its business (the "Computer Systems") are not in Millennium
Compliance, a complete description of the Computer Systems that are not or may
not be in Millennium Compliance and the material details of any program to be
undertaken with a view towards causing any Computer Systems that are not
Millennium Complaint to achieve Millennium Compliance.
6.23 New Zealand Filings. All information filed with the District
Registrar of Companies in Auckland, New Zealand by PLL pursuant to the Companies
Act 1993 or the Securities Act 1978 of New Zealand during 1998 and 1999 has been
filed in compliance with the requirements thereof and was accurate in all
material respects as of the dates at which the information was so furnished.
6.24 Registration Statement, Other Documents. None of the information
supplied or to be supplied by PLL for inclusion, or included, in the
Registration Statement; (ii) the Proxy Statements; and (iii) any other documents
to be filed with the SEC or any regulatory agency in connection with the
transactions contemplated hereby shall, at the respective times such documents
are filed and, in the case of the Registration Statement, when it becomes
effective and, with respect to the Proxy Statements, when mailed, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein not misleading or, in the case
of the Proxy Statements or any amendment thereof or supplement thereto, at the
time of the Shareholders' Meetings, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Shareholders Meetings. All documents which PLL is responsible for
filing with the SEC and any regulatory agency in connection with the Merger
shall comply as to form and substance in all material respects with the
provisions of applicable law.
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6.25 Available Funds. On the date hereof PLL has sufficient funds to
satisfy the obligations of PLL under the Bridge Loan Financing Agreements.
ARTICLE VII
CERTAIN COVENANTS
7.1 Conduct of Business of LTC. During the period from the date of this
Agreement to the Closing Date, LTC will conduct its operations only in the
Ordinary Course of Business (including managing its working capital in
accordance with its past practice and custom) and in accordance with the
management provisions set forth in Section 7.17 hereto use its best efforts to:
(i) preserve intact its business organizations, (ii) keep available the services
of its officers and employees, and (iii) maintain its relationships and goodwill
with licensors, suppliers, distributors, customers, landlords, employees, agents
and others having business relationships with LTC or the Business. LTC will
confer with PLL concerning operational matters of a material nature and report
periodically to PLL concerning the Business, operations and finances of LTC.
Without limiting the generality or effect of the foregoing, prior to the Closing
Date, except with the prior written consent of PLL, LTC will not:
(a) Amend or modify its certificate of incorporation or bylaws or other
similar constituent documents from its form on the date of this Agreement except
to increase the number of authorized shares of common stock up to 200 million
shares;
(b) Change any salaries or other compensation of, or pay any bonuses
to, any current or former director, officer, employee or stockholder of LTC, or
enter into any employment, severance or similar agreement with any current or
former director, officer, stockholder or employee of LTC;
(c) Adopt or increase any benefits under any profit sharing, bonus,
deferred compensation, savings, insurance, pension, retirement or other Benefit
Plan for or with any of its employees;
(d) Incur or commit to make any capital expenditures in excess of the
remaining balance of the planned capital expenditures under the LTC's current
capital expenditure budget to the extent approved by PLL;
(e) Enter into any contract or commitment, except for contracts and
commitments entered into by LTC in the Ordinary Course of Business;
(f) Modify or amend in any material respect or terminate any Contract
listed or required to be listed in Schedule 5.11(a);
(g) Incur, assume or guarantee any Indebtedness;
(h) Enter into any transaction or commitment relating to the assets or
the Business of LTC which, individually or in the aggregate, could be material
to LTC, or cancel or waive any claim or right which, individually or in the
aggregate, could be material to LTC;
(i) Make any change in accounting methods or practices (including
changes in reserve or accrual amounts or policies);
(j) Issue or sell any Capital Stock, or make any other changes in its
capital structure, other than the grant in the Ordinary Course of Business of
stock options or other rights to purchase shares of Capital Stock of LTC
pursuant to any existing Benefit Plan of LTC or the repricing of existing
warrants or options to induce their exercise by the holders thereof in a manner
satisfactory to PLL, or with the prior written approval of PLL, in connection
with the settlement of existing indebtedness of LTC;
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(k) Sell, lease or otherwise dispose of any material asset or property
of LTC;
(l) Write-off as uncollectible any notes or Accounts Receivable, except
write-offs in the Ordinary Course of Business charged to applicable reserves,
none of which individually or in the aggregate is material; write-off, write-up
or write-down any other material asset of LTC; or alter LTC's customary time
periods for collection of Accounts Receivable or payments of accounts payable;
(m) Create or assume any Lien, other than a Permitted Lien;
(n) Make any loan, advance or capital contributions to or investment in
any Person;
(o) Terminate or close any material facility, business or operation of
LTC;
(p) Cause or permit to occur any event, occurrence, development or
state of circumstances or facts which, individually or together with other
matters, has had or could reasonably be expected to have a Material Adverse
Effect;
(q) Take any action that would cause any of the representations and
warranties made by LTC in this Agreement not to remain true and correct or any
of the conditions set forth in any subsection of Section 8.1 from being
satisfied;
(r) Enter into any discussions or negotiations with any Person
regarding the sale, transfer, disposition or licensing of any Intellectual
Property Rights;
(s) Settle, release or forgive any claim or litigation or waive any
right thereto that relates to LTC or the Business; or
(t) Agree to do any of the foregoing.
7.2 Exclusive Dealing. During the period from the date of this
Agreement to the earlier of the Closing Date and the termination of this
Agreement in accordance with its terms, subject to the fiduciary duties of their
respective officers and directors, each of LTC and PLL will not, and will not
authorize or permit any of their stockholders or any of their respective
Affiliates, or any of their officers or directors or any of their respective
Affiliates, or any representative of any of the foregoing (including financial
advisors, investment bankers, agents, attorneys, employees or consultants) to,
take any action to, directly or indirectly, encourage, initiate, solicit or
engage in discussions or negotiations with, or provide any information to any
Person, or enter into any agreement with any Person, other than LTC or PLL (as
the case may be) and its Affiliates and representatives, concerning any purchase
of any Capital Stock, the Business or Intellectual Property Rights of LTC or any
merger, asset sale or similar transaction involving LTC or any transaction
involving a competing thin film technology or any transaction that would
frustrate the purposes of this Agreement, without the prior written consent of
the other party. Each party will disclose to the other party the existence or
occurrence of any proposal or contact which it or any of its Affiliates or
representatives described above may receive in respect of any such transaction
and the identity of the Person from whom such a proposal or contact is received.
7.3 Review of LTC; Confidentiality. (a) PLL may, prior to the Closing
Date, directly or through its representatives, review the properties, books and
records of LTC and its financial and legal condition to the extent it deems
necessary or advisable to familiarize itself with such properties and other
matters. LTC will permit PLL and its representatives to have, after the date of
execution of this Agreement, reasonable access to the premises and to all the
books and records of LTC and to cause the officers, accountants and other
representatives of LTC to furnish PLL with such financial and operating data and
other information with respect to the Business and properties of LTC as PLL may
from time to time reasonably request. LTC will deliver or
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cause to be delivered to PLL such additional instruments, documents,
certificates and opinions as PLL may reasonably request for the purpose of (i)
verifying the information set forth in this Agreement or on any Schedule
attached hereto and (ii) consummating or evidencing the transactions
contemplated by this Agreement.
(b) LTC may, prior to the Closing Date, directly or through its
representatives, review the properties, books and records of PLL and its
financial and legal condition to the extent necessary to prepare the
Registration Statement and Proxy Statement. PLL will cause the officers
accountants and other representatives to furnish LTC with such financial and
operating data and other information with respect to the business and properties
of PLL as may be necessary to prepare the Registration Statement and Proxy
Statement.
(c) Prior to the Closing, neither LTC nor PLL will, or will permit any
of its Affiliates to, without the prior written consent of the other, disclose
to any other Person (other than such Person's financing sources, existing
stockholders and such Person's directors, officers, employees, advisors and
other representatives that need to know) any proprietary, non-public information
of another party previously delivered or made available to such other party in
connection with the transactions contemplated hereby (including the existence of
and terms of this Agreement, the Interim Agreements and the Ancillary Closing
Agreements), other than to the extent required by applicable Law and upon the
advice of counsel. Each of LTC and PLL will direct its financing sources,
stockholders, directors, officers, employees and representatives to keep all
such information in strict confidence; provided, however, that each such Person
may disclose such information to the extent required by Law and upon the advice
of counsel.
7.4 Reasonable Best Efforts. (a) Subject to the fiduciary duties of
their respective officers and directors, LTC and PLL will cooperate and use
their respective reasonable best efforts to take, or cause to be taken, all
appropriate actions, and to make, or cause to be made, all filings necessary,
proper or advisable under applicable Laws to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
their respective reasonable best efforts to obtain, prior to the Closing Date,
all licenses, Permits, consents, approvals, authorizations, qualifications and
orders of Governmental Authorities and parties to Contracts with LTC as are
necessary to consummate the transactions contemplated by the Agreement and to
fulfill the conditions to the sale contemplated hereby. The parties will pay or
cause to be paid all of their own fees and expenses contemplated by this
Section, including but not limited to the fees and expenses of any broker,
finder, financial advisor, legal advisor or similar person engaged by such
party. Notwithstanding any other provision hereof, in no event will PLL or any
of its Affiliates be required to (a) enter into or offer to enter into any
divestiture hold-separate, business limitation or similar agreement or
undertaking in connection with this Agreement or the transactions contemplated
hereby, (b) institute or defend any litigation or other legal proceeding,
whether judicial or administrative, including, without limitation, seeking to
have any stay or temporary restraining order vacated or reversed, or (c) incur
any liability or make any payment in connection with any consent or approval or
condition to Closing set forth in any subsection of Section 8.1 in order to
consummate the transactions contemplated by this Agreement. Each of the parties
will notify and keep the other advised in reasonable detail as to such party's
efforts in complying with its obligations under this Section 7.4.
(b) LTC will, within 10 days after the end of the applicable calendar
month, deliver to PLL the Monthly Financial Statements prepared in accordance
with U.S. GAAP consistently applied and which fairly present in all material
respects the financial position of LTC at the date thereof and the results of
operations and cash flows for the month then ended.
(c) Prior to the Closing Date, LTC agrees to obtain a consent to the
transactions contemplated herein from the Ben Franklin Technology Center of
Southeastern Pennsylvania ("Ben Franklin") pursuant to that certain Applied
Research and Development Fund Funding Agreement, dated as of February 1, 1998,
between Ben Franklin and LTC. In addition, prior to the Closing Date LTC agrees
to obtain a subordination of Ben Franklin's security interest in the assets of
LTC to PLL's security interest in such assets.
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7.5 Transfer of Employees and Benefit Plans. As of the Closing Date:
(a) PLL will offer to each full-time employee of LTC who is not on
leave of absence (whether on disability or otherwise) immediately prior to the
Closing Date (the "Transferred Employees") employment with PLL or an Affiliate
of PLL with each such offer to include a substantially equivalent title, level
of responsibility and compensation and benefits as each such employee had as an
employee of LTC on the date hereof. Any such employment will be subject to the
terms and conditions of PLL's standard Employment Agreement;
(b) Upon the Closing, PLL will offer employment to David Cade and
George Ferment in accordance with the terms and conditions of the Employment
Agreements; and
(d) PLL will grant a minimum of three hundred thousand (300,000)
options (the "Options") to the Transferred Employees for the purchase of PLL
Stock at an exercise price of $2.25 per share. The Options will be distributed
to the Transferred Employees on the Closing Date in the amounts set forth in
Schedule 7.5(c). The Options shall vest on the Closing Date. The Options will be
issued by PLL (Delaware) in the form of the Employee Share Option Deed attached
hereto as Exhibit D and shall be registered on a Form S-8 (or equivalent form).
Nothing contained in this Agreement will confer upon any Transferred Employee
any rights or remedies, including, without limitation, any right to employment,
of any nature or kind whatsoever, from any specified period or at any level of
compensation or benefits under or by reason of this Agreement. Notwithstanding
anything to the contrary contained in this Agreement, neither PLL nor any
Affiliate of PLL will be required to continue any particular Benefit Plan after
the Closing Date for the Transferred Employees, and any such Benefit Plan may be
amended or terminated in accordance with its terms and any applicable Law.
Transferred Employees will be eligible to participate in any benefit program
maintained by PLL for similarly-situated employees of PLL and will receive full
credit for their service with LTC and PLL for eligibility and vesting purposes
with respect to such benefit program, provided that such crediting of service
does not result in duplication of benefits and provided further, that such
crediting of service will not be given for benefit accrual. Transferred
Employees will also be given credit for any deductible or co-payment amounts
paid in respect of the plan year in which they became eligible to participate in
any plan of PLL for which deductibles or co-payments are required. PLL will also
cause each plan of PLL to waive (i) any preexisting condition restriction which
was waived under the terms of any analogous plan of LTC immediately prior to the
Closing or (ii) any waiting period limitation which would otherwise be
applicable to any Transferred Employee on or after the Closing to the extent
such Transferred Employee had satisfied any similar waiting period limitation
under an analogous plan of LTC prior to the Closing. LTC and PLL will coordinate
all communications with the employees of LTC regarding the transactions
contemplated by this Agreement.
7.6 Proxy and Registration Statements. In connection with the
transactions contemplated by this Agreement:
(a) Promptly after the date hereof, LTC shall prepare and file with the
Securities and Exchange Commission a proxy statement to be mailed to LTC's
shareholders in connection with the meeting to be called to consider the Merger
and shall provide PLL with such copies thereof as it may request.
Contemporaneously with the IPO process described in Section 7.16, PLL shall file
with the Securities and Exchange Commission the Registration Statement to
register under the Securities Act the Merger Securities to be issued to the
holders of the LTC Common and shall provide LTC with the necessary copies of the
prospectus included as a part of the Registration Statement (the "Prospectus")
for the shareholders of LTC at the earliest practicable date after the effective
date of the Registration Statement and prior to the Closing. PLL shall file all
such amendments to the Registration Statement as shall be necessary to keep it
current and effective until the Merger Securities have been distributed.
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(b) In connection with the preparation of the Registration Statement
and the Proxy Statement (i) LTC shall also provide to PLL in writing all
information relating to LTC or its Subsidiaries and the management, operations
and finances of any of them which may be advisable or necessary to include in
the Registration Statement or any amendment thereto as may be necessary to keep
it current and effective until the distribution of the Merger Securities, none
of which information, with respect to the subject matter thereof shall contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (ii) PLL shall provide LTC in writing with all information
relating to PLL or its Subsidiaries and the management, operations and finances
of any of them which may be advisable or necessary to include in the
Registration Statement or any amendment thereto as may be necessary to keep it
current and effective until the distribution of the Merger Securities, none of
which information, with respect to the subject matter thereof shall contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
(c) Contemporaneously with the IPO process described in Section 7.16,
PLL and LTC shall file all applicable state securities or "blue sky"
applications and use its reasonable efforts to qualify the Merger Securities
issuable pursuant to this Agreement under such applicable state securities or
"blue sky" laws prior to the Closing Date.
(d) Information which is obtained by either party pursuant to this
Section 7.6 will be kept confidential by such party; provided, however that in
the event the party or any of its representatives is requested or required
pursuant to applicable Law by any Governmental Authority to disclose any such
information, the party may do so after providing the other party with notice of
the request or requirement so that the other party may attempt, at its own
expense, to obtain a protective order. Each party will use reasonable efforts to
limit access to such information on a "need to know" basis. Neither party may
use information obtained from the other party pursuant to this subsection to
compete with the other party.
7.7 LTC SEC Filings; Disclosure of Material Information. LTC will file
with the Securities and Exchange Commission its Annual Report on Form 10-K SB
for the fiscal year ended December 31, 1999, in a timely manner and in
compliance with the requirements of such form. LTC agrees to disclose to PLL all
material information and any new developments arising after the date hereof
regarding the Business. PLL agrees to disclose to LTC all material information
and any new developments arising after the date hereof regarding the business of
PLL.
7.8 Transfer Taxes. LTC will pay all transfer, documentary, sales, use,
stamp, registration and value added Taxes incurred in connection with this
Agreement.
7.9 Further Assurances. From time to time, as and when requested by
either party hereto, the other party will execute and deliver, or cause to be
executed and delivered, all such documents and instruments and will take, or
cause to be taken, all such further actions, as the requesting party may
reasonably deem necessary or desirable to consummate the transactions
contemplated by this Agreement.
7.10 Insurance. LTC will continue to carry and maintain in full force
and effect the insurance policies listed on Schedule 5.12, or policies with
comparable coverage, to the Closing Date. LTC will cause PLL to be included as
an additional insured on all such policies designated on Schedule 5.12 as
"Occurrence Form" from and after the Closing Date with respect to claims
occurring on or prior to the Closing Date and, with respect to policies
designated on Schedule 5.12 as "Claims Made", cause PLL to be included as an
additional insured with respect to claims made and reported to LTC on or prior
to the Closing Date. PLL acknowledges and agrees that effective on the Closing
Date, all insurance policies and coverages provided or made available by LTC to
or for the benefit of the Business will terminate and PLL will, at PLL's sole
cost and expense, be responsible for
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making any and all necessary or appropriate arrangements for the provision of
insurance coverage and similar matters for or relating to the Business.
7.11 Transfer of Intellectual Property Rights. Prior to the Closing
Date, if PLL deems it necessary, LTC agrees to take all actions necessary to
Transfer all of its Intellectual Property Rights to an entity organized under
the laws of the Netherlands Antilles or a similar jurisdiction, for tax
purposes.
7.12 Board of Directors. Effective at the Closing, PLL will allow LTC
to appoint one member to the Board of Directors of PLL and to use its reasonable
best efforts to cause such appointee to be elected to the Board of Directors.
7.13 Repricing of Options and Warranties; Purchase of Additional Stock.
(a) Prior to the Closing Date, LTC shall use its best efforts to cause all
outstanding warrants and options issued by LTC to be exercised by the holders
thereof, including to re-price and accelerate the vesting of such outstanding
warrants and options as an inducement to their exercise by the holders thereof.
The repricing of the warrants and options will be conditioned upon the holders
of such warrants and options consenting to the termination of the warrant and
option owned by such holder as of a date not later than immediately prior to the
Effective Time of the Merger. LTC will terminate all LTC Stock Plans and
outstanding and unexercised stock options as of a date not later than
immediately prior to the Effective Time. Any LTC warrants outstanding at the
Effective Time that are not terminated other than warrants held by PLL will be
converted and adjusted at the Effective Time into warrants to purchase shares of
PLL (or its successor) in accordance with their terms.
(b) In the event that any holder of warrants or options issued by LTC
exercises such warrants or options prior to the Closing Date, LTC agrees to use
the proceeds from the exercise of the warrants and options (the "Exercise
Funds") as follows: (1) the first three hundred fifty thousand dollars
($350,000) shall be used by LTC to finance the operations of LTC in lieu of
obtaining financing under the Bridge Loan Financing Agreements and (2) the
second two hundred thousand dollars ($200,000) shall be used by LTC to pay a
portion of the accrued salary due and owing to Mr. Thomsen.
Any Exercise Funds in excess of the foregoing five hundred fifty
thousand dollars ($550,000) (the "Excess Exercise Funds") shall be used by LTC
to pay LTC's Continuing Costs directly by LTC. To the extent LTC pays its
Continuing Costs through the Excess Exercise Funds rather than through Bridge
Loan Financing funds the Merger Securities to be distributed to the LTC
stockholders in the Merger shall be increased on the following basis: one share
of PLL Common Stock shall be added to the 3,500,000 Merger Securities set forth
in Section 3.3 of the Merger Agreement for every $2.25 of Excess Exercise Funds
received by LTC (the "Additional Merger Securities"). The Additional Merger
Securities shall be distributed to the LTC stockholders on the same basis as the
Merger Securities set forth in Section 3.3 of the Merger Agreement. (By way of
example, if LTC receives $1,450,000 in Exercise Funds, (1) LTC shall first use
$350,000 to finance the operations of LTC in lieu of using Bridge Loan Financing
funds, (2) LTC shall use $200,000 to pay accrued salary due and owing Thomas
Thomsen, (3) LTC shall use the remaining $900,000 to pay LTC's Continuing Costs
and (4) the LTC stockholders shall receive in the Merger 400,000 additional
Merger Securities.)
7.14 Bridge Financing; Additional Security. PLL shall advance an amount
up to $1,100,000, subject to adjustment pursuant to Section 7.13, and the
additional amounts necessary during the term of this Agreement to fund LTC's
expenses pursuant to Section 2(d) of the Bridge Financing Agreement. Promptly
after a vote of the LTC stockholders approving the Merger, the parties will
enter into the Security Agreement and Assignment of Lease (and, upon the request
of PLL, LTC shall use its best efforts (subject to market, economic and business
conditions) to obtain the express written consent thereto of the lessor
thereunder) to provide additional security to PLL under the Bridge Loan
Financing Agreements.
7.15 Line of Business; Non-Compete. Until the earlier of (i) an IPO or
(ii) two years from the date hereof, each of PLL and LTC agrees that it shall
not engage in any business other than its business as currently
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conducted and as contemplated on the date hereof in accordance with PLL's
business plans, except to the extent as would not be material to PLL and its
Subsidiaries, taken as a whole. In addition, LTC agrees not to compete directly
or indirectly with PLL.
7.16 IPO; Reincorporation. As soon as practicable after a vote of LTC
stockholders approving the Merger, PLL will use all reasonable efforts (subject
to market, economic and business conditions) to consummate an IPO and prior to
Closing, PLL will change its name to "Ilion Technology Corporation" and its
jurisdiction of incorporation to Delaware by means of a domestication in
Delaware pursuant to Section 388 of the Delaware General Corporation Law or
otherwise. Contemporaneously with the consummation of the Merger and the IPO,
PLL shall distribute the Merger Securities to the shareholders of LTC pursuant
to an effective Registration Statement. The LTC shareholders may elect to
include the Merger Securities owned by such shareholders in the IPO and PLL
shall use its best efforts to include such Merger Securities in the IPO. If the
managing underwriter of the IPO advises PLL in writing that in their opinion,
the number of Merger Securities together with the other PLL shares proposed to
be offered, exceeds the number of securities which can be sold in such offering
without having a material adverse effect on the price of such securities (the
"Maximum Primary Number"), PLL shall include in such registration, up to the
Maximum Primary Number, (i) first, the securities that PLL proposes to sell and
(ii) second the Merger Securities and other PLL shares requested to be included
in such registration pro rata among the holders thereof on the basis of the
number of shares of PLL in good faith requested to be registered by such
holders.
7.17 Consulting Services. Upon the approval of this Agreement by the
shareholders of LTC (the "Approval Date") the following provisions shall become
effective from the Approval Date until the Effective Time of the Merger or the
termination of this Agreement pursuant to Section 9.1 (the "Bridge Period"):
(a) PLL shall retain LTC as a consultant during the Bridge Period and
LTC shall provide management and technical services to PLL. Management services
shall include, without limitation: general management services including
executive functions, supervisory support, capital raising support, corporate
strategy development, strategic alliance development and negotiations, financial
planning services; strategic planning services; sales, marketing and business
development services. Technical services shall include, without limitation,
research and development services, engineering, and other technical assistance
and advice related to the development and manufacturing of lithium polymer
rechargeable cells (the "Services"). PLL shall request such Services in writing
and specify:
(i) Nature of work to be performed;
(ii) Date on which assignment is to begin;
(iii) Length of assignment; and
(iv) Individual who will coordinate for PLL.
(b) Each work assignment shall be governed by the terms and conditions
of this Agreement, the terms and conditions of the work assignment, and by such
supplementary written amendments of this Agreement or the work assignment as may
be from time to time executed between the parties.
(c) In the event of a conflict between the terms and conditions of this
Agreement and the terms and conditions of any work assignment, the terms and
conditions of the work assignment shall govern.
(d) The Services shall be performed both at the LTC facilities and the
facilities of PLL as designated by PLL.
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(e) LTC's staff are not nor shall they be deemed to be at any time
during the term of this Agreement to be employees of PLL.
(f) PLL shall have the right to interview any prospective new hire of
LTC and may in its sole discretion reject any such person upon written notice to
LTC
(g) PLL shall be responsible for the technical direction of the
Services performed by LTC's staff. LTC shall be responsible for supervision and
general control of its staff and shall provide only personnel who are and remain
acceptable to PLL to carry out this responsibility.
(h) LTC shall instruct its employees to use the same care and
discretion with respect to PLL's confidential information that they use with
respect to LTC's confidential information.
(i) The work product and New Technology resulting from LTC's services
to PLL hereunder is hereby deemed assigned and shall belong exclusively to PLL.
PLL shall have the exclusive right to obtain copyrights, registrations and such
other proprietary protections on the New Technology as it wishes. LTC will
provide PLL with all assistance reasonably required to protect said rights, at
PLL's expense. "New Technology" means all inventions, patents, know-how, trade
secrets, information, data, manufacturing processes, designs, ideas, and the
like and any new or improved process, method or design change to LTC technology
existing prior to the date of this Agreement and developed by LTC or PLL on or
after the date of this Agreement.
(j) The parties agree to promptly disclose to each other all New
Technology.
(k) Services will include provision by LTC of, and PLL's right to use,
premises at Plymouth Meeting, with the right for PLL to erect additional signs
subject to landlord consent and existing signage.
(l) LTC shall not, directly or indirectly, engage in any conduct
competitive to PLL during the term of the consultancy.
(m) All business opportunities introduced to LTC by PLL (including
opportunities introduced prior to the Approval Date in anticipation of this
consultancy agreement) shall be owned solely by PLL.
(n) If this Agreement shall be terminated other than pursuant to
Section 9.1(a)(iii), PLL shall have the right and option to purchase LTC's pilot
plant and equipment at book value as of the date of this Agreement, by giving
notice of exercise of this option to LTC within 60 days after such termination.
The parties shall use all reasonable efforts to cause the closing of such
purchase to occur as soon as practicable after such notice shall have been
given.
ARTICLE VIII
CONDITIONS TO CLOSING
8.1 Conditions to Obligations of PLL. The obligations of PLL to
consummate the Closing are subject to the satisfaction (or waiver by PLL) of the
following conditions:
8.1.1 Representations, Warranties and Covenants of LTC (a) The
representations and warranties of LTC made in this Agreement shall be true and
correct in all respects (or, if any such representation is not expressly
qualified by "materiality," "Material Adverse Effect" or words of similar
import, then in all material respects) as of the date hereof and as of the
Closing Date, as though made as of the Closing and (b) LTC shall have performed
and complied in all material respects with all terms, agreements and covenants
contained in this Agreement required to be performed or complied with by LTC on
or before the Closing Date.
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8.1.2 No Injunction, etc. No provision of any applicable Law and no
judgment, injunction, order or decree of any Governmental Authority shall be in
effect which shall prohibit the consummation of the Closing.
8.1.3 No Proceedings. No action, suit or proceeding challenging this
Agreement, the Interim Agreements, the Ancillary Closing Agreements or the
transactions contemplated hereby or thereby or seeking to prohibit, alter,
prevent or materially delay the Closing or seeking material damages shall have
been instituted or threatened by any Person.
8.1.4 Ancillary Closing Agreements. Each of the Ancillary Closing
Agreements shall have been executed and delivered by LTC where LTC is a party
thereto.
8.1.5 Third-Party Consents; Governmental Approvals. The Registration
Statement shall have been declared effective by the SEC, the information
contained therein shall be true and correct in all material respects as of the
Closing Date, no stop order shall have been issued or proceedings instituted or
threatened to suspend the effectiveness of the Registration Statement and all
consents, approvals, waivers, subordinations and Permits, if any, disclosed or
required to be disclosed on any Schedule attached hereto or otherwise required
in connection with the consummation of the transactions contemplated by this
Agreement shall have been received including, but not limited to, any consents
from Ben Franklin or relating to the Mitsubishi Materials and the approval by
LTC's and PLL's shareholders of the transactions contemplated by this Agreement
and the Ancillary Closing Agreements.
8.1.6 No Material Adverse Change. Prior to the Closing Date, no event
shall have occurred which, individually or when considered together with all
other matters, has had, or could reasonably be expected to have, a Material
Adverse Effect on LTC, and PLL shall not have discovered any fact or
circumstance (previously unknown to PLL) which, individually or when considered
together with all other matters, has, or could reasonably be expected to have, a
Material Adverse Effect on LTC.
8.1.7 Transfer of Intellectual Property Rights. If PLL deems it
necessary, LTC shall have Transferred all of its Intellectual Property Rights to
an entity organized under the laws of the Netherland Antilles or a similar
jurisdiction, for tax purposes.
8.1.8 SEC Filings. LTC's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1999, containing audited financial statements shall have
been filed with the SEC.
8.1.9 Due Diligence. PLL shall have completed to its satisfaction its
due diligence review of LTC and its subsidiaries in connection with the
transactions contemplated by this Agreement, the Interim Agreements and the
Ancillary Closing Agreements.
8.1.10 IPO Closing. The IPO shall have closed contemporaneously with
the Closing of the Merger.
8.1.11 Termination of Options and Employment Agreements. All option
plans, option agreements and employment agreements between LTC or its
subsidiaries and its employees, directors or any other Person (whether oral or
written) shall have been terminated prior to the Closing Date with no further
obligation or liability to LTC or PLL.
8.2 Conditions to Obligations of LTC. The obligations of LTC to
consummate the Closing are subject to the satisfaction (or waiver by LTC) of the
following conditions:
8.2.1 Representations, Warranties and Covenants of PLL. The
representations and warranties of PLL made in this Agreement shall be true and
correct in all respects (or, if any such representation is not expressly
qualified by "materiality," "Material Adverse Effect" or words of similar
import, then in all material respects) as of the date hereof and as of Closing,
as though made as of the Closing and (b) PLL shall have performed and
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complied in all material respects with all terms, agreements and covenants
contained in this Agreement required to be performed or complied with by PLL on
or before the Closing Date.
8.2.2 No Injunction, etc. No provision of any applicable Law and no
judgment, injunction, order or decree of any Governmental Authority shall be in
effect which shall prohibit the consummation of the Closing.
8.2.3 No Proceedings. No action, suit or proceeding challenging this
Agreement, the Interim Agreements, the Ancillary Closing Agreements or the
transactions contemplated hereby or thereby or seeking to prohibit, alter,
prevent or materially delay the Closing or seeking material damages shall have
been instituted or threatened by any Person.
8.2.4 Ancillary Closing Agreements. Each of the Ancillary Closing
Agreements shall have been executed and delivered by PLL where PLL is a party
thereto.
8.2.5 Third-Party Consents; Governmental Approvals. The Registration
Statement shall have been declared effective by the SEC, the information
contained therein shall be true and correct in all material respects as of the
Closing Date, no stop order shall have been issued or proceedings instituted or
threatened suspending the effectiveness of the Registration Statement and all
consents, approvals, waivers and Permits, if any, disclosed or required to be
disclosed on any Schedule attached hereto or otherwise required in connection
with the consummation of the transactions contemplated by this Agreement shall
have been received including, but not limited to, any consents relating to the
Mitsubishi Materials and the approval by LTC's and PLL's shareholders of the
transactions contemplated by this Agreement and the Ancillary Closing
Agreements.
8.2.6 No Material Adverse Change. Prior to the Closing Date, no event
shall have occurred which, individually or when considered together with all
other matters, has had, or could reasonably be expected to have, a Material
Adverse Effect on PLL and LTC shall not have discovered any fact or circumstance
(previously unknown to LTC) which, individually or when considered together with
all other matter has, or could reasonably be expected to have, a Material
Adverse Effect on PLL.
8.2.7 IPO Closing. The IPO shall have closed contemporaneously with the
Closing of the Merger.
8.2.8 Fairness Opinion. LTC shall have received from its financial
adviser, Schuler Associates, an opinion, dated the date of the execution of the
Merger Agreement and the mailing of the Proxy Statement, that the proposed
Merger is fair from a financial point of view to the LTC shareholders, and such
opinion shall not have been withdrawn prior to the Closing Date.
8.2.9 Tax Opinion. LTC shall have received an opinion from Moore
Stephens in form and substance reasonably satisfactory to LTC and its counsel to
the effect that the Merger will qualify as a tax free reorganization under the
Code.
ARTICLE IX
TERMINATION; REMEDIES
9.1 Termination.
(a) This Agreement may be terminated and the Merger abandoned at any
time prior to the Closing:
(i) By the mutual written consent of PLL and LTC;
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(ii) By PLL, if there has been a material violation or breach
by LTC of any covenant, representation or warranty contained in this
Agreement and such violation or breach has not been waived by PLL or
cured by LTC within 60 days after written notice thereof from PLL;
(iii) By LTC, if there has been a material violation or breach
by PLL of any covenant, representation or warranty contained in this
Agreement and such violation or breach has not been waived by LTC or
cured by PLL within 60 days after written notice thereof from LTC (a
"PLL Default");
(iv) By PLL or LTC if the transactions contemplated hereby
have not been consummated by February 28, 2002; provided, however, that
(i) neither PLL nor LTC will be entitled to terminate this Agreement
pursuant to this Section 9.1(a)(iv) if such Person's breach of this
Agreement has prevented the consummation of the transactions
contemplated hereby;
(v) By PLL if LTC's shareholders fail to approve the
transactions contemplated herein on or before July 31, 2000, or, in
such circumstances, by LTC if LTC has met its obligations under Section
7.4 with respect to such approval;
(vi) By LTC, if PLL's shareholders fail to approve the
transactions contemplated herein or, in such circumstances, by PLL if
PLL has met its obligations under Section 7.4 with respect to such
approval;
(vii) By PLL, if the condition to Closing set forth in Section
8.1.6 has not been satisfied; or
(viii) By LTC, if the condition to Closing set forth in 8.2.6
has not been satisfied.
(b) In the event that this Agreement is terminated pursuant to Section
9.1(a), all further obligations of each party hereto under this Agreement (other
than pursuant to Sections 7.3(c), 7.17(n) and 10.6 and the Interim Agreements,
which will continue in full force and effect) will terminate without further
liability or obligation of any party to the other party hereunder; provided,
however, that no party will be released from liability hereunder if this
Agreement is terminated and the transactions abandoned by reason of (i) the
failure of such party to have performed its obligations hereunder or (ii) any
misrepresentation made by such party of any matter set forth herein.
9.2 Remedies. Subject to Section 10.1, nothing contained in this
Agreement shall be construed to restrict or limit in any manner the remedies
which the parties might have at law or in equity for any breach of the
covenants, representations or warranties contained in this Agreement. In
addition to such remedies, upon termination of this Agreement, the parties shall
have the remedies set forth in the Interim Agreements.
ARTICLE X
MISCELLANEOUS
10.1 Non-Survival of Representations and Warranties. None of the
representations and warranties in Articles V or VI of this Agreement shall
survive the Effective Time.
10.2 Notices. All notices, requests, claims, demands and other
communications to any party hereunder must be in writing (including facsimile
transmission, which must be confirmed) and will be given to such party at its
address and facsimile number set forth in Schedule 10.2 (which may be changed by
such party upon notice in accordance with this Section 10.2). All such notices,
requests and other communications will be deemed received on the date of receipt
by the recipient thereof if received prior to 5:00 p.m. in the place of receipt
and such day is a Business Day in the place of receipt. Otherwise, any such
notice, request or communication will
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be deemed not to have been received until the next succeeding Business Day in
the place of receipt following the date of receipt.
10.3 Waiver. Any party hereto may, by written notice to the other
parties hereto, (i) extend the time for the performance of any of the
obligations or other actions of the other parties under this Agreement; (ii)
waive any inaccuracies in the representations or warranties of the other parties
contained in this Agreement or in any document delivered pursuant to this
Agreement; (iii) waive compliance with any of the conditions or covenants of the
other parties contained in this Agreement; or (iv) waive or modify performance
of any of the obligations of the other parties under this Agreement. Except as
provided in the preceding sentence, no action taken pursuant to this Agreement,
including, without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any of the representations, warranties, covenants, conditions or
agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach.
10.4 Amendments, Supplements, Etc. At any time before or after the
adoption of the Plan of Merger by the shareholders of PLL or the stockholders of
LTC, this Agreement or the Plan of Merger may be amended or supplemented by
additional agreements, article or certificates, as may be determined by the
parties to be necessary, appropriate or desirable to further the purpose of this
Agreement or the Plan of Merger, to clarify the intention of the parties, or to
add to or to modify the covenants, terms or conditions hereof or thereof. The
parties hereto shall make such technical changes to this Agreement or the Plan
of Merger, not inconsistent with the purpose hereof or thereof, as may be
required to effect or facilitate any governmental approval or acceptance of the
Merger or of this Agreement or of the Plan of Merger or to effect or facilitate
any filing or recording required for the consummation of any of the transactions
contemplated hereby or thereby. This Agreement or the Plan of Merger may not be
amended except by an instrument in writing signed by both of the parties.
10.5 Delegation. To the extent permitted by law and the charters or the
by-laws or others similar constituent documents of the respective parties
hereto, the powers of the Board of Directors of any party under and with respect
to this Agreement may be delegated by such Board of Directors to a Committee of
such Board or by such Board (or by such Committee to the extent any matter has
been delegated to such Committee by the Board) to any officer or officers of
such party, and any notices, consents or other actions referred to in this
Agreement to be given or taken by any party may be given or taken on its behalf
by any officer so authorized, and the other parties hereto may rely thereon.
10.6 Expenses. Subject to the provisions set forth in the Bridge Loan
Financing Agreements, whether or not the transactions contemplated by this
Agreement are consummated, except as otherwise expressly provided for herein,
the parties will pay or cause to be paid all of their own fees and expenses
incident to this Agreement and in preparing to consummate and in consummating
the transactions contemplated hereby, including the fees and expenses of any
broker, finder, financial advisor, investment banker, legal advisor or similar
person engaged by such party.
10.7 Successors and Assigns. The provisions of this Agreement will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. No party may assign, delegate or otherwise transfer any
of its rights or obligations under this Agreement (including any transfer by way
of merger or operation of law) without the consent of each other party hereto;
provided that PLL may assign its rights and obligations under this Agreement to
a wholly-owned Affiliate of PLL, it being understood that such assignment will
not relieve PLL from its obligations hereunder. Any assignment in violation of
the preceding sentence will be void ab initio.
10.8 No Third-Party Beneficiaries. This Agreement is for the sole
benefit of the parties hereto and their permitted successors and assigns, and
nothing herein expressed or implied will give or be construed to give to
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any Person, other than the parties hereto and such permitted successors and
assigns, any legal or equitable rights hereunder.
10.9 Governing Law. This Agreement will be governed by, and construed
in accordance with, the laws of the State of Delaware, regardless of the Laws
that might otherwise govern under principles of conflict of laws thereof.
10.10 Jurisdiction. Any suit, action or proceeding seeking to enforce
any provision of, or based on any matter arising out of or in connection with,
this Agreement or the transactions contemplated hereby may be brought in the
courts of the State of New York located in the County of New York and the
federal courts of the United States of America located in such State and County.
Each of the parties (i) consents to the exclusive jurisdiction of such courts
(and of the appropriate appellate courts therefrom) in any such suit, action or
proceeding, (ii) irrevocably waives, to the fullest extent permitted by Law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient forum, (iii) will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (iv)
will not bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any other court. Process in any such suit,
action or proceeding may be served on any party anywhere in the world, whether
within or without the jurisdiction of any such court. Without limiting the
foregoing, each party agrees that service of process on such party as provided
in Section 10.2 will be deemed effective service of process on such party.
10.11 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING,
CLAIM OR COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING
OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
10.12 Public Announcements. From the date hereof until the Closing
Date, LTC and PLL will consult with each other before issuing, or permitting any
agent or Affiliate to issue, any press releases or otherwise making or
permitting any agent or Affiliate to make any public statements with respect to
this Agreement and the transactions contemplated hereby.
10.13 Counterparts. This Agreement may be executed in one or more
counterparts, all of which will be considered one and the same agreement and
will become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
10.14 Table of Contents; Headings. The table of contents and headings
in this Agreement are for convenience of reference only and will not control or
affect the meaning or construction of any provisions hereof.
10.15 Entire Agreement. This Agreement (including the Schedules and
Exhibits hereto), the Interim Agreements, the Ancillary Closing Agreements and
the Confidentiality Disclosure Agreement, dated as of August 27, 1999, between
PLL and LTC constitute the entire agreement among the parties with respect to
the subject matter of this Agreement. This Agreement (including the Schedules
and Exhibits hereto), the Interim Agreements and the Ancillary Closing
Agreements supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof of this
Agreement, including but not limited to the Memorandum of Agreement dated
September 29, 1999 between the parties hereto.
10.16 Severability; Injunctive Relief. (a) If any provision of this
Agreement or the application of any such provision to any Person or circumstance
is held invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, the remainder of the provisions of this Agreement (or the
application of such
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provision in other jurisdictions or to Persons or circumstances other than those
to which it was held invalid, illegal or unenforceable) will in no way be
affected, impaired or invalidated, and to the extent permitted by applicable
Law, any such provision will be restricted in applicability or reformed to the
minimum extent required for such provision to be enforceable. This provision
will be interpreted and enforced to give effect to the original written intent
of the parties prior to the determination of such invalidity or
unenforceability.
(b) The parties acknowledge and agree that the provisions of Sections
7.2 and 7.3(c) are reasonably necessary to protect the legitimate interests of
PLL, LTC, their Affiliates and their businesses and that any violation of
Sections 7.2 or 7.3(c) will result in irreparable injury to PLL, LTC and their
Affiliates, the exact amount of which will be difficult to ascertain and the
remedies at Law for which will not be reasonable or adequate compensation to
PLL, LTC and their Affiliates for such a violation. Accordingly, each party
agrees that if it violates any of the provisions of Section 7.2 or 7.3(c), in
addition to any other remedy available at Law or in equity, the other party will
be entitled to seek specific performance or injunctive relief without posting a
bond, or other security, and without the necessity of proving actual damages.
10.17 Certain Interpretive Matters. (a) When a reference is made in
this Agreement to an Article, Section, Exhibit or Schedule, such reference will
be to an Article or Section of, or an Exhibit or Schedule to, this Agreement
unless otherwise indicated. Whenever the words, "include," "includes" or
"including" are used in this Agreement, they will be deemed to be followed by
the words "without limitation." The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. All terms defined
in this Agreement have the defined meanings when used in any certificate or
other document made or delivered pursuant hereto unless otherwise defined
therein. The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such term. All references to "$" or
dollar amounts will be to lawful currency of the United States of America. Any
agreement, instrument or statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement,
instrument or statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver or consent and
(in the case of statutes) by succession of comparable successor statutes and
references to all attachments thereto and instruments incorporated therein.
References to a Person are also to its permitted successors and assigns. Each of
the Schedules will apply only to the corresponding Section or subsection of this
Agreement. Each accounting term not otherwise defined in this Agreement has the
meaning assigned to it in accordance with GAAP. To the extent the term "day" or
"days" is used, it will mean calendar days unless referred to as a "Business
Day".
(b) No provision of this Agreement will be interpreted in favor of, or
against, any of the parties hereto by reason of the extent to which any such
party or its counsel participated in the drafting thereof or by reason of the
extent to which any such provision is inconsistent with any prior draft hereof
or thereof.
(c) (i) All references to the "knowledge of LTC" or to words of similar
import will be deemed to be references to the actual knowledge of one or more of
the officers or directors of LTC whose names are listed on Schedule 10.17(c)(i),
and will include such knowledge as such officers or directors would have had
after due inquiry of the responsible employees of LTC and its counsel and
accountants.
(ii) All references to the "knowledge of PLL" or to words of
similar import will be deemed to be references to the actual knowledge
of one or more of the officers or directors of PLL whose names are
listed on Schedule 10.17(c)(ii) and, will include such knowledge as
such officers or directors would have had after due inquiry of the
responsible employees of PLL and its counsel and accountants.
[Remainder of page intentionally left blank.]
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The parties hereto have caused this Agreement to be duly executed by
their respective authorized officers as of the day and year first above written.
PACIFIC LITHIUM LIMITED
By: /s/ Robin T. Johannink
------------------------
Name: Robin T. Johannink
Title: Managing Director
LITHIUM TECHNOLOGY CORPORATION
By: /s/ David J. Cade
------------------------
Name: David J. Cade
Title: Chairman and CEO
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APPENDIX B
OPINION OF SCHULER ASSOCIATES, P.C.
SCHULER ASSOCIATES, P.C.
A PROFESSIONAL CORPORATION
January 4, 2000
CONFIDENTIAL
The Board of Directors of
Lithium Technology Corporation
5115 Campus Drive
Plymouth Meeting, PA 19462
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial
point of view, of the consideration to be received by Lithium Technology
Corporation (the "Company"), pursuant to a merger agreement (the "Transaction")
between the Company, with and into Pacific Lithium Limited ("PLL").
Schuler Associates, P.C., as a customary part of its consulting
business, is engaged in the valuation of businesses in connection with mergers
and acquisitions, sales, valuations for estates, corporate and other purposes.
We will receive a fee for providing this opinion. This opinion fee is not
contingent upon the consummation of the transaction. The Company has also agreed
to indemnify us against certain liabilities in connection with our services.
In arriving at our opinion we have undertaken such review, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have reviewed (i) the drafts of all documents relating to the
transaction, (ii) certain financial, operating and business information related
to the Company and PLL, (iii) certain internal financial information of the
Company and PLL furnished by management of the Company, (iv) certain publicly
available market and securities information including price and trading activity
of the Company and PLL, (v) the patent portfolio of the Company, (vi) to the
extent publicly available, financial terms of certain transactions involving
companies operating in industries deemed similar to that in which the Company
operates and selected public companies deemed comparable to the Company and,
(vii) performed such studies and considered other factors as we deemed
appropriate. We have visited and observed the operations of the Company and had
discussion with members of the senior management of the Company concerning (a)
the financial condition, current operating results and business outlook for the
Company on a stand-alone basis, (b) other various options available to the
Company and financing attempts and efforts put forth by the Company, (c) the
financial condition, current operating results and business outlook for PLL and,
(d) the projected financial condition and business plan of the combined company.
We have relied upon and assumed the accuracy, completeness and fairness
of the financial statements and other information provided to us by the Company,
or otherwise made available to us, and have not assumed responsibility for the
independent verification of such information. We have relied upon the assurances
of the
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management of the Company that the information provided to us by the Company has
been prepared on a reasonable basis, and, with respect to financial planning
data and other business outlook information, reflects the best currently
available estimates, and they are not aware of any information or facts that
would make the information provided to us incomplete or misleading. In addition,
we have not made an independent evaluation or appraisal of the assets or
liabilities of either the Company or PLL, nor have we been furnished with any
such evaluation or appraisal.
The opinion is necessarily based on economic and other market
conditions as in effect on, and the information made available to us as of the
date hereof, and does not represent our opinion as to whet the value of the PLL
stock actually will be when issued to the stockholders upon consummation of the
Transaction. Any valuation of securities is only an approximation, subject to
uncertainties and contingencies, all of which are difficult to predict and
beyond the control of the firm preparing such valuation.
This opinion is directed to the Board of Directors of the Company, and
is not intended to be, and does not constitute a recommendation to any
stockholder of the Company with respect to the approval of the agreements
contemplated by the Transaction. We were not requested to opine as to, and this
opinion does not address, the basic business decision to proceed with or effect
the Transaction or any other alternative transaction. This letter is for the
information of the Board of Directors of the Company only in connection with its
consideration of the Transaction and may not be published or otherwise used, nor
shall any public references to us be made without our prior approval. It is
understood that this letter and the proxy materials contemplated by the
Transaction will be filed with the Securities and Exchange Commission.
Based upon and subject to the foregoing, and based upon other such
factors as considered relevant, it is our opinion that, as of the date of this
letter, the proposed consideration to be received by the stockholders of the
Company pursuant to the Transaction is fair, from a financial point of view to
the stockholders of the Company.
Very truly yours,
SCHULER ASSOCIATES, P.C.
By: /s/ William S. Schuler
------------------------
William S. Schuler
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a
corporation to indemnify its directors, officers, employees and agents against
certain liabilities they may incur in such capacities, including liabilities
under the Securities Act of 1933, provided they act in good faith and in the
best interest of the corporation. Article Sixth of Ilion Technology
Corporation's form of certificate of incorporation requires it to indemnify its
officers and directors to the full extent permitted by the Delaware General
Corporation Law.
Article Fifth of Ilion's form of certificate of incorporation also
eliminates the personal liability of its directors to the corporation or its
stockholders for or with respect to any acts or omissions in the performance of
their duties as directors to the full extent permitted by the Delaware General
Corporation Law. As a result of this provision, Ilion and its stockholders may
be unable to obtain monetary damages from a director for breach of his duty of
care. Although stockholders may continue to seek injunctive or other equitable
relief for an alleged breach of fiduciary duty by a director, stockholders may
not have any effective remedy against the challenged conduct if equitable
remedies are unavailable.
As permitted by Section 145 of the Delaware General Corporation Law,
Article V of LTC's bylaws and Article V of the form of Ilion's bylaws both
provide for the indemnification of an "authorized representative" of the
Corporation (a) against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person, by reason of the
fact that such person was or is an authorized representative of the Corporation,
in connection with a threatened, pending or completed third party proceeding,
whether civil or criminal, administrative or investigative, if such, individual
acted in good faith and in a manner such person reasonably believed to be in, or
not opposed to, the best interests of the Corporation, and, if the action was a
criminal proceeding, if such person had no reasonable cause to believe that such
person's conduct was unlawful; and (b) against expenses actually and reasonably
incurred by such person in connection with the defense or settlement of a
threatened, pending or completed corporate proceeding, by reason of the fact
such person was or is an authorized representative of the Corporation, if such
person acted under the standards set forth in section (a) above and if such
person was not found liable to the Corporation (or if so found liable, if a
proper court found such person to be fairly and reasonably entitled to
indemnification). Both LTC's and Ilion's bylaws further provide for mandatory
indemnification of authorized representatives of the Corporation who have been
successful in defense of any third party or corporate proceeding or in defense
of any claim, issue or matter therein, against expenses actually and reasonably
incurred in connection with such defense. An "authorized representative" of the
Corporation includes a director, employee or agent of the Corporation, or a
person serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
In addition, Article Ninth of LTC's certificate of incorporation
provides that, to the full extent that the Delaware General Corporation Law
permits the limitation or elimination of the liability of directors or officers
of a corporation, directors of LTC shall not be personally liable to LTC or its
stockholders for monetary damages. As a result of this provision, LTC and its
stockholders may be unable to obtain monetary damages from a director for breach
of his duty of care. Although stockholders may continue to seek injunctive or
other equitable relief for an alleged breach of fiduciary duty by a director,
stockholders may not have any effective remedy against the challenged conduct if
equitable remedies are unavailable.
LTC carries directors' and officers' liability insurance covering
losses up to $2,000,000 (subject to certain deductible amounts).
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(1) EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
2.1 Agreement and Plan of Merger, dated January 19, 2000,
between Pacific Lithium Limited and LTC.(1)
2.2 Amendment Agreement No. 1 dated March 31, 2000 between
Pacific Lithium Limited and LTC.(2)
2.3 Amendment Agreement No. 2 dated May 5, 2000 between
Pacific Lithium Limited and LTC.
2.4 Agreement and Plan of Merger, dated January 19, 2000,
between Pacific Lithium Limited and Lithium Technology
Corporation, as amended and restated on May 12, 2000.
3.1* Pacific Lithium Limited's Certificate of Domestication.
3.2* Ilion's Certificate of Incorporation.
3.3* Ilion's Bylaws.
3.4 LTC's Certificate of Incorporation.(3)
3.5 Certificate of Designation of Series A Preferred Stock
of LTC.
3.6 LTC's Bylaws, as amended.(3)
5.1* Opinion of Jones, Day, Reavis & Pogue as to the
legality of the securities.
8.1* Opinion of Jones, Day, Reavis & Pogue regarding
material federal income tax consequences relating to
the merger to Ilion and its stockholders.
8.2* Opinion of Moore Stephens, P.C. regarding material
federal income tax consequences relating to the merger
to LTC and its stockholders.
10.1 Bridge Loan Financing Agreement, dated as of
November 29, 1999, between LTC and PLL.(1)
10.2 Convertible Secured Promissory Note, dated as of
November 29, 1999, issued by LTC to PLL in the
principal amount of $125,000.(1)
10.3 Convertible Promissory Note, dated January 19, 2000,
issued by LTC to PLL in the amount of $975,000.(1)
10.4 Form of Operating Convertible Promissory Note.(1)
10.5 Security Agreement, dated as of November 29, 1999,
between LTC and PLL.(1)
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10.6 Warrant to purchase 7,500,000 shares of LTC common
stock dated as of January 19, 2000.(1)
10.7 License and Option Agreement, effective as of
October 1, 1999, between LTC and PLL.(1)
10.8 Form of Security Agreement and Assignment of Lease
between LTC and PLL.(1)
10.9 Agreement among David Cade, PLL and LTC dated
January 19, 2000.(1)
10.10 Agreement among George Ferment, PLL and LTC dated
January 19, 2000.(1)
10.11 License Agreement between PLL and Massachusetts
Institute of Technology dated February 10, 1998, as
amended.
10.12 License Agreement between PLL and Energy Ventures Inc.
dated October 13, 1999.
10.13 Option and License Agreement between PLL and Auckland
Universervices Limited dated March 15, 2000
10.14* Ilion's Stock Option Plan.
10.15 Directors Share Allocation Option Deed between Keith
Young and PLL dated October 12, 1999.
10.16 Management Agreement between PLL and Phoenix Management
Limited dated April 3, 2000.
10.17 Joint Venture Agreement for Qinghai Lithium Limited,
dated September 30, 1998, between PLL and Qinghai
Institute of Salt Lakes Chinese Academy of Science.
10.18 Distribution Agreement, dated February 10, 2000,
between PLL and Beijing C&K Development Co. Limited.
10.19 Lease Agreement between PLL and MFL Mutual Fund
Limited, dated January 16, 1998.
10.20 LTC's 1994 Stock Incentive Plan, as amended.(4)
10.21 LTC's Directors Stock Option Plan.(4)
10.22 Employment Agreement, dated July 24, 1996, between
David Cade and LTC.(5)
10.23 Employment Agreement, dated July 24, 1996, between
George Ferment and LTC.(5)
10.24 Technology Development Agreement, dated March 29, 1996,
between Mitsubishi Materials Corporation, Mitsui
& Co., Ltd. and LTC.(6)
10.25 Stock Purchase Agreement, dated March 29, 1996, between
Mitsubishi Materials Corporation, Mitsui & Co.,
Ltd. and LTC.(6)
10.26 Form of Stock Option Agreement relating to LTC's 1994
Stock Incentive Plan, as amended.(5)
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10.27 Form of Stock Option Agreement relating to LTC's
Directors Stock Option Plan.(6)
10.28 Lease Agreement, dated July 22, 1994, between PMP
Whitemarsh Associates and LTC and Addendum thereto
dated July 22, 1994.(6)
10.29 Consulting Agreement, dated January 18, 1995, between
Mitsubishi Trust and Banking Corporation and LTC.(6)
10.30 Warrant to Purchase common stock issued to Robert
Pfeffer dated June 20, 1996.(6)
10.31 Agreement of Settlement and Release, dated June 20,
1996, by and between Matthew Stuart Co., Inc., Robert
Pfeffer and LTC.(7)
10.32 Employment Agreement, dated May 9, 1996, between
Thomas R. Thomsen and LTC.(7)
10.33 Stock Option Agreement, dated May 9, 1996, between
Thomas R. Thomsen and LTC.(7)
10.34 Warrant to Purchase common stock issued to Group III
Capital, Inc. dated May 9, 1996.(7)
10.35 Warrant to Purchase common stock issued to Nanele
Services, Inc., dated May 9, 1996.(7)
10.36 Stock Option Agreement, dated July 24, 1996, between
David Cade and LTC.(5)
10.37 Stock Option Agreement, dated July 24, 1996, between
George Ferment and LTC.(5)
10.38 Form of Restricted Stock Agreement relating to LTC's
1994 Stock Incentive Plan.(7)
10.39 Form of Warrant Agreement, dated October 23, 1996,
between LTC and the Placement Agent.(8)
10.40 Form of Registration Rights Agreement, dated
October 23, 1996, between LTC and the Placement Agent.
(8)
10.41 Letter Agreement, dated February 5, 1997, between LTC
and Chase Manhattan Bank.(9)
10.42 Form of Senior Secured Convertible Note Purchase
Agreement, dated September 22, 1997, between LTC and
Lithium Link LLC.(10)
10.43 Form of Convertible Promissory Note, dated
September 22, 1997, issued by LTC.(10)
10.44 Form of common stock Warrant, dated September 22, 1997,
issued by LTC in favor of Interlink Management
Corporation.(10)
10.45 Employment Agreement Extension, dated June 1, 1998,
between David Cade and LTC.(11)
10.46 Employment Agreement Extension, dated June 1, 1998,
between George Ferment and LTC.(11)
10.47 LTC's 1998 Stock Incentive Plan.(11)
10.48 Form of Stock Option Agreements relating to LTC's 1998
Stock Incentive Plan.(11)
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10.49 Form of Stock Purchase Agreement relating to the sale
of 4,500,000 shares of Company common stock.(2)
10.58 Employment Agreement Extension, dated January 4, 2000,
between LTC and David Cade.(1)
10.59 Employment Agreement Extension, dated January 4, 2000,
between LTC and George Ferment.(1)
10.60 Lease Extension, dated February 3, 2000, between PMP
Whitemarsh Associates and LTC.(2)
10.61 Agreement dated May 3, 2000, between LTC and Thomas
Thomsen.
11.1 Pacific Lithium Limited's Statement regarding
computation of per share earnings
11.2 LTC's Statement regarding computation of per share
earnings
21.1* List of subsidiaries of Ilion.
21.2 List of subsidiaries of LTC
23.1* Consent of Jones, Day, Reavis & Pogue (contained in
Exhibit 5.1).
23.2* Consent of Moore Stephens, P.C. (contained in Exhibit
8.2)
23.3 Consent of Horwath Porter Wigglesworth.
23.4 Consent of Deloitte & Touche, LLP.
23.5 Consent of Wiss & Co.
24.1 Powers of Attorney of directors and officers of LTC
(included as part of the signature pages to this
registration statement).
24.2 Powers of Attorney of directors and officers of PLL
(included as part of the signature pages to this
registration statement).
27 Financial Data Schedule of PLL.
99.1 Form of LTC Proxy Card.
* To be filed by Amendment.
(1) Incorporated herein by reference to LTC's Report on Form 8-K,
dated January 19, 2000.
(2) Incorporated herein by reference to LTC's Report on Form 10-KSB
for the fiscal year ended December 31, 1999.
(3) Incorporated herein by reference to LTC's Annual Report on Form
10-K for the fiscal year ended October 31, 1989.
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(4) Incorporated herein by reference to the exhibits contained in
LTC's Information Statement pursuant to Section 14(c) of the
Securities Exchange Act of 1934, dated January 19, 1996.
(5) Incorporated herein by reference to LTC's Quarterly Report on
Form 10- QSB for the quarter ended July 31, 1996.
(6) Incorporated herein by reference to LTC's Form 10-KSB for the
fiscal year ended December 31, 1995.
(7) Incorporated herein by reference to LTC'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 LTC's Report on Form 8-K,
dated October 25, 1996.
(9) Incorporated herein by reference to LTC's Annual Report on Form
10-KSB for the year ended December 31, 1996.
(10) Incorporated herein by reference to LTC's Report on Form 8-K,
dated September 22, 1997.
(11) Incorporated herein by reference to LTC's Annual Report on Form
10-KSB for the year ended December 31, 1998.
(2) Consolidated Financial Statements and Consolidated Financial
Statement Schedules.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrants each hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement
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relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a
part of this registration statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule
145(c), such reoffering prospectus will contain the
information called for by the applicable registration form
with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the
other items of the applicable form.
(5) That every prospectus (i) that is filed pursuant to paragraph
(4) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933
and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment
to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(6) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual
report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(7) To respond to requests for information that is incorporated by
reference into the Joint Proxy Statement/Prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business
day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means.
This includes information contained in documents filed
subsequent to the effective date of the registration statement
through the date of responding to the request.
(8) To supply by means of a post-effective amendment all
information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and
included in the registration statement when it became
effective.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, offers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-7
<PAGE> 217
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant Pacific Lithium Limited, certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-4 and has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Auckland, New Zealand on this 12th
day of May, 2000.
PACIFIC LITHIUM LIMITED
By /s/ Robin T. Johannink
-----------------------
Robin T. Johannink
Managing Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, Robin T. Johannink
and Richard Locke and each one of them, his attorneys-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any and all
amendments to this registration statement (including post-effective amendments
and any related registration statement pursuant to Rule 462(b) under the
Securities Act of 1933), and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ Robin T. Johannink
- ---------------------- Managing Director May 12, 2000
Robin T. Johannink (principal executive officer)
/s/ Richard Locke
- ---------------------- Chief Financial Officer May 12, 2000
Richard Locke (principal financial officer and
principal accounting officer)
/s/ Keith Young
- ---------------------- Director May 12, 2000
Keith Young
/s/ Murray Haszard
- ---------------------- Director May 12, 2000
Murray Haszard
/s/ Denis Fauteux
- ---------------------- Registrant's authorized May 12, 2000
Denis G. Fauteux representative in the
United States
II-8
<PAGE> 218
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant Lithium Technology Corporation, certifies that it has reasonable
grounds to believe that it meets all of the requirements for filing on Form S-4
and has duly caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Plymouth Meeting, Pennsylvania
this 12th day of May, 2000.
LITHIUM TECHNOLOGY CORPORATION
By: /s/ David J. Cade
-----------------------------------------------
David J. Cade, Chairman and Chief Executive
Officer (Principal Executive Officer and Acting
Principal Financial and Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, David J. Cade and
George Ferment and each one of them, his attorneys-in-fact, each with the power
of substitution, for him in any and all capacities, to sign any and all
amendments to this registration statement (including post-effective amendments
and any related registration statement pursuant to Rule 462(b) under the
Securities Act of 1933), and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ David J. Cade
- --------------------- Chairman and May 12, 2000
David J. Cade Chief Executive Officer
/s/ George R. Ferment
- --------------------- President, Chief Operating May 12, 2000
George R. Ferment Officer, Chief Technical
Officer and Director
/s/ Stephen F. Hope
- --------------------- Director May 12, 2000
Stephen F. Hope
/s/ Barry Huret
- --------------------- Director May 12, 2000
Barry Huret
/s/ Ralph D. Ketchum
- --------------------- Director May 12, 2000
Ralph D. Ketchum
/s/ Arif Maskatia
- --------------------- Director May 12, 2000
Arif Maskatia
/s/ John J. McFeeley
- --------------------- Director May 12, 2000
John J. McFeeley
/s/ John D. McKey, Jr.
- --------------------- Director May 12, 2000
John D. McKey, Jr.
II-9
<PAGE> 1
EXHIBIT 2.3
AMENDMENT AGREEMENT NO. 2
This AMENDMENT AGREEMENT NO. 2 ("Agreement"), dated as of
May 5, 2000, by and between PACIFIC LITHIUM LIMITED, a New Zealand corporation
(together with its successors is referred to herein as "PLL"), and LITHIUM
TECHNOLOGY CORPORATION, a Delaware corporation ("LTC").
RECITALS
WHEREAS, PLL and LTC have entered into an Agreement and Plan
of Merger dated as of January 19, 2000 ("Merger Agreement") and the Bridge Loan
Financing Agreements (as defined in the Merger Agreement) as amended by
Amendment Agreement No. 1 dated as of March 31, 2000, pursuant to which LTC is
required to hold a stockholders meeting to vote on the merger contemplated by
the Merger Agreement (the "Merger") by June 30, 2000 or such later date agreed
to in writing by PLL and LTC; and
WHEREAS, PLL and LTC desire to provide for an extension of the
LTC stockholder meeting date from June 30, 2000 to July 31, 2000 subject to the
terms and conditions of this Agreement; and
WHEREAS, PLL and LTC desire to amend Section 7.13(b) of the
Merger Agreement subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of these premises and the
mutual agreements contained in this Agreement, PLL and LTC agree as follows:
1. Each reference to action by the stockholders of LTC to approve the
Merger Agreement or the transactions contemplated therein on or before "June 30,
2000" in Section 9.1(a)(v) of the Merger Agreement, in Section 1 or 3(a) of each
promissory note which is a part of the Bridge Loan Financing Agreements or in
any other provision in any of such agreements or documents is hereby amended to
replace such date by the date "July 31, 2000" or such later date agreed to in
writing by PLL and LTC.
2. Section 7.13(b) of the Merger Agreement is amended and restated as
follows:
In the event that any holder of warrants or options issued by LTC
exercises such warrants or options prior to the Closing Date, LTC agrees to use
the proceeds from the exercise of the warrants and options (the "Exercise
Funds") as follows: (1) the first three hundred fifty thousand dollars
($350,000) shall be used by LTC to finance the operations of LTC in lieu of
obtaining financing under the Bridge Loan Financing Agreements and (2) the
second two hundred thousand dollars ($200,000) shall be used by LTC to pay a
portion of the accrued salary due and owing to Mr. Thomsen.
Any Exercise Funds in excess of the foregoing five hundred fifty
thousand dollars ($550,000) (the "Excess Exercise Funds") shall be used by LTC
to pay LTC's Continuing Costs directly by LTC. To the extent LTC pays its
Continuing Costs through the Excess Exercise Funds rather than through Bridge
Loan Financing funds the Merger Securities to be distributed to the LTC
stockholders in the Merger shall be increased on the following basis: one share
of PLL Common Stock shall be added to the 3,500,000 Merger Securities set forth
in Section 3.3 of the Merger Agreement for every $2.25 of Excess Exercise Funds
received by LTC (the "Additional Merger Securities"). The Additional Merger
Securities shall be distributed to the LTC stockholders on the same basis as the
Merger Securities set forth in Section 3.3 of the Merger Agreement.
1
<PAGE> 2
(By way of example, if LTC receives $1,450,000 in Exercise Funds, (1)
LTC shall first use $350,000 to finance the operations of LTC in lieu of using
Bridge Loan Financing funds, (2) LTC shall use $200,000 to pay accrued salary
due and owing Thomas Thomsen, (3) LTC shall use the remaining $900,000 to pay
LTC's Continuing Costs and (4) the LTC stockholders shall receive in the Merger
400,000 additional Merger Securities.)
3. In all other respects, the Merger Agreement and the Bridge Loan
Financing Agreements are hereby ratified and affirmed in their entirety.
The parties hereto have caused this Agreement to be duly executed by their
respective authorized officers as of the day and year first above written.
PACIFIC LITHIUM LIMITED
By: /s/ Robin T. Johannink
---------------------------
Name: Robin T. Johannink
Title: Managing Director
LITHIUM TECHNOLOGY CORPORATION
By: /s/ Robin T. Johannink
----------------------------
Name: David J. Cade
Title: Chairman and Chief Executive Officer
2
<PAGE> 1
EXHIBIT 2.4
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
PACIFIC LITHIUM LIMITED
AND
LITHIUM TECHNOLOGY CORPORATION
DATED AS OF JANUARY 19, 2000
AS AMENDED AND RESTATED ON MAY 12, 2000
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
RECITALS.....................................................................................................2
ARTICLE I DEFINITIONS........................................................................................3
1.1 Definitions...................................................................................3
ARTICLE II THE MERGER.......................................................................................10
2.1 The Merger...................................................................................10
2.2 Effective Time...............................................................................10
2.3 Effect of the Merger.........................................................................10
2.4 Certificate of Incorporation.................................................................10
2.5 Bylaws.......................................................................................10
2.6 Directors and Officers.......................................................................10
ARTICLE III CONVERSION OF SECURITIES........................................................................10
3.1 Shares of the Surviving Corporation.........................................................10
3.2 No Conversion of PLL Common..................................................................11
3.3 Conversion of LTC Common; Assumption of Warrants.............................................11
3.4 Exchange Agent...............................................................................11
3.5 No Fractional Shares.........................................................................11
3.6 Rights of the LTC Shareholders...............................................................11
3.7 Exchange.....................................................................................12
3.8 Closing of Stock Transfer Books..............................................................12
3.9 Changes in PLL or LTC Common.................................................................13
ARTICLE IV CLOSING AND CLOSING DELIVERIES...................................................................13
4.1 The Closing..................................................................................13
4.2 Deliveries of LTC............................................................................13
4.3 Deliveries by PLL............................................................................14
ARTICLE V REPRESENTATIONS AND WARRANTIES OF LTC.............................................................15
5.1 Corporate Existence and Power................................................................15
5.2 Corporate Authorization; Enforceability......................................................15
5.3 Governmental Authorization...................................................................15
5.4 Non-Contravention; Consents..................................................................16
5.5 Capitalization...............................................................................16
5.6 Subsidiaries.................................................................................16
5.7 LTC Financial Statements; Book and Records...................................................17
5.8 No Undisclosed Liabilities...................................................................17
5.9 Tax Matters..................................................................................17
5.10 Absence of Certain Changes...................................................................19
5.11 Contracts....................................................................................19
5.12 Insurance Coverage...........................................................................20
5.13 Litigation...................................................................................21
5.14 Compliance with Laws; Permits................................................................21
5.15 Properties; Sufficiency of Assets............................................................21
5.16 Intellectual Property........................................................................22
5.17 Environmental Matters........................................................................23
5.18 Plans and Material Documents.................................................................24
5.19 Affiliate Transactions.......................................................................25
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
5.20 Employee Matters.............................................................................25
5.21 Finders' Fees................................................................................26
5.22 Millennium Compliance........................................................................27
5.23 SEC Filings..................................................................................27
5.24 Registration Statement, Other Documents......................................................27
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PLL........................................................27
6.1 Corporate Existence and Power................................................................28
6.2 Corporate Authorization; Enforceability......................................................28
6.3 Governmental Authorization...................................................................28
6.4 Non-Contravention; Consents..................................................................28
6.5 Capitalization...............................................................................29
6.6 Subsidiaries.................................................................................29
6.7 PLL Financial Statements; Books and Records..................................................29
6.8 No Undisclosed Liabilities...................................................................30
6.9 Tax Matters..................................................................................30
6.10 Absence of Certain Changes...................................................................31
6.11 Contracts....................................................................................31
6.12 Insurance Coverage...........................................................................31
6.13 Litigation...................................................................................32
6.14 Compliance with Laws; Permits................................................................32
6.15 Properties; Sufficiency of Assets............................................................32
6.16 Intellectual Property........................................................................33
6.17 Environmental Matters........................................................................33
6.18 Plans and Material Documents.................................................................34
6.19 Affiliate Transactions.......................................................................34
6.20 Employee Matters.............................................................................35
6.21 Finders' Fees................................................................................35
6.22 Millennium Compliance........................................................................35
6.23 New Zealand Filings..........................................................................35
6.24 Registration Statement, Other Documents......................................................35
6.25 Available Funds..............................................................................36
ARTICLE VII
CERTAIN COVENANTS............................................................................36
7.1 Conduct of Business of LTC...................................................................36
7.2 Exclusive Dealing............................................................................37
7.3 Review of LTC; Confidentiality...............................................................38
7.4 Reasonable Best Efforts......................................................................39
7.5 Transfer of Employees and Benefit Plans......................................................39
7.6 Proxy and Registration Statements............................................................40
7.7 LTC SEC Filings; Disclosure of Material Information..........................................41
7.8 Transfer Taxes...............................................................................41
7.9 Further Assurances...........................................................................41
7.10 Insurance....................................................................................41
7.11 Transfer of Intellectual Property Rights.....................................................42
7.12 Board of Directors...........................................................................42
7.13 Repricing of Options and Warranties; Purchase of Additional Stock............................42
7.14 Bridge Financing; Additional Security........................................................42
7.15 Line of Business; Non-Compete................................................................43
7.16 IPO; Reincorporation.........................................................................43
7.17 Consulting Services..........................................................................43
</TABLE>
5
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VIII
CONDITIONS TO CLOSING........................................................................45
8.1 Conditions to Obligations of PLL.............................................................45
8.1.1 Representations, Warranties and Covenants of LTC...................................45
8.1.2 No Injunction, etc.................................................................45
8.1.3 No Proceedings.....................................................................45
8.1.4 Ancillary Closing Agreements.......................................................45
8.1.5 Third-Party Consents; Governmental Approvals.......................................45
8.1.6 No Material Adverse Change.........................................................46
8.1.7 Transfer of Intellectual Property Rights...........................................46
8.1.8 SEC Filings........................................................................46
8.1.9 Due Diligence......................................................................46
8.1.10 IPO Closing........................................................................46
8.1.11 ...................................................................................46
8.2 Conditions to Obligations of LTC.............................................................46
8.2.1 Representations, Warranties and Covenants of PLL...................................46
8.2.2 No Injunction, etc.................................................................46
8.2.3 No Proceedings.....................................................................46
8.2.4 Ancillary Closing Agreements.......................................................47
8.2.5 Third-Party Consents; Governmental Approvals.......................................47
8.2.6 No Material Adverse Change.........................................................47
8.2.7 IPO Closing........................................................................47
8.2.8 Fairness Opinion...................................................................47
8.2.9 Tax Opinion........................................................................47
ARTICLE IX
TERMINATION; REMEDIES........................................................................47
9.1 Termination..................................................................................47
9.2 Remedies.....................................................................................48
ARTICLE X
MISCELLANEOUS................................................................................49
10.1 Non-Survival of Representations and Warranties...............................................49
10.2 Notices......................................................................................49
10.3 Waiver.......................................................................................49
10.4 Amendments, Supplements, Etc.................................................................49
10.5 Delegation...................................................................................49
10.6 Expenses.....................................................................................50
10.7 Successors and Assigns.......................................................................50
10.8 No Third-Party Beneficiaries.................................................................50
10.9 Governing Law................................................................................50
10.10 Jurisdiction.................................................................................50
10.11 WAIVER OF JURY TRIAL.........................................................................51
10.12 Public Announcements.........................................................................51
10.13 Counterparts.................................................................................51
10.14 Table of Contents; Headings..................................................................51
10.15 Entire Agreement.............................................................................51
10.16 Severability; Injunctive Relief..............................................................51
10.17 Certain Interpretive Matters.................................................................52
</TABLE>
6
<PAGE> 5
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
January 19, 2000, by and between PACIFIC LITHIUM LIMITED, a New Zealand
corporation (together with its successors is referred to herein as "PLL"), and
LITHIUM TECHNOLOGY CORPORATION, a Delaware corporation ("LTC") as amended and
restated by the parties as of May 12, 2000.
RECITALS
WHEREAS, LTC is engaged in the business of developing and
commercializing proprietary battery cell structures and processes to manufacture
"thin film" rechargeable solid-state, lithium-ion polymer and lithium metal
polymer batteries.
WHEREAS, PLL desires to domesticate into the United States and become a
Delaware corporation pursuant to the provisions of Section 388 of the Delaware
General Corporation Law ("DGCL") (the "Domestication"), change its name to Ilion
Technology Corporation and consummate an IPO (as herein defined);
WHEREAS, PLL and LTC desire that after the Domestication LTC merge with
and into PLL under and pursuant to the DGCL, upon the terms and conditions
hereinafter set forth (the merger described in this Agreement and the
Certificate of Merger (as defined in Section 2.1) herein called the "Merger");
WHEREAS, the Board of Directors of PLL has adopted resolutions
approving this Agreement and the Certificate of Merger and the consummation of
the transactions contemplated hereby and thereby and authorizing the execution
and delivery of this Agreement and the Certificate of Merger attached as Exhibit
A;
WHEREAS, the Board of Directors of LTC has adopted resolutions
approving this Agreement and the Certificate of Merger and the consummation of
the transactions contemplated hereby and thereby and authorizing the execution
and delivery of this Agreement and the Certificate of Merger;
WHEREAS, it is intended that the Merger will be a tax-free
reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended;
WHEREAS, PLL and LTC have entered into Bridge Loan Financing Agreements
(as herein defined) pursuant to which PLL has agreed to advance funds to LTC in
the amounts set forth therein;
NOW, THEREFORE, in consideration of these premises and the mutual
agreements, provisions and covenants contained in this Agreement, PLL and LTC
agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere herein, the
following terms, as used herein, have the following meanings when used herein
with initial capital letters:
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control with
the first Person and, if such first Person is an individual, any member of the
immediate family (including parents, spouse and children) of such individual and
any trust whose principal beneficiary is such individual or one or more members
of such immediate family and any Person who is controlled by any such member or
trust. For the purposes of this Agreement, "control," when used with respect to
any Person, means the possession, directly or indirectly, of the power to (a)
vote 10% or
7
<PAGE> 6
more of the securities having ordinary voting power for the election of
directors (or comparable positions) of such Person or (b) direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agreement" means this Merger Agreement, as the same may be amended
from time to time in accordance with the terms hereof.
"Ancillary Closing Agreements" means (i) the Certificate of Merger,
(ii) the Employment Agreements; and (iii) all other instruments, certificates
and other agreements entered into in connection with the consummation of the
transactions contemplated by this Agreement.
"Benefit Plan" means any employee benefit plan within the meaning of
Section 3(3) of ERISA, and any other plan, program, agreement, arrangement,
policy, contract, commitment or scheme, written or oral, statutory or
contractual, that provides for compensation or benefits, including, but not
limited to, any deferred compensation, executive compensation, bonus or
incentive plan, any cafeteria plan or any holiday or vacation plan or practice.
"Bonuses" has the meaning ascribed to such term in Section 5.20(g).
"Bridge Loan Financing Agreements" means (i) the Bridge Loan Financing
Agreement, dated as of November 29, 1999, between LTC and PLL (the "Bridge Loan
Financing Agreement"), (ii) the Convertible Bridge Notes, (iii) the Convertible
Operating Notes, (iv) the License and Option Agreement, (v) the Packaging
Security Agreement and (vi) the LTC Warrants.
"Business" means the business of LTC as currently conducted or proposed
to be conducted.
"Business Day" means a day that is not a Saturday, Sunday or a day on
which commercial banking institutions located in New York City, New York or
Auckland, New Zealand are authorized or required to close.
"Capitalized Lease Obligations" means, for any applicable period, the
obligations of such Person that are required to be classified and accounted for
as capital lease obligations under GAAP, together with all obligations to make
termination payments under such capitalized lease obligations.
"Capital Stock" means (a) with respect to any Person that is a
corporation, any and all shares, interests, participation or other equivalents
(however designated and whether or not voting) of corporate stock, including,
but not limited to, the common stock and the preferred stock and the preferred
stock of such Person and (b) with respect to any Person that is not a
corporation, any and all partnership or other equity interests of such Person.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, 42 U.S.C. Sections 9601, et seq., as amended.
"Certificate of Merger" has the meaning ascribed to such term in
Section 2.1.
"Closing" has the meaning ascribed to such term in Section 4.1.
"Closing Date" has the meaning ascribed to such term in Section 4.1.
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Computer Systems" has the meaning ascribed to such term in Section
5.22.
8
<PAGE> 7
"Constituent of Concern" means any substance defined as a "hazardous
substance", hazardous waste, hazardous material, pollutant or contaminant by any
Environmental Law, any petroleum hydrocarbon and any degradation product of a
petroleum hydrocarbon, asbestos, PCB or similar substance, the generation,
recycling, use, treatment, storage, transportation, Release, disposal or
exposure of or to which is subject to regulation under any Environmental Law.
"Contracts" has the meaning ascribed to such term in Section 5.11(a).
"Convertible Bridge Notes" means (i) the Convertible Secured Promissory
Note, dated as of November 29, 1999, made by LTC in favor of PLL, in the amount
of $125,000 and (ii) the Convertible Promissory Note, dated as of January 10,
2000, made by LTC in favor of PLL, in the amount of $975,000 delivered in
connection with the Bridge Loan Financing Agreements.
"Convertible Operating Notes" means the convertible promissory notes
made by LTC in favor of PLL and delivered in connection with the Bridge Loan
Financing Agreements.
"Dissenting Shares" has the meaning ascribed to such term in Section
3.3.
"Effective Time" has the meaning ascribed to such term in Section 2.2.
"Employment Agreements" means the employment agreements, dated as of
the Closing Date, between PLL and each of David Cade and George Ferment,
substantially in the standard form used by PLL and attached hereto as Exhibits B
and C, respectively.
"Environmental Claims" means administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, citations, summonses,
notices of non-compliance or violation, requests for information, investigations
or proceedings relating in any way to the Release of Constituents of Concern or
any Environmental Law or any Permit issued under any such Law, including (a)
Environmental Claims by Governmental Authorities for enforcement, cleanup,
removal, response, remedial or other actions or damages pursuant to any
applicable Environmental Law and (b) Environmental Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Constituents of Concern or arising from alleged
injury or threat of injury to human health and safety or the environment.
"Environmental Condition" means a condition with respect to the
environment which has resulted or could reasonably be expected to result in a
material loss, liability, cost or expense.
"Environmental Law" means any Law, judicial or administrative
interpretation, judicial or administrative order, consent decree or judgment,
relating to the environment, human health and safety, including CERCLA; and any
state and local counterparts or equivalents.
"Environmental Permits" means all Permits, licenses, authorizations,
certificates and approvals of Governmental Authorities relating to or required
by Environmental Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor thereto.
"ERISA Affiliate" means any Person that, together with LTC, would be
considered a single employer within the meaning of Section 4001 of ERISA or
Section 414 of the Code.
9
<PAGE> 8
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"GAAP" means U.S. or New Zealand, as the case may be, generally
accepted accounting principles, consistently applied.
"Governmental Authority" means any domestic or foreign governmental or
regulatory agency, authority, bureau, commission, department, official or
similar body or instrumentality thereof, or any governmental court, arbitral
tribunal or other body administering alternative dispute resolution.
"Indebtedness" means with respect to any Person, at any date, without
duplication, (a) all obligations of such Person for borrowed money, including,
without limitation, all principal, interest, premiums, fees, expenses,
overdrafts and penalties with respect thereto, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all obligations of such Person to pay the deferred purchase price of the
property or services, except trade payables incurred in the Ordinary Course of
Business, (d) all obligations of such Person to reimburse any bank or other
Person in respect of amounts paid under a letter of credit or similar
instrument, (e) all Capitalized Lease Obligations, (f) all other obligations of
a Person which would be required to be shown as indebtedness on a balance sheet
of such Person prepared in accordance with GAAP, and (g) all indebtedness of any
other Person of the type referred to in clauses (a) to (f) above directly or
indirectly guaranteed by such Person or secured by any assets of such Person,
whether or not such Indebtedness has been assumed by such Person.
"Intellectual Property Right" means any trademark, service mark, trade
name, product designation, logo, slogan, invention, patent, trade secret,
copyright, know-how, proprietary design or process, computer software and
database, Internet address or domain name (including any registrations or
applications for registration or renewal of any of the foregoing), research in
progress, or any other similar type of proprietary intellectual property right,
including, but not limited to, the intellectual property rights set forth on
Schedule 5.16(a) hereto, of LTC, whether existing on the date hereof or acquired
thereafter.
"Interim Agreements" means the Bridge Loan Financing Agreements and the
Security Agreement and Assignment of Lease.
"IPO" means an initial public offering and sale of common stock of
Ilion Technology Corporation, in the United States public markets (and
potentially in certain other markets) which results in aggregate gross proceeds
to PLL in an amount which, when added to the aggregate gross proceeds of all
equity funding received by PLL at any time during the period from September 29,
1999 until the time of the IPO, equals at least twenty-five million dollars
($25,000,000).
"IPO Date" means the date on which PLL closes an IPO.
"IRS" means the Internal Revenue Service.
"Law" means any federal, foreign, state or local statute, law, rule,
regulation, ordinance, code, permit, license, policy or rule of common law.
"Lien" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse claim of
any kind in respect of such property or asset. For the purposes of this
Agreement, a Person will be deemed to own, subject to a Lien, any property or
asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such property or asset.
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"License and Option Agreement" means the License and Option Agreement,
effective as of October 1, 1999, made by LTC in favor of PLL and delivered in
connection with the Bridge Loan Financing Agreements.
"LTC Audited Financials" means the audited balance sheet of LTC for its
fiscal year ended December 31, 1998, together with the related statement of
income, retained earnings and cash flows for such period.
"LTC Common" means all the issued and outstanding shares of common
stock, par value $0.01 per share, of LTC as of the Effective Time.
"LTC's Continuing Costs" means LTC's continuing corporate costs as
agreed with PLL for the period from the Closing Date to the IPO Date as set
forth in Section 2(d) of the Bridge Loan Financing Agreement.
"LTC Interim Financials" means the unaudited balance sheet of LTC for
the quarter ended September 30, 1999, together with the related unaudited
statement of income, retained earnings and cash flows for such period.
"LTC Warrants" means the warrants to purchase 7.5 million shares of
common stock of LTC at $.15 per share delivered by LTC to PLL pursuant to the
Bridge Loan Financing Agreements.
"Material Adverse Effect" means a material adverse effect on the
business, assets, liabilities, condition (financial and other), results of
operations or prospects of LTC and its subsidiaries, taken as a whole, or PLL
and its subsidiaries, taken as a whole, as the context in which such term is
used may require.
"Merger Consideration" means the Merger Securities and the cash payable
in lieu of fractional shares as provided by Section 3.5 hereto.
"Merger Securities" has the meaning ascribed to such term in
Section 3.3.
"Millennium Compliance" means that the Computer Systems are capable of
the following, before, during and after January 1, 2000: (a) handling date
information involving all and any dates (including the recording of February 29,
2000), including accepting input, providing output and performing date
calculations in whole or in part; (b) operating accurately without interruption
on and in respect of any and all dates and without change in performance; (c)
responding to and processing two digit year input without creating any ambiguity
as to the century; and (d) storing and providing date input information without
creating any ambiguity as to the century.
"Mitsubishi Materials" means the agreements set forth on Schedule 5.4.
"Monthly Financial Statements" means the unaudited monthly balance
sheets of LTC at the end of each calendar month beginning January 1, 2000
through and including the Closing Date, together with the related monthly
statements of earnings and cash flows.
"Options" has the meaning ascribed to such term in Section 7.5(c).
"Order" means any judgment, injunction, judicial or administrative
order or decree.
"Ordinary Course of Business" means, with respect to any Person, the
ordinary course of business of such Person, consistent with such Person's past
practice and custom, including, with respect to any category, quantity or dollar
amount, term and frequency of payment, delivery, accrual, expense or any other
accounting entry.
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"Packaging Security Agreement" means the Security Agreement dated
November 29, 1999 delivered by LTC in favor of PLL in connection with the Bridge
Loan Financing Agreements pursuant to which LTC granted PLL a security interest
in the packaging equipment described therein.
"Permit" has the meaning ascribed to such term in Section 5.14(b).
"Permitted Lien" means (a) mechanics', workmen's, carriers',
repairmen's or other like Liens arising or incurred in the Ordinary Course of
Business in respect of obligations that are not overdue, (b) statutory liens for
Taxes, assessments and other similar governmental charges that are not overdue,
or (c) Liens that arise under zoning, land use and other similar imperfections
of title that arise in the Ordinary Course of Business and that, in the
aggregate, do not materially affect the value, use or marketability of the
property subject thereto.
"Person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust or other entity or
organization or Governmental Authority.
"PLL Audited Financials" means the audited balance sheet of PLL for its
fiscal year ended March 31, 1999, together with the related statement of income,
retained earnings and cash flows for such period.
"PLL Interim Financials" means the unaudited balance sheet of PLL for
the six month period ended September 30, 1999, together with the related
unaudited statements of income, retained earnings and cash flows for such
period.
"PLL Common" has the meaning ascribed to such term in Section 3.3.
"Pre-Closing Tax Period" means any Tax period (or portion thereof) that
ends on or before the Closing Date.
"Property" means any real property and improvements at any time owned,
leased, used, operated or occupied (whether for storage, disposal or otherwise)
by LTC or PLL, as applicable.
"Proxy Statement" has the meaning ascribed to such term in Section
5.24.
"Public Documents" means LTC's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1998 and LTC's Quarterly Reports on Form 10-QSB
for the quarters ended March 31, 1999, June 30, 1999 and September 30, 1999.
"Real Property" has the meaning ascribed to such term in Section
5.15(b).
"Registration Statement" has the meaning ascribed to such term in
Section 5.24.
"Release" means any release, spill, emission, discharge, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the environment (including, without limitation, ambient air,
surface water, groundwater and surface or subsurface strata) or into or out of
any property, including the movement of Constituents of Concern through or in
the air, soil, surface water, groundwater or property.
"Returns" has the meaning ascribed to such term in Section 5.9(a)(i).
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement and Assignment of Lease" means the Security
Agreement and Assignment of Lease made by LTC in favor of PLL in the form
attached as Exhibit G to the Bridge Loan Financing Agreement.
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"Shareholders' Meetings" has the meaning ascribed to such term in
Section 5.24.
"Subsidiary" means, with respect to any Person, (a) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation have or might have voting power by reason of the happening of
any contingency) is at the time owned by such Person, directly or indirectly
through Subsidiaries, and (b) any partnership, limited liability company,
association, joint venture, trust or other entity in which such Person, directly
or indirectly through Subsidiaries, is either a general partner, has a 50% or
greater equity interest at the time or otherwise owns a controlling interest.
"Surviving Corporation" means PLL after the Domestication and after the
Merger.
"Tax" means (a) any net income, alternative or add-on minimum tax,
gross income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, withholding on amounts paid to or by a party to
this Agreement, payroll, employment, excise, severance, stamp, occupation,
premium, property, environmental or windfall profit tax, custom, duty or other
tax, governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest, penalty, addition to tax or additional amount
imposed by any Taxing Authority, (b) any liability of a party to this Agreement
for the payment of any amounts of any of the foregoing types as a result of
being a member of an affiliated, consolidated, combined or unitary group, or
being a party to any agreement or arrangement whereby liability of a party to
this Agreement for payment of such amounts was determined or taken into account
with reference to the liability of any other Person, and (c) any liability of a
party to this Agreement for the payment of any amounts as a result of being a
party to any Tax-Sharing Agreements or with respect to the payment of any
amounts of any of the foregoing types as a result of any express or implied
obligation to indemnify any other Person.
"Tax-Sharing Agreements" means all existing Tax-sharing agreements or
arrangements (whether or not written) binding on a party to this Agreement.
"Taxing Authority" means any Governmental Authority having jurisdiction
over the assessment, determination, collection or other imposition of any Tax.
"Third-Party Claim" means any claim, demand, action, suit or proceeding
made or brought by any Person who or which is not a party to this Agreement or
who or which is not an Affiliate of any party to this Agreement.
"Transferred Employees" has the meaning ascribed to such term in
Section 7.5(a).
ARTICLE II
THE MERGER
2.1 The Merger. Prior to the Closing, each of the parties shall execute
and deliver the Certificate of Merger in substantially the form set forth in
Exhibit A to this Agreement (the "Plan of Merger").
2.2 Effective Time. As soon as practicable after satisfaction or waiver
of all conditions to the Merger, including, but not limited to, the
Domestication and the IPO, the Certificate of Merger shall be certified,
executed, acknowledged and filed in accordance with Section 256 of the DGCL. The
Merger shall be effective at such time as a certificate of merger is issued by
the Secretary of State of Delaware in accordance with Section 256 of the DGCL
(the "Effective Time").
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2.3 Effect of the Merger. At the Effective Time, the separate existence
of LTC shall cease, and PLL, as the surviving corporation (the "Surviving
Corporation"), (i) shall continue to possess all of its assets, rights, powers
and property as constituted immediately prior to the Effective Time, (ii) shall
be subject to all actions previously taken by its and LTC's Board of Directors,
(iii) shall succeed, without other transfer, to all of the assets, rights,
powers and property of LTC in the manner as more fully set forth in Section 259
of the Delaware General Corporation Law, (iv) shall continue to be subject to
all of its debts, liabilities and obligations as constituted immediately prior
to the Effective Time, and (v) shall succeed, without other transfer, to all of
the debts, liabilities and obligations of LTC in the same manner as if PLL had
itself incurred them, all as more fully provided under the applicable provisions
of the Delaware General Corporation Law and the laws of New Zealand.
2.4 Certificate of Incorporation. Upon the effectiveness of the Merger,
the Certificate of Incorporation of PLL as in effect immediately prior to the
Effective Time shall continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
2.5 Bylaws. The Bylaws of PLL as in effect immediately prior to the
Effective Time shall continue in full force and effect as the Bylaws of the
Surviving Corporation until duly amended in accordance with the provisions
thereof and applicable law.
2.6 Directors and Officers. The directors and officers of PLL
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation until their respective successors shall have been duly
elected and qualified or as otherwise provided by law or the Certificate of
Incorporation of the Surviving Corporation or the Bylaws of the Surviving
Corporation.
ARTICLE III
CONVERSION OF SECURITIES
3.1 Shares of the Surviving Corporation. The authorized number and par
value of shares of all classes of capital stock of PLL immediately prior to the
Effective Time shall be the authorized number and par value of shares of the
classes of capital stock of the Surviving Corporation (as defined in the Plan of
Merger) from and after the Effective Time.
3.2 No Conversion of PLL Common. Each share of Common Stock, par value
per share, of PLL issued and outstanding immediately prior to the Effective Time
shall continue to be an issued and outstanding share of Common Stock, par value
$0.01 per share, of the Surviving Corporation from and after the Effective Time.
3.3 Conversion of LTC Common; Assumption of Warrants.
At the Effective Time, all of the then issued and outstanding shares of
LTC Common, other than shares of LTC Common (i) held in the treasury of LTC,
which shall not be considered as outstanding for purposes of this Agreement or
the Plan of Merger, (ii) held by PLL, (iii) held by any wholly owned subsidiary
of PLL or LTC (other than shares held in a fiduciary capacity) or (iv) as to
which the holder has commenced as of the Effective Time all procedures necessary
through the Effective Time to assert dissenters' rights in accordance with the
DGCL ("Dissenting Shares"), shall, by virtue of the Merger, be converted into an
aggregate of 3.5 million shares of Common Stock of PLL plus the additional
number of shares of Common Stock of PLL as set forth in Section 7.13(b) of this
Agreement (the "Merger Securities"). The Merger Securities shall be issued to
the LTC shareholders on a pro-rata basis. Each share of LTC Common held (i) in
the treasury of LTC, (ii) by PLL or (iii) by any wholly owned subsidiary of PLL
or LTC (other than shares held in a fiduciary capacity)
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immediately prior to the Effective Time shall, by virtue of the Merger,
forthwith and without any action on the part of the holder thereof be canceled
and retired and all rights in respect thereof shall cease to exist. Holders of
Dissenting Shares shall, upon the effectiveness of the Merger with respect to
such Dissenting Shares, have only such rights, if any, as they may have pursuant
to the DGCL, and any amounts required by the DGCL to be paid to any holder of
Dissenting Shares with respect to such Dissenting Shares shall be paid by the
Surviving Corporation. The assumption of warrants, if any, and the
non-assumption of options of LTC shall be governed by Sections 7.5 and 7.13.
3.4 Exchange Agent. A national or state bank as mutually agreed upon by
PLL and LTC shall be engaged to act as agent for purposes of mailing and
receiving transmittal letters and distributing certificates for PLL Common to
LTC shareholders (the "Exchange Agent").
3.5 No Fractional Shares. Notwithstanding any other provision of this
Agreement or the Plan of Merger, neither certificates nor scrip for fractional
shares of PLL Common shall be issued in the Merger. Each holder of shares of LTC
Common who otherwise would have been entitled to a fraction of a share of PLL
Common shall receive in lieu thereof cash in an amount determined by multiplying
the fractional share interest to which such holder would otherwise be entitled
by the fair market value of such fraction on the date of conversion (as
determined in good faith by the Board of Directors of PLL).
3.6 Rights of the LTC Shareholders. At the Effective Time, each holder
of an outstanding certificate or certificates for shares of LTC Common shall
cease to have any rights as a shareholder of LTC, except such rights, if any, as
such holder may have with respect to Dissenting Shares. Each such holder of any
outstanding certificate or certificates for shares of LTC Common converted in
the Merger, upon proper surrender of each such certificate (accompanied by a
duly completed and executed letter of transmittal in the form to be sent to all
former LTC shareholders and such other evidences of authority and documentation
as PLL or the Exchange Agent may require and subject to any required
withholdings of taxes) to the Exchange Agent, shall receive promptly in exchange
for each such certificate Merger Securities and cash in lieu of fractional
shares as provided by this Agreement. Pending such surrender and exchange, such
holder's certificate or certificates for shares of LTC Common shall be deemed
for all corporate purposes, by virtue of the Merger and without any action on
the part of the holder thereof, to evidence Merger Securities subject to the
provisions of this Agreement and the Plan of Merger and the right to receive
cash in lieu of fractional shares as provided by this Agreement and the Plan of
Merger. The registered owner on the books and records of PLL or the Exchange
Agent of any shares of stock represented by such outstanding certificate shall,
until such certificate shall have been surrendered for transfer or conversion or
otherwise accounted for to PLL or the Exchange Agent, have and be entitled to
exercise any voting and other rights with respect to and to receive dividends
and other distributions upon the shares of capital stock of PLL represented by
such outstanding certificate as provided above. Neither PLL nor the Exchange
Agent shall pay any applicable stock transfer taxes incurred by any shareholder
in connection with the Merger.
3.7 Exchange. As soon as practicable at or after the Effective Time,
the Exchange Agent shall distribute Merger Securities and cash in lieu of
fractional shares as provided by this Agreement and the Plan of Merger. PLL
shall deliver to the Exchange Agent one or more certificates representing in the
aggregate the number of Merger Securities to be delivered in connection with the
Merger in sufficient time for the Exchange Agent to make such distribution. The
obligation of PLL to exchange Merger Securities for LTC Common and distribute
cash in lieu of fractional shares as provided herein shall not be discharged,
reduced or otherwise affected by the failure of the Exchange Agent to make such
exchanges and distributions for any reason whatsoever. The Exchange Agent shall
not be entitled to vote or to exercise any rights of ownership with respect to
the Merger Securities held by it from time to time hereunder, except that it
shall receive and hold all dividends or other distributions paid or distributed
with respect to such shares for the account of the persons entitled thereto. One
hundred eighty days following the Effective Time, the Exchange Agent shall
deliver to PLL any Merger Securities and funds (including any interest received
with respect thereto) which PLL has made available to the Exchange Agent and
which have not been disbursed to holders of certificates representing
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shares of LTC Common, and thereafter such holders shall be entitled to look to
the Surviving Corporation (subject to abandoned property, escheat or other
similar laws) with respect to the Merger Securities and cash in lieu of
fractional shares deliverable or payable upon due surrender of their
certificates. Notwithstanding the foregoing neither the Exchange Agent nor any
party hereto shall be liable to any holder of shares of LTC Common for any
consideration paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
3.8 Closing of Stock Transfer Books. The stock transfer books of LTC
shall be closed at the close of business on the business day immediately
preceding the date of the Effective Time. In the event of a transfer of
ownership of LTC Common which is not registered in the transfer records of LTC,
the consideration to be distributed pursuant to this Agreement and the Plan of
Merger may be delivered to a transferee, if the certificate representing such
LTC Common is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by payment of any applicable
stock transfer taxes. PLL and the Exchange Agent shall be entitled to rely upon
the stock transfer books of LTC to establish the identity of those persons
entitled to receive the Merger Consideration specified in this Agreement and the
Plan of Merger for their shares of LTC Common, which books shall be conclusive
with respect to the ownership of such shares. In the event of a dispute with
respect to the ownership of any such shares, PLL and the Exchange Agent shall be
entitled to deposit any consideration represented thereby in escrow with an
independent party and thereafter be relieved with respect to any claims to such
consideration.
3.9 Changes in PLL or LTC Common. If between the date of this Agreement
and the Effective Time, the shares of PLL Common shall be changed into a
different number of shares by reason of any reclassification, recapitalization,
split-up, combination or exchange of shares, or if a stock dividend thereon
shall be declared with a record date within said period, the number of shares of
PLL Common delivered pursuant to this Agreement shall be adjusted accordingly.
ARTICLE IV
CLOSING AND CLOSING DELIVERIES
4.1 The Closing. The closing of the Merger (the "Closing") will take
place at the offices of Jones, Day, Reavis & Pogue located at 599 Lexington
Avenue, New York, N.Y. 10022, at 10:00 a.m., New York time, three Business Days
after satisfaction or waiver of the conditions to Closing set forth in Article
XIII, other than Section 8.1.10 and contemporaneously with the closing of the
IPO, unless the parties agree in writing to change the Closing to another time,
date or place. The date upon which the Closing occurs is herein called the
"Closing Date".
4.2 Deliveries of LTC At the Closing, LTC will deliver to PLL:
(i) certificate of the Chief Executive Officer of LTC
confirming LTC's compliance with the condition set forth in Section
8.1.1;
(ii) certificate of LTC's Secretary or Assistant Secretary
certifying as to LTC's certificate of incorporation, bylaws or other
comparable documents and to the due adoption of resolutions adopted by
its Board of Directors authorizing the execution of this Agreement, the
Interim Agreements and each Ancillary Closing Agreements to which it
will be a party at Closing and the taking of any and all actions deemed
necessary or advisable to consummate the transactions contemplated
herein and therein;
(iii) the opinion of Gallagher, Briody & Butler, counsel to
LTC, dated the Closing Date, relating to corporate fundamentals as
customary for transactions of the type described herein;
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(iv) evidence or copies of any consents, approvals, orders,
qualifications or waivers required by any third party or Governmental
Authority to consummate the transactions contemplated by this
Agreement;
(v) each Ancillary Closing Agreements required to be duly
executed and delivered by parties other than PLL or its Affiliates;
(vi) if PLL deems it necessary, evidence of Transfer of all
Intellectual Property Rights to an entity formed in the Netherland
Antilles or any similar jurisdiction, for tax purposes;
(vii) evidence of approval by the shareholders of LTC of the
Merger and this Agreement;
(viii) a non-foreign person affidavit as required by Section
1445 of the Code;
(ix) evidence of transfer of all Environmental Permits or
applications thereof listed on Schedule 6.14(b) from LTC to PLL;
(x) a copy of the Agreement and Plan of Merger duly executed
by LTC for filing with the Secretary of State of the State of Delaware
in connection with the Closing; and
(xi) such other documents and instruments as may be reasonably
required to consummate the transactions contemplated by this Agreement
and the Ancillary Closing Agreements and to comply with the terms
hereof and thereof.
4.3 Deliveries by PLL. At the Closing, PLL will deliver or cause
to be delivered to LTC:
(i) certificate of the Chief Executive Officer of PLL
confirming PLL's compliance with the condition set forth in Section
8.2.1;
(ii) certificate of PLL's Secretary or Assistant Secretary
certifying as to PLL's certificate of incorporation, bylaws or other
comparable documents and to the due adoption of resolutions adopted by
its Board of Directors authorizing the execution of this Agreement, the
Interim Agreements and each Ancillary Closing Agreements to which it
will be a party at Closing and the taking of any and all actions deemed
necessary or advisable to consummate the transactions contemplated
herein and therein and to effectuate the Domestication;
(iii) evidence or copies of any consents, approvals, orders,
qualifications or waivers required by any third party or Governmental
Authority to consummate the transactions contemplated by this
Agreement;
(iv) the opinions of Jones Young, New Zealand counsel to PLL
and Jones, Day, Reavis & Pogue, special United States counsel to PLL,
dated the Closing Date, relating to corporate fundamentals as customary
for transactions of the type described herein;
(v) the duly executed Option Agreements for the Transferred
Employees who are being granted Options;
(vi) evidence of approval by the shareholders of PLL of the
Domestication and the transactions contemplated under this Agreement,
the Interim Agreements and the Ancillary Closing Agreements (as
applicable);
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(vii) each Ancillary Closing Agreements required to be duly
executed and delivered by PLL or its Affiliates;
(viii) a copy of the Agreement and Plan of Merger duly
executed by PLL (or its successor) for filing with the Secretary of
State of the State of Delaware in connection with the Closing; and
(ix) such other documents and instruments as may be reasonably
required to consummate the transactions contemplated by this Agreement
and the Ancillary Closing Agreements and to comply with the terms
hereof and thereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF LTC
LTC represents and warrants to PLL as of the date hereof as follows,
subject to any exceptions set forth in a Schedule hereto referencing the number
of the Section to which it relates:
5.1 Corporate Existence and Power. LTC is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. LTC has all corporate power and all governmental licenses,
authorizations, Permits, consents and approvals required to carry on its
business as now conducted. LTC is duly qualified to conduct business as a
foreign corporation and is in good standing in each jurisdiction where such
qualification is necessary, except for those jurisdictions where the failure to
be so qualified or in good standing could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. LTC has heretofore
delivered to PLL true and complete copies of the certificate of incorporation
and bylaws of LTC, in each case as amended to date.
5.2 Corporate Authorization; Enforceability. The execution, delivery
and performance by LTC of this Agreement, the Interim Agreements and each of the
Ancillary Closing Agreements to which it will be a party are within LTC's
corporate powers and have been duly authorized by the board of directors of LTC
and, subject to the approval by the shareholders of LTC, no other corporate
action on the part of LTC is necessary to authorize this Agreement, the Interim
Agreements or any of the Ancillary Closing Agreements to which LTC will be a
party at the Closing. This Agreement, the Bridge Loan Financing Agreements, each
of the Ancillary Closing Agreements and Interim Agreements to which LTC will be
a party will be duly executed and delivered by LTC Assuming the due execution
and delivery of this Agreement and each of the Ancillary Closing Agreements and
Interim Agreements to which LTC will be a party and assuming approval by the
shareholders of LTC, this Agreement constitutes, and each Ancillary Closing
Agreements and Interim Agreements to which LTC will be a party will constitute,
valid and binding agreements of LTC, enforceable against LTC in accordance with
their terms, except to the extent that their enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity.
5.3 Governmental Authorization. The execution, delivery and performance
by LTC of this Agreement and each Ancillary Closing Agreements and Interim
Agreements to which LTC will be a party require no consent, approval, order,
authorization or action by or in respect of, or filing with, any Governmental
Authority other than filings pursuant to the Securities Act and applicable state
securities and corporate laws and the approval of the shareholders of LTC
5.4 Non-Contravention; Consents. The execution, delivery and
performance by LTC of this Agreement and each Ancillary Closing Agreement to
which LTC will be a party at the Closing, and the consummation of the
transactions contemplated hereby and thereby do not and will not at the Closing,
except as set forth on Schedule 5.4, (a) violate the certificate of
incorporation or bylaws of LTC, (b) violate any applicable Law or Order, (c)
require any filing with or Permit, consent or approval of, or the giving of any
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notice to, any Person (including filings, consents or approvals required under
any Permits of LTC or any licenses to which LTC is a party), (d) result in a
violation or breach of, conflict with, constitute (with or without due notice or
lapse of time or both) a default under, or give rise to any right of
termination, cancellation or acceleration of any right or obligation of LTC or
to a loss of any benefit to which LTC is entitled under, any Contract, agreement
or other instrument binding upon LTC or any license, franchise, Permit or other
similar authorization held by LTC, or (e) result in the creation or imposition
of any Lien on any asset of LTC
5.5 Capitalization. The authorized, issued and outstanding Capital
Stock of LTC as of December 1, 1999 is as follows: LTC has 50,100,000 shares,
par value $0.01 per share of authorized capital stock of which 50,000,000 shares
are designated "Common Stock" and 100,000 shares are designated "Preferred
Stock", of which 48,280,749 shares of Common Stock and no shares of Preferred
Stock are outstanding, and no shares of Preferred Stock will become outstanding
prior to the Effective Time except in accordance with the Bridge Loan Financing
Agreement. All of the outstanding shares of Capital Stock of LTC are duly
authorized, validly issued and fully paid and nonassessable. There are no
existing subscriptions, options, warrants, calls, commitments, agreements,
conversion rights or other rights of any character (contingent or otherwise) to
purchase or otherwise acquire from LTC at any time, or upon the happening of any
stated event, any shares of the capital stock of LTC whether or not presently
issued or outstanding, except as set forth on Schedule 5.5.
5.6 Subsidiaries. (a) Each of LTC's Subsidiaries listed in Schedule 5.6
is a corporation or other legal entity duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each of LTC's
Subsidiaries has all corporate or similar powers and all governmental licenses,
authorizations, Permits, consents and approvals required to carry on its
business as now conducted. Each of LTC's Subsidiaries is duly qualified to
conduct business as a foreign corporation or other legal entity and is in good
standing in each jurisdiction where such qualification is necessary, except for
those jurisdictions where the failure to be so qualified or in good standing
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. LTC has heretofore delivered to PLL true and complete
copies of the certificate of incorporation, bylaws or comparable constituent
documents of each of LTC's Subsidiaries, in each case as amended to date. LTC
does not own, beneficially or of record, any stock or ownership interests in any
entity other than the Subsidiaries listed in Schedule 5.6.
(b) All the outstanding shares of Capital Stock of each such Subsidiary
have been validly issued and are fully paid and nonassessable and are owned
directly or indirectly by LTC, free and clear of all Liens. There are no
outstanding convertible or exchangeable securities or Contracts giving any
Person any right to acquire shares of Capital Stock of such Subsidiaries and no
voting trusts or other Contracts restricting the voting, dividend rights or
disposition of shares of such Subsidiaries.
5.7 LTC Financial Statements; Book and Records. (a) LTC has heretofore
furnished PLL with a true and complete copy of the LTC Audited Financials and
the LTC Interim Financials which have been prepared in accordance with United
States GAAP consistently applied. The LTC Audited Financials and the LTC Interim
Financials fairly present in all material respects the financial position of LTC
at the respective dates thereto and the results of the operations and cash flows
of LTC for the respective periods then ended.
(b) Since September 30, 1999, there have been no changes in LTC's
reserve, accrual or other material accounting policies.
(c) The books of account, minute books, stock record books and other
records of LTC, all of which have been made available to PLL, are complete and
correct in all material respects and have been maintained in accordance with
sound business practices and under an adequate system of internal controls. The
minute books of LTC contain accurate and complete records of all meetings held
of, and corporate and stockholder action taken by, the stockholders, Board of
Directors and committees of the Board of Directors of LTC, and no meeting of any
such stockholders, Board of Directors or committee of the Board of Directors has
been held for which minutes have not been prepared and are not contained in such
minute books.
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5.8 No Undisclosed Liabilities. There are no liabilities or any facts
or circumstances which could give rise to liabilities, whether accrued,
contingent, absolute, determined, determinable or otherwise, of LTC other than
(a) liabilities fully disclosed in LTC's Public Documents, (b) liabilities
specifically disclosed in Schedule 5.8, and (c) other undisclosed liabilities
incurred since September 30, 1999 in the Ordinary Course of Business which,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
5.9 Tax Matters. (a) (i) All Tax returns, statements, reports and forms
(including estimated tax or information returns and reports) required to be
filed by or on behalf of LTC or any of LTC's Subsidiaries with any Taxing
Authority with respect to any Pre-Closing Tax Period (collectively, the
"Returns") have, to the extent required to be filed on or before the date
hereof, been filed and, to the extent required to be filed between the date
hereof and the Closing Date, will have been filed before the Closing, when due
in accordance with all applicable Laws and all Taxes owed by LTC or any of LTC's
Subsidiaries (whether or not shown as due and payable on the Returns that have
been filed) have been timely paid or will have been timely paid prior to the
Closing Date, or withheld (including withholding for independent contractors,
consultants and other employees) and remitted to the appropriate Taxing
Authority, or will have been timely withheld and remitted to the appropriate
Taxing Authority prior to the Closing Date;
(ii) The Returns correctly reflect in all material respects,
the facts regarding the income, business, assets, operations, and
activities and status of LTC and any of LTC's Subsidiaries;
(iii) Any reserves established for Taxes with respect to LTC
or any of LTC's Subsidiaries for any Pre-Closing Tax Period (including
any Pre-Closing Tax Period for which no Return has yet been filed)
reflected on the books of LTC or any of LTC's Subsidiaries are adequate
in accordance with GAAP;
(iv) Neither LTC nor any of LTC's Subsidiaries is delinquent
in the payment of any Tax or has requested any extension of time within
which to file any Return except for extensions granted as a matter of
right;
(v) Neither LTC nor any of LTC's Subsidiaries (or any member
of any affiliated, consolidated, combined or unitary group of which LTC
or any of LTC's Subsidiaries is or has been a member) has granted any
extension or waiver of the statute of limitations period applicable to
any Return, which period (after giving effect to such extension or
waiver) has not yet expired;
(vi) There is no action, suit, proceeding, audit or
investigation pending or, to the knowledge of LTC, threatened against
or with respect to LTC or any of LTC's Subsidiaries in respect of any
Tax. Since January 1, 1997, no claim has been made by any Taxing
Authority in any jurisdiction in which LTC or any of its Subsidiaries
does not file a Tax Return that it is or may be subject to taxation by
that jurisdiction and no such claim exists which has not been resolved
by a determination by such Taxing Authority that LTC or any of LTC's
Subsidiaries is not so subject to taxation;
(vii) Neither LTC nor any of LTC's Subsidiaries nor any other
Person on behalf of LTC or any of LTC's Subsidiaries has entered into
any agreement or consent pursuant to Section 341(f) of the Code;
(vii) There are no Liens for Taxes upon the assets of LTC or
any of LTC's Subsidiaries, except Liens for current Taxes not yet due;
(ix) Neither LTC nor any of LTC's Subsidiaries will be
required to include any adjustment in taxable income for any
Post-Closing Tax Period under Section 481(c) of the Code (or any
similar provision of the Tax Laws of any jurisdiction) as a result of a
change in method of accounting for a Pre-Closing Tax Period or pursuant
to the provisions of any agreement entered into with any Taxing
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Authority with regard to the Tax liability of LTC or any of LTC's
Subsidiaries for any Pre-Closing Tax Period; and
(x) Neither LTC nor any of LTC's Subsidiaries has been a
member of an affiliated, consolidated, combined or unitary group or
participated in any other arrangement whereby any income, revenues,
receipts, gain or loss of LTC or any of LTC's Subsidiaries was
determined or taken into account for Tax purposes with reference to or
in conjunction with any income, revenues, receipts, gain, loss, asset
or liability of any other Person.
(xi) No property owned by LTC or any of LTC's Subsidiaries (a)
is or will be required to be treated as owned by another person under
Section 168(f)(8) of the Internal Revenue code of 1954, as in effect
immediately prior to the enactment of the Tax Reform Act of 1986, (b)
is "tax-exempt use" property within the meaning of Section 168(h)(l) of
the Code, or (c) is "tax-exempt bond financed property" within the
meaning of Section 168(g) of the Code.
(xii) Neither LTC nor any of LTC's Subsidiaries is or has at
any time been a "United States real property holding corporation"
within the meaning of Section 897(c) of the Code.
(b) Schedule 5.9(b) contains a list of all jurisdictions (whether
foreign or domestic) to which any Tax imposed is properly payable by LTC or any
of LTC's Subsidiaries in connection with LTC's conduct of the Business.
5.10 Absence of Certain Changes. Except as set forth in Schedule 5.10,
since September 30, 1999, there has not been any event, occurrence, development,
circumstances or state of facts which (a) has had or which could reasonably be
expected to have a Material Adverse Effect or (b) would have constituted a
violation of any covenant of LTC hereunder (including Section 7.1) had such
covenant applied to any of them since September 30, 1999. Since September 30,
1999, there has not occurred any damage, destruction or casualty loss (whether
or not covered by insurance) with respect to any of the Purchased Assets. LTC
has not sold, transferred, disposed of, or incurred a Lien upon, any
Intellectual Property Right or LTC's assets since September 30, 1999 except in
connection with the Bridge Financing Agreements.
5.11 Contracts. (a) Except as set forth on Schedule 5.11(a), LTC is
neither a party to nor bound by any lease, agreement, contract, commitment or
other legally binding contractual right or obligation (whether written or oral)
(collectively, "Contracts") that is of a type described below:
(i) any lease (whether of real or personal property);
(ii) any agreement for the purchase of materials, supplies,
goods, services, equipment or other assets;
(iii) any sales, distribution or other similar agreement
providing for the sale by LTC of materials, supplies, goods, services,
equipment or other assets;
(iv) any partnership, joint venture or other similar agreement
or arrangement;
(v) any Contract pursuant to which any third party has rights
to own or use any material asset of LTC, including, without limitation,
any Intellectual Property Right of LTC;
(vi) any agreement relating to the acquisition or disposition
of any business (whether by merger, sale of stock, sale of assets or
otherwise) or granting to any Person a right of first refusal, first
offer or other right to purchase any of the Purchased Assets;
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(vii) any agreement relating to Indebtedness (in any case,
whether incurred, assumed, guaranteed or secured by any asset);
(viii) any license, franchise or similar agreement;
(ix) any agency, dealer, sales representative, marketing or
other similar agreement;
(x) any Contract that may not be terminated by LTC without
payment of penalty on more than 90 days' prior notice;
(xi) any agreement that limits the freedom of LTC to compete
in any line of business, geographic area or with any Person or which
would so limit the freedom of PLL after the Closing Date;
(xii) any agreement with (A) any stockholder of LTC or any
other Affiliate of LTC, or (B) any director or officer of LTC or with
any "associate" or any member of the "immediate family" (as such terms
are respectively defined in Rules 12b-2 and 16a-1 of the Exchange Act)
of any such director or officer;
(xiii) any management service, consulting or any other similar
type of agreement;
(xiv) any warranty, guaranty or other similar undertaking with
respect to any contractual performance (or LTC's standard forms of any
of the foregoing) or agreement to indemnify any Person;
(xv) any employment, deferred compensation, severance, bonus,
retirement or other similar agreement or plan in effect as of the date
hereof and entered into or adopted by LTC;
(xvi) any other agreement, commitment, arrangement or plan not
made in the Ordinary Course of Business of LTC that is material to LTC
(b) Each Contract disclosed in or required to be disclosed in Schedule
5.11(a) is a valid and binding agreement of LTC and, to the knowledge of LTC,
each other party thereto, enforceable in accordance with their respective terms,
except to the extent that their enforceability may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
the enforcement of creditors' rights generally and by general equitable
principles. Neither LTC nor, to the knowledge of LTC, any other party to any
such Contract is in default or breach (with or without due notice or lapse of
time or both) in any material respect under the terms of any such Contract. To
the knowledge of LTC, there is no event, occurrence, condition or act which,
with the giving of notice or the passage of time or both, or the happening of
any other event or condition, could reasonably be expected to become a material
default or event of default under any such Contract. LTC has delivered or made
available to PLL true and complete originals or copies of all Contracts
disclosed in or required to be disclosed in Schedule 5.11(a).
5.12 Insurance Coverage. Schedule 5.12 contains a list of all of the
insurance policies and fidelity bonds covering the assets, Business, operations,
employees, officers and directors of LTC There is no material claim by LTC
pending under any of such policies or bonds as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or bonds.
All premiums due and payable under all such policies and bonds have been paid
and LTC has complied in all material respects with the terms and conditions of
all such policies and bonds. Such policies of insurance and bonds (or other
policies and bonds providing substantially similar insurance coverage) are in
full force and effect and are of the type and in amounts deemed by the
management of LTC to be sufficient in light of the business of LTC No insurance
coverage with respect to any of LTC's assets, Business, operations, employees,
officers or directors has lapsed for any period due to a failure to timely make
any premium payment or renewal or otherwise, nor has LTC been refused by any
insurance carrier to which it has applied for any such insurance. LTC has no
knowledge of any threatened
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termination of, or premium increase with respect to, any of such policies or
bonds. Since the last renewal date of any insurance policy, there has not been
any material adverse change in the relationship of LTC with its respective
insurers or the premiums payable pursuant to such policies.
5.13 Litigation. There is no action, suit, investigation, arbitration
or administrative or other proceeding pending or, to the knowledge of LTC,
threatened, against or affecting LTC or its properties before any court or
arbitrator or any Governmental Authority or which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay the transactions
contemplated by this Agreement, the Interim Agreements and the Ancillary Closing
Agreements to which LTC will be a party at Closing. LTC does not know of any
valid basis for any such action, proceeding or investigation. There are no
outstanding judgments, orders, injunctions, decrees, stipulations or awards
(whether rendered by a court, administrative agency, arbitral body or
Governmental Authority) against LTC, LTC's assets or the Business.
5.14 Compliance with Laws; Permits. (a) LTC is not in violation of, has
not been given notice of or been charged by any Governmental Authority with, or,
to LTC's knowledge, under investigation with respect to, any applicable Law or
Order that could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
(b) Schedule 5.14(b) sets forth a list of each government or
regulatory license, authorization, permit, franchise, consent and approval (the
"Permits") issued and held by or on behalf of LTC or required to be so issued
and held to carry on the Business as currently conducted. Except as disclosed in
Schedule 5.14(b), each Permit is valid and in full force and effect and will not
be terminated or impaired (or become terminated or impaired) as a result of the
transactions contemplated hereby. LTC is not in default under, and no condition
exists that with notice or lapse of time or both could constitute a default or
could give rise to a right of termination, cancellation or acceleration under,
any material Permit held by LTC
5.15 Properties; Sufficiency of Assets. (a) Except for inventory
disposed of in the Ordinary Course of Business of LTC, LTC has good title to, or
in the case of leased property has valid leasehold interests in, the property
and assets of LTC (whether real or personal, tangible or intangible) reflected
in the LTC Public Documents or acquired after the date thereof, free and clear
of all Liens, except for Permitted Liens and Liens disclosed in Schedule
5.15(a).
(b) Schedule 5.15(b) sets forth a list of all real property assets
owned or leased ("Real Property") by LTC All such leases of Real Property are
valid and binding agreements of LTC and, to the knowledge of LTC, each other
party thereto, enforceable in accordance with their respective terms, except to
the extent that their enforceability may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles.
LTC is a tenant or possessor in good standing thereunder and all rents due under
such leases have been paid. Neither LTC nor, to the knowledge of LTC, any other
party to any such lease is in default or breach (with or without due notice or
lapse of time or both) in any material respect under the terms of any such
lease. To the knowledge of LTC, there is no event, occurrence, condition or act
which, with the giving of notice or the passage of time or both, or the
happening of any other event or condition, could reasonably be expected to
become a material default or event of default under any such lease. LTC is in
peaceful and undisturbed possession of the space and/or estate under each lease
of which it is a tenant and has good and valid rights of ingress and egress to
and from all the Real Property from and to the public street systems for all
usual street, road and utility purposes. LTC has not received any notice of any
appropriation, condemnation or like proceeding, or of any violation of any
applicable zoning Law or Order relating to or affecting the Real Property, and
to LTC's knowledge, no such proceeding has been threatened or commenced.
(c) The tangible personal property of LTC has been maintained by
LTC since January 1, 1997 in all material respects in good repair and operating
condition in accordance with LTC's general maintenance policies (normal wear and
tear excepted).
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(d) The assets of LTC constitute all of the assets used or held
for use in connection with the Business and are adequate to conduct the Business
as currently conducted.
5.16 Intellectual Property. (a) Schedule 5.16(a) sets forth a list of
all Intellectual Property Rights which are owned by LTC or any of LTC's
Subsidiaries or which LTC or any of LTC's Subsidiaries is a licensor or
licensee, and all material licenses, sublicenses and other written agreements as
to which LTC or any of its Affiliates is a party and pursuant to which any
Person is authorized to use such Intellectual Property Right, including the
identity of all parties thereto.
(b) (i) All of the Intellectual Property Rights necessary for
or used in the conduct of the Business are set forth in Schedule
5.16(a).
(ii) The conduct of the Business by LTC as currently
conducted does not infringe upon any Intellectual Property Right of any
third party. There is no claim, suit, action or proceeding that is
either pending or, to the knowledge of LTC, threatened, that, in either
case, involves a claim of infringement by LTC of any Intellectual
Property Right of any third party, or challenging LTC's ownership,
right to use, or the validity of any Intellectual Property Right listed
or required to be listed in Schedule 5.16(a). LTC has no knowledge of
any basis for any such claim of infringement and no knowledge of any
continuing infringement by any other Person of any of the Intellectual
Property Rights listed or required to be listed in Schedule 5.16(a);
(iii) No Intellectual Property Right listed or required to
be listed in Schedule 5.16(a) is subject to any outstanding order,
judgment, decree, stipulation or agreement restricting the use thereof
by LTC or restricting the licensing thereof by LTC to any Person except
as set forth in Schedule 5.16(a);
(iv) LTC has not entered into any agreement to indemnify
any other Person against any charge of infringement of any Intellectual
Property Right;
(v) LTC has duly maintained all registrations for any
Intellectual Property Rights listed or required to be listed in
Schedule 5.16(a); and
(vi) LTC has obtained all assignments of any rights, title
and interest in the Intellectual Property Rights held by any Person
other than LTC except as set forth in Schedule 5.16(a).
5.17 Environmental Matters. (a) (i) Constituents of Concern have not
been generated, recycled, used, treated or stored on, transported to or from, or
Released or disposed on, LTC Property or, to the knowledge of LTC, any property
adjoining or adjacent to any LTC Property, except in compliance with
Environmental Laws;
(ii) LTC has not disposed of Constituents of Concern from
LTC Property at any off-site facility except in compliance with
Environmental Laws;
(iii) LTC is in compliance in all material respects with
Environmental Laws and the requirements of Permits issued under such
Environmental Laws with respect to the LTC Property;
(iv) There are no pending or, to the knowledge of LTC,
threatened Environmental Claims against LTC or any LTC Property;
(v) LTC has no knowledge of any facts, circumstances,
conditions or occurrences regarding LTC's past or present business or
operations or with respect to any LTC Property or any property
adjoining any LTC Property that could reasonably be expected (i) to
form the basis of an Environmental Claim against LTC or any of the LTC
Property or assets or (ii) to cause any LTC Property or assets to be
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subject to any restrictions on its ownership, occupancy, use or
transferability under any Environmental Law;
(vi) To the knowledge of LTC there are no underground
storage tanks or sumps located on any LTC Property or on any property
that adjoins or is adjacent to any LTC Property;
(vii) Neither LTC nor any LTC Property is listed or, to the
knowledge of LTC, proposed for listing on the National Priorities List
under CERCLA or CERCLIS (as defined in CERCLA) or on any similar
federal, state or foreign list of sites requiring investigation or
clean-up and LTC has not received any requests for information pursuant
to 104(e) of CERCLA or any state counterpart or equivalent;
(viii) LTC has obtained all required Environmental Permits
and is in compliance with the terms of each Environmental Permit in all
material respects. There are no Environmental Permits of LTC that are
nontransferable or require consent, notification or other action to
remain in full force and effect following the consummation of the
transactions contemplated hereby; and
(ix) LTC has no liability under any Environmental Law
(including an obligation to remediate any Environmental Condition
whether caused by LTC or any other Person).
(b) LTC has delivered or made available to PLL true and complete
copies of all environmental investigations, studies, audits, tests, reviews or
other analyses commenced or conducted by or on behalf of LTC (or by a third
party of which LTC has knowledge) in relation to the current or prior business
of LTC or any LTC Property.
(c) For purposes of this Section 5.17, the term "LTC" (including
the use of such term in the term "LTC Property") will include any entity which
is, in whole or in part, a predecessor of LTC
5.18 Plans and Material Documents. (a) Schedule 5.18(a) sets forth
a list of all Benefit Plans with respect to which LTC or any ERISA Affiliate has
or has had in the past any obligation or liability or which are or were in the
past maintained, contributed to or sponsored by LTC or any ERISA Affiliate for
the benefit of any current or former employee, officer or director of LTC or any
ERISA Affiliate. With respect to each Benefit Plan subject to ERISA, LTC has
delivered or made available to PLL a true and complete copy of each such Benefit
Plan (including all amendments thereto) and a true and complete copy of each
document (including all amendments thereto) prepared in connection with each
such Benefit Plan including, without limitation, (i) a copy of each trust or
other funding arrangement, (ii) each summary plan description and summary of
material modifications, (iii) the most recently filed IRS Form 5500 for each
such Benefit Plan, if any, and (iv) the most recent determination letter
referred to in Section 5.18(d). Neither LTC nor any of LTC's Subsidiaries has
any express or implied commitment to create, incur liability with respect to or
cause to exist any Benefit Plan or to modify any Benefit Plan, other than as
required by Law.
(b) None of the Benefit Plans is a plan that is or has ever been
subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code.
None of the Benefit Plans is a "multiemployer plan" as defined in Section 3(37)
of ERISA. Except as disclosed in Schedule 5.18(b), none of the Benefit Plans
provides for the payment of separation, severance, termination or similar-type
benefits to any person or provides for or, except to the extent required by Law,
promises retiree medical or life insurance benefits to any current or former
employee, officer or director of LTC or any ERISA Affiliate.
(c) Each Benefit Plan is in compliance in all material respects
with, and has always been operated in all material respects in accordance with,
its terms and the requirements of all applicable Laws, and LTC and the ERISA
Affiliates have satisfied in all material respects all of their statutory,
regulatory and contractual obligations with respect to each such Benefit Plan.
No legal action, suit or claim is pending or, to the knowledge of LTC,
threatened with respect to any Benefit Plan (other than claims for benefits in
the ordinary
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course) and no fact or event exists that could reasonably be expected to give
rise to any such action, suit or claim.
(d) Each Benefit Plan or trust which is intended to be qualified
or exempt from taxation under Section 401(a), 401(k) or 501(a) of the Code has
received a favorable determination letter from the IRS that it is so qualified
or exempt, and nothing has occurred since the date of such determination letter
that would adversely affect the qualified or exempt status of any Benefit Plan
or related trust.
(e) There has been no non-exempt prohibited transaction (within
the meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to
any Benefit Plan. Neither LTC nor any ERISA Affiliate has incurred any material
liability for any excise tax arising under the Code with respect to a Benefit
Plan and no fact or event exists which could reasonably be expected to give rise
to such liability.
(f) All material contributions, premiums or payments required to
be made with respect to any Benefit Plan have been made on or before their due
dates. For completed plan years of such Benefit Plans, all such contributions
have been fully deducted for income tax purposes and no such deduction has been
challenged or disallowed by any Governmental Authority, and no fact or event
exists which could give rise to any such challenge or disallowance.
(g) There has been no amendment to, written interpretation of or
announcement (whether or not written) by LTC or any of LTC's Subsidiaries
relating to, or change in employee participation or coverage under, any Benefit
Plan that would increase materially the expense of maintaining such Benefit Plan
above the level of the expense incurred in respect thereto for the most recent
fiscal year ended prior to the date hereof.
(h) Except as set forth in Schedule 5.18(h), no employee or former
employee of LTC or any of LTC's Subsidiaries will become entitled to any bonus,
retirement, severance, job security or similar benefit or enhanced such benefit
(including acceleration of vesting or exercise of an incentive award) as a
result of the transactions contemplated by this Agreement.
5.19 Affiliate Transactions. (a) Except as set forth in Schedule
5.19(a), there are no outstanding payables, receivables, loans, advances and
other similar accounts between LTC, on the one hand, and any of its Affiliates,
on the other hand, relating to the Business.
(b) To the knowledge of LTC, no director, officer or employee of
LTC possesses, directly or indirectly, any ownership interest in, or is a
director, officer or employee of, any Person which is a supplier, customer,
lessor, lessee, licensor, developer, competitor or potential competitor of LTC
Ownership of 5% or less of any class of securities of a Person will not be
deemed to be an ownership interest for purposes of this Section 5.19.
5.20 Employee Matters. (a) The relationships of LTC with the
employees of LTC are good working relationships and except as disclosed in
Schedule 5.20(a) no employee has terminated or notified LTC of any intention to
terminate or materially alter its relationship with LTC since December 31, 1998
and LTC has no reason to believe that there will be any such change as a result
of the transactions contemplated by this Agreement.
(b) LTC is not a party to any labor or collective bargaining
agreement; there are no labor or collective bargaining agreements which pertain
to any current employee; and no current employee is represented by any labor
organization.
(c) No labor organization or group of LTC employees has made a
pending demand for recognition, there are no representation proceedings or
petitions seeking a representation proceeding presently pending or, to the
knowledge of LTC, threatened to be brought or filed with the National Labor
Relations Board or other labor
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relations tribunal, and there is no organizing activity involving LTC pending
or, to the knowledge of LTC, threatened by any labor organization or group of
LTC employees.
(d) There are no (i) strikes, work stoppages, slow-downs, lockouts
or arbitrations or (ii) grievances or other labor disputes pending or, to the
knowledge of LTC, threatened against or involving LTC
(e) There are no complaints, charges or claims against LTC pending
or, to the knowledge of LTC, threatened to be brought by or filed with any
Governmental Authority based on, arising out of, in connection with, or
otherwise relating to the employment by LTC, of any LTC Employee, including any
claim for workers' compensation.
(f) LTC is in material compliance with all Laws and Orders in
respect of employment and employment practices and the terms and conditions of
employment and wages and hours, and has not, and is not, engaged in any unfair
labor practice.
(g) Schedule 5.20(g) contains a complete and accurate list of the
following information for each employee, officer or director of LTC, including
each employee on leave of absence or layoff status: employer; name; job title;
current compensation paid or payable and any change in compensation since
December 31, 1998; vacation accrued as of a recent date; and service credited as
of a recent date for purposes of vesting and eligibility to participate under
any pension, retirement, profit-sharing, thrift-savings, deferred compensation,
stock bonus, stock option, cash bonus, employee stock ownership (including
investment credit or payroll stock ownership), LTC severance pay, insurance,
medical, welfare, or vacation plan or other Benefit Plan of LTC; and all bonuses
and any other amounts to be paid by LTC at or in connection with the Closing
("Bonuses").
(h) To the knowledge of LTC, no former or current employee,
officer or director of LTC is a party to, or is otherwise bound by, any
confidentiality, non-competition, proprietary rights agreement or similar
agreement that would affect (i) the performance of his or her duties as an
employee, officer or director or (ii) the ability of PLL to conduct the Business
after the Closing Date.
5.21 Finders' Fees. Except as set forth on Schedule 5.21, there is
no investment banker, broker, finder or other intermediary which has been
retained by or is authorized to act on behalf of LTC who might be entitled to
any fee or other commission in connection with the transactions contemplated by
this Agreement or any of the Ancillary Closing Agreements.
5.22 Millennium Compliance. Schedule 5.22 sets forth the measures
that have been implemented to determine the extent to which the computer systems
used by LTC in its business (the "Computer Systems") are not in Millennium
Compliance, a complete description of the Computer Systems that are not or may
not be in Millennium Compliance and the material details of any program to be
undertaken with a view towards causing any Computer Systems that are not
Millennium Complaint to achieve Millennium Compliance. To the knowledge of LTC,
the cost of achieving Millennium Compliance for the Computer Systems will not
exceed the amounts budgeted therefore as previously disclosed to PLL.
5.23 SEC Filings. The Annual Reports on Form 10-KSB of LTC for the
fiscal years ended (December 31, 1996, 1997 and 1998) filed under the Exchange
Act, and all other reports and proxy statements required to be filed by LTC
under the Exchange Act since January 1, 1997, have been duly and timely filed by
LTC, were in compliance with the requirements of their respective reports forms
and were complete and correct in all material respects, as of the dates at which
the information was furnished, and contained no untrue statement of a material
fact nor omitted to state a material fact required to be included therein or
necessary in light of the circumstances under which it was made in order to make
the statements made therein not misleading. LTC has disclosed to PLL all
material information relating to the transactions contemplated by this Agreement
and the Ancillary Closing Agreements, LTC, its predecessors (including, but not
limited to, Hope Technologies) or LTC's assets and all such disclosed
information is true and accurate.
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5.24 Registration Statement, Other Documents. None of the information
supplied or to be supplied by LTC for inclusion, or included, in (i) the
registration statement to be filed by LTC and PLL with the SEC in connection
with the Merger and the distribution of the Merger Securities (the "Registration
Statement"); (ii) the proxy statements to be mailed to LTC's stockholders and
PLL's shareholders in connection with the meetings (the "Shareholders'
Meetings") to be called to consider the Merger (the "Proxy Statements"); and
(iii) any other documents to be filed with the SEC or any regulatory agency in
connection with the transactions contemplated hereby shall, at the respective
time such documents are filed and, in the case of the Registration Statement,
when it becomes effective and, with respect to the Proxy Statements, when
mailed, be false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements therein not
misleading or, in the case of the Proxy Statements or any amendment thereof or
supplement thereto, at the time of the Shareholders' Meetings, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for the Shareholders Meetings. All documents which
LTC is responsible for filing with the SEC and any regulatory agency in
connection with the Merger shall comply as to form and substance in all material
respects with the provisions of applicable law.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PLL
PLL represents and warrants to LTC as of the date hereof as follows,
subject to any exceptions set forth in a Schedule hereto referencing the number
of the Section to which it relates:
6.1 Corporate Existence and Power. PLL is a corporation duly organized,
validly existing and in good standing under the laws of New Zealand and prior to
the Closing Date, PLL shall domesticate in the United States and shall be a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. PLL has all corporate or similar power and all
governmental licenses, authorizations, Permits, consents and approvals required
to carry on its business as now conducted. PLL is duly qualified to conduct
business as a foreign corporation and is in good standing in each jurisdiction
where such qualification is necessary, except for those jurisdictions where the
failure to be so qualified or in good standing could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. PLL has
heretofore delivered to LTC true and complete copies of its certificate of
incorporation and bylaws or other similar constituent documents, in each case as
amended to date.
6.2 Corporate Authorization; Enforceability. The execution, delivery
and performance by PLL of this Agreement, the Interim Agreements and each of the
Ancillary Closing Agreements to which it will be a party are within PLL's
corporate power and have been duly authorized by the board of directors and,
subject to the approval by the shareholders of PLL, no other corporate action on
the part of PLL is necessary to authorize this Agreement, the Interim Agreements
or any of the Ancillary Closing Agreements to which PLL will be a party at the
Closing. This Agreement has been, and each of the Ancillary Closing Agreements
and Interim Agreements to which PLL will be a party will be duly executed and
delivered by PLL. Assuming the due execution and delivery of this Agreement and
each of the Ancillary Closing Agreements and Interim Agreements to which PLL
will be a party, this Agreement constitutes, and each Ancillary Closing
Agreements and Interim Agreements to which PLL will be a party will constitute
valid and binding agreements of PLL, enforceable against PLL in accordance with
their terms, except to the extent that their enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity.
6.3 Governmental Authorization. The execution, delivery and performance
by PLL of this Agreement, the Interim Agreements and each of the Ancillary
Closing Agreements to which PLL will be a party require no consent, approval,
order, authorization or action by or in respect of, or filing with, any
Governmental Authority
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other than filings pursuant to the Securities Act and applicable state
securities laws and the approval of the shareholders of PLL.
6.4 Non-Contravention; Consents. The execution, delivery and
performance by PLL of this Agreement and each Ancillary Closing Agreement to
which PLL will be a party at the Closing and the consummation of the
transactions contemplated hereby and thereby, do not and will not at the Closing
(a) violate the certificate of incorporation or bylaws or other similar
constituent documents of PLL, (b) violate any applicable Law or Order, (c)
require any filing with or Permit, consent or approval of, or the giving of any
notice to, any Person (including filings, consents or approvals required under
any Permits of PLL or any licenses to which PLL is a party), (d) result in a
violation or breach of, conflict with, constitute (with or without due notice or
lapse of time or both) a default under, or give rise to any right of
termination, cancellation or acceleration of any right or obligation of PLL or
to a loss of any benefit to which PLL is entitled under, any Contract, agreement
or other instrument binding upon PLL or any license, franchise, Permit or other
similar authorization held by PLL, or (e) result in the creation or imposition
of any Lien on any asset of PLL.
6.5 Capitalization. The authorized, issued and outstanding Capital
Stock of PLL as of December 1, 1999 is as follows: PLL has 21,302,934 authorized
shares of which 6,000,000 shares are designated, issued and outstanding as Class
A shares and 15,302,934 shares are designated, issued and outstanding as Class B
shares. All of the outstanding shares of Capital Stock of PLL are duly
authorized, validly issued and fully paid and nonassessable. The shares of PLL
Common to be delivered at Closing, when issued and delivered in accordance with
the terms of this Agreement will be duly authorized, validly issued, fully paid,
nonassessable and free and clear of any Lien or other limitation or restriction.
There are no existing subscriptions, options, warrants, calls, commitments,
agreements, conversion rights or other rights of any character (contingent or
otherwise) to purchase or otherwise acquire from PLL at any time, or upon the
happening of any stated event, any shares of the capital stock of PLL whether or
not presently issued or outstanding, except as set forth on Schedule 6.5. It is
understood that nothing set forth in this Section 6.5 shall restrict PLL from
issuing new Capital Stock or any rights thereto.
6.6 Subsidiaries. (a) Each of PLL's Subsidiaries listed in Schedule 6.6
is a corporation or other legal entity duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each of PLL's
Subsidiaries has all corporate or similar powers and all governmental licenses,
authorizations, Permits, consents and approvals required to carry on its
business as now conducted. Each of PLL's Subsidiaries is duly qualified to
conduct business as a foreign corporation or other legal entity and is in good
standing in each jurisdiction where such qualification is necessary, except for
those jurisdictions where the failure to be so qualified or in good standing
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. PLL has heretofore delivered to LTC true and complete
copies of the certificate of incorporation, bylaws or comparable constituent
documents of each of PLL's Subsidiaries, in each case as amended to date. PLL
does not own, beneficially or of record, any stock or ownership interests in any
entity other than the Subsidiaries listed in Schedule 6.6.
(b) All the outstanding shares of Capital Stock of each such
Subsidiary have been validly issued and are fully paid and nonassessable and are
owned directly or indirectly by PLL, free and clear of all Liens. There are no
outstanding convertible or exchangeable securities or Contracts giving any
Person any right to acquire shares of Capital Stock of such Subsidiaries and no
voting trusts or other Contracts restricting the voting, dividend rights or
disposition of shares of such Subsidiaries.
6.7 PLL Financial Statements; Books and Records. (a) PLL heretofore
furnished LTC with true and complete copies of the PLL Audited Financials and
the PLL Interim Financials which have been prepared in accordance with New
Zealand GAAP consistently applied. The PLL Audited Financials and the PLL
Interim Financials fairly present in all material respects the financial
position of PLL at the respective dates thereto and the results of the
operations and cash flows of PLL for the respective periods then ended.
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(b) Since September 30, 1999, there have been no changes in PLL's
reserve, accrual or other material accounting policies.
(c) The books of account, minute books, stock record books and
other records of PLL, all of which have been made available to LTC, are complete
and correct in all material respects and have been maintained in accordance with
sound business practices and under an adequate system of internal controls. The
minute books of PLL contain accurate and complete records of all meetings held
of, and corporate and stockholder action taken by, the stockholders, Board of
Directors and committees of the Board of Directors of PLL and no meeting of any
such stockholders, Board of Directors or committee of the Board of Directors has
been held for which minutes have not been prepared and are not contained in such
minute books.
6.8 No Undisclosed Liabilities. There are no liabilities or any
facts or circumstances which could give rise to liabilities, whether accrued,
contingent, absolute, determined, determinable or otherwise, of PLL other than
(a) liabilities fully disclosed in PLL's Audited Financials and Interim
Financials in accordance with New Zealand GAAP, (b) liabilities specifically
disclosed in Schedule 6.8, and (c) other undisclosed liabilities incurred since
March 31, 1999 in the Ordinary Course of Business which, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
6.9 Tax Matters. (a)(i) All Returns have, to the extent required
to be filed on or before the date hereof, been filed and, to the extent required
to be filed between the date hereof and the Closing Date, will have been filed
before the Closing, when due in accordance with all applicable Laws and all
Taxes owed by PLL or any of PLL's Subsidiaries (whether or not shown as due and
payable on the Returns that have been filed) have been timely paid or will have
been timely paid prior to the Closing Date, or withheld (including withholding
for independent contractors, consultants and other employees) and remitted to
the appropriate Taxing Authority, or will have been timely withheld and remitted
to the appropriate Taxing Authority prior to the Closing Date;
(ii) The Returns correctly reflect in all material
respects, the facts regarding the income, business, assets, operations,
and activities and status of PLL and any of PLL's Subsidiaries;
(iii) Any reserves established for Taxes with respect to
PLL or any of PLL's Subsidiaries for any Pre-Closing Tax Period
(including any Pre-Closing Tax Period for which no Return has yet bee
filed) reflected on the books of PLL or any of PLL's Subsidiaries are
adequate in accordance with New Zealand GAAP;
(iv) Neither PLL nor any of PLL's Subsidiaries is
delinquent in the payment of any Tax or has requested any extension of
time within which to file any Return except for extensions granted as a
matter of right;
(v) Neither PLL nor any of PLL's Subsidiaries (or any
member of any affiliated, consolidated, combined or unitary group of
which PLL or any of PLL's Subsidiaries is or has been a member) has
granted any extension or waiver of the statute of limitations period
applicable to any Return, which period (after giving effect to such
extension or waiver) has not yet expired;
(vi) There is no action, suit, proceeding, audit or
investigation pending or, to the knowledge of PLL, threatened against
or with respect to PLL or any of PLL's Subsidiaries in respect of any
Tax. Since January 1, 1997, no claim has been made by any Taxing
Authority in any jurisdiction in which PLL or any of its Subsidiaries
does not file a Tax Return that it is or may be subject to taxation by
that jurisdiction and no such claim exists which has not been resolved
by a determination by such Taxing Authority that PLL or any of PLL's
Subsidiaries is not so subject to taxation;
(vii) There are no Liens for Taxes upon the assets of PLL
or any of PLL's Subsidiaries, except Liens for current Taxes not yet
due;
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(b) Schedule 6.9 contains a list of all jurisdictions (whether foreign
or domestic) to which any tax imposed is properly payable by PLL or any of PLL's
Subsidiaries in connection with PLL's conduct or the business of PLL.
6.10 Absence of Certain Changes. Since September 30, 1999, there has
not been any event, occurrence, development, circumstance or state of facts
which (a) has had or which could reasonably be expected to have a Material
Adverse Effect or (b) would have constituted a violation of any covenant of PLL
hereunder (including Section 7.1) had such covenant applied to PLL since
September 30, 1999. Since September 30, 1999, there has not occurred any damage,
destruction or casualty loss (whether or not covered by insurance) with respect
to the business of PLL. PLL has not sold, transferred, disposed of, or incurred
a Lien upon, any Intellectual Property Right or PLL asset since September 30,
1999.
6.11 Contracts. (a) Each material lease, agreement, contract,
commitment or other legally binding contractual right or obligation to which PLL
is a party (whether written or oral) (collectively, the "PLL Contracts") is a
valid and binding agreement of PLL and, to the knowledge of PLL, each other
party thereto, enforceable in accordance with their respective terms, except to
the extent that their enforceability may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles.
Neither PLL nor, to the knowledge of PLL, any other party to any PLL Contract is
in default or breach (with or without due notice or lapse of time or both) in
any material respect under the terms of any such PLL Contract. To the knowledge
of PLL, there is no event occurrence, condition or act which, with the giving of
notice or the passage of time or both, or the happening of any other event or
condition, could reasonably be expected to become a material default or event of
default under any such PLL Contract. PLL has delivered or made available to PLL
true and complete originals or copies of all PLL Contracts.
6.12 Insurance Coverage. PLL has adequate insurance policies and
fidelity bonds covering the assets, business and operations of PLL. There is no
material claim by PLL pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and PLL has complied in all material respects with the
terms and conditions of all such policies and bonds. Such policies of insurance
and bonds (or other policies and bonds providing substantially similar insurance
coverage) are in full force and effect and are of the type and in amounts deemed
by the management of PLL to be sufficient in light of the business of PLL.
6.13 Litigation. There is no action, suit, investigation, arbitration
or administrative or other proceeding pending or, to the knowledge of PLL,
threatened against or affecting PLL or any of PLL's properties before any court
or arbitrator or any Governmental Authority which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay the transactions
contemplated by this Agreement, the Interim Agreements and the Ancillary Closing
Agreements to which PLL will be a party at Closing. PLL does not know of any
valid basis for any such action, proceeding or investigation.
6.14 Compliance with Laws; Permits. (a) PLL is not in violation of, has
not been given notice of or been charged by any Governmental Authority with, or,
to PLL's knowledge, under investigation with respect to, any applicable Law or
Order that could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
(b) Schedule 6.14(b) sets forth a list of each government or
regulatory license, authorization, permit, franchise, consent and approval (the
"Permits") issued and held by or on behalf of PLL or required to be so issued
and held to carry on the PLL's business as currently conducted. Except as
disclosed in Schedule 6.14(b), each Permit is valid and in full force and effect
and will not be terminated or impaired (or become terminated or impaired) as a
result of the transactions contemplated hereby. PLL is not in default under, and
no condition
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exists that with notice or lapse of time or both could constitute a default or
could give rise to a right of termination, cancellation or acceleration under,
any material Permit held by PLL.
6.15 Properties; Sufficiency of Assets. (a) Except for inventory
disposed of in the Ordinary Course of Business of PLL, PLL has good title to or
in the case of leased property has valid leasehold interests in the property and
assets (whether real or personal, tangible or intangible) reflected in the PLL
Audited Financials or acquired after the date thereof, free and clear of all
Liens, except for Permitted Liens and Liens disclosed in Schedule 6.15(a).
(b) Schedule 6.15(b) sets forth a list of all Real Property owned
or leased by PLL. All such leases of PLL Real Property are valid and binding
agreements of PLL and, to the knowledge of PLL, each other party thereto,
enforceable in accordance with their respective terms, except to the extent that
their enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles. PLL is a tenant
or possessor in good standing thereunder and all rents due under such leases
have been paid. Neither PLL nor, to the knowledge of PLL, any other party to any
such lease is in default or breach (with or without due notice or lapse of time
or both) in any material respect under the terms of any such lease. To the
knowledge of PLL, there is no event, occurrence, condition or act which, with
the giving of notice or the passage of time or both, or the happening of any
other event or condition, could reasonably be expected to become a material
default or event of default under any such lease. PLL is in peaceful and
undisturbed possession of the space and/or estate under each lease of which it
is a tenant and has good and valid rights of ingress and egress to and from all
the Real Property from and to the public street systems for all usual street,
road and utility purposes. PLL has not received any notice of any appropriation,
condemnation or like proceeding, or of any violation of any applicable zoning
Law or Order relating to or affecting the Real Property, and to PLL's knowledge,
no such proceeding has been threatened or commenced.
(c) The assets of PLL are adequate to conduct the business of PLL
as currently conducted.
6.16 Intellectual Property. (a) Schedule 6.16(a) sets forth a list of
all Intellectual Property Rights which are owned by PLL or any of PLL's
Subsidiaries or to which PLL or any of PLL's Subsidiaries is a licensor or
licensee, and all material licenses, sublicenses and other written agreements as
to which PLL or any of its Affiliates is a party and pursuant to which any
Person is authorized to use such Intellectual Property Right, including the
identity of all parties thereto.
(a) (i) All of the Intellectual Property Rights necessary for
or used in the conduct of the Business are set forth in Schedule 6.16(a).
(ii) The conduct of the Business by PLL as currently
conducted does not infringe upon any Intellectual Property Right of any
third party. There is no claim, suit, action or proceeding that is
either pending or, to the knowledge of PLL, threatened, that, in either
case, involves a claim of infringement by PLL of any Intellectual
Property Right of any third party, or challenging PLL's ownership,
right to use, or the validity of any Intellectual Property Right listed
or required to be listed in Schedule 6.16(a). PLL has no knowledge of
any basis for any such claim of infringement and no knowledge of any
continuing infringement by any other Person of any of the Intellectual
Property Rights listed or required to be listed in Schedule 6.16(a);
(iii) No Intellectual Property Right listed or required to
be listed in Schedule 6.16(a) is subject to any outstanding order,
judgment, decree, stipulation or agreement restricting the use thereof
by PLL or restricting the licensing thereof by PLL to any Person;
(iv) PLL has not entered into any agreement to indemnify
any other Person against any charge of infringement of any Intellectual
Property Right;
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(v) PLL has duly maintained all registrations for any
Intellectual Property Rights listed or required to be listed in
Schedule 6.16(a); and
(vi) PLL has obtained all assignments of any rights, title
and interest in the Intellectual Property Rights held by any Person
other than PLL.
6.17 Environmental Matters. (a) (i) Constituents of Concern have
not been generated, recycled, used, neared or stored on, transported to or from,
or Released or disposed on, PLL Property or, to the knowledge of PLL, any
property adjoining or adjacent to any PLL Property, except in compliance with
Environmental Laws;
(ii) PLL has not disposed of Constituents of Concern from
PLL Property at any off-site facility except in compliance with
Environmental Laws;
(iii) PLL is in compliance in all material respects with
Environmental Laws and the requirements of Permits issued under such
Environmental Laws with respect to the PLL Property;
(iv) There are no pending or, to the knowledge of PLL,
threatened Environmental Claims against PLL or any PLL Property;
(v) PLL has no knowledge of any facts, circumstances,
conditions or occurrences regarding PLL's past or present business or
operations or with respect to any PLL Property or any property
adjoining any PLL Property that could reasonably be expected (i) to
form the basis of an Environmental Claim against PLL or any of the PLL
Property or assets or (ii) to cause any PLL Property or assets to be
subject to any restrictions on its ownership, occupancy, use or
transferability under any Environmental Law;
(vi) To the knowledge of PLL, there are no underground
storage tanks or sumps located on any PLL Property or on any property
that adjoins or is adjacent to any PLL Property;
(vii) PLL has obtained all required Environmental Permits
and is in compliance with the terms of each Environmental Permit in all
material respects; and
(viii) PLL has no liability under any Environmental Law
(including an obligation to remediate any Environmental Condition
whether caused by PLL or any other Person).
(b) PLL has delivered or made available to PLL true and complete
copies of all environmental investigations, studies, audits, tests, reviews or
other analyses commenced or conducted by or on behalf of PLL (or by a third
party of which PLL has knowledge) in relation to the current or prior business
of PLL or any PLL Property,
(c) For purposes of this Section 6.17, the term "PLL" (including
the use of such term in the term "PLL Property") will include any entity which
is, in whole or in part, a predecessor of PLL.
6.18 Plans and Material Documents. Schedule 6.18 sets forth a list
of all PLL Benefit Plans. Each PLL Benefit Plan is in compliance in all material
respects with, and has always been operated in all material respects in
accordance with, its terms and the requirements of all applicable Laws, and PLL
has satisfied in all material respects all of its statutory, regulatory and
contractual obligations with respect to each such Benefit Plan. No legal action,
suit or claim is pending or, to the knowledge of PLL, threatened with respect to
any Benefit Plan (other than claims for benefits in the ordinary course) and no
fact or event exists that could reasonably be expected to give rise to any such
action, suit or claim.
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6.19 Affiliate Transactions. (a) There are no outstanding payables,
receivables, loans, advances and other similar accounts between PLL, on the one
hand, and any of its Affiliates, on the other hand, relating to the business of
PLL.
(b) To the knowledge of PLL, no director, officer or employee of LTC
possesses, directly or indirectly, any ownership interest in, or is a director,
officer or employee of, any Person which is a supplier, customer, lessor,
lessee, licensor, developer, competitor or potential competitor of PLL.
Ownership of 5% or less of any class of securities of a Person will not be
deemed to be an ownership interest for purposes of this Section 6.19.
6.20 Employee Matters. (a) The relationships of PLL with the employees
of PLL are good working relationships and PLL has no reason to believe that
there will be any such change as a result of the transactions contemplated by
this Agreement.
(b) PLL is not a party to any labor or collective bargaining
agreement.
(c) There are no (i) strikes, work stoppages, slow-downs, lockouts or
arbitrations or (ii) grievances or other labor disputes pending or, to the
knowledge of PLL, threatened against or involving PLL.
(d) PLL is in material compliance with all Laws and Orders in respect
of employment and employment practices and the terms and conditions of
employment and wages and hours, and has not and is not, engaged in any unfair
labor practice.
6.21 Finders' Fees. Except for US Capital Consultants Pty Ltd. (whose
fees and expenses will be paid by PLL), there is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of PLL who might be entitled to any fee or other commission in
connection with the transactions contemplated by this Agreement or any of the
Ancillary Closing Agreements.
6.22 Millennium Compliance. Schedule 6.22 sets forth the measures that
have been implemented to determine the extent to which the computer systems used
by PPL in its business (the "Computer Systems") are not in Millennium
Compliance, a complete description of the Computer Systems that are not or may
not be in Millennium Compliance and the material details of any program to be
undertaken with a view towards causing any Computer Systems that are not
Millennium Complaint to achieve Millennium Compliance.
6.23 New Zealand Filings. All information filed with the District
Registrar of Companies in Auckland, New Zealand by PLL pursuant to the Companies
Act 1993 or the Securities Act 1978 of New Zealand during 1998 and 1999 has been
filed in compliance with the requirements thereof and was accurate in all
material respects as of the dates at which the information was so furnished.
6.24 Registration Statement, Other Documents. None of the information
supplied or to be supplied by PLL for inclusion, or included, in the
Registration Statement; (ii) the Proxy Statements; and (iii) any other documents
to be filed with the SEC or any regulatory agency in connection with the
transactions contemplated hereby shall, at the respective times such documents
are filed and, in the case of the Registration Statement, when it becomes
effective and, with respect to the Proxy Statements, when mailed, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein not misleading or, in the case
of the Proxy Statements or any amendment thereof or supplement thereto, at the
time of the Shareholders' Meetings, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Shareholders Meetings. All documents which PLL is responsible for
filing with the SEC and any regulatory agency in connection with the Merger
shall comply as to form and substance in all material respects with the
provisions of applicable law.
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6.25 Available Funds. On the date hereof PLL has sufficient funds to
satisfy the obligations of PLL under the Bridge Loan Financing Agreements.
ARTICLE VII
CERTAIN COVENANTS
7.1 Conduct of Business of LTC. During the period from the date of this
Agreement to the Closing Date, LTC will conduct its operations only in the
Ordinary Course of Business (including managing its working capital in
accordance with its past practice and custom) and in accordance with the
management provisions set forth in Section 7.17 hereto use its best efforts to:
(i) preserve intact its business organizations, (ii) keep available the services
of its officers and employees, and (iii) maintain its relationships and goodwill
with licensors, suppliers, distributors, customers, landlords, employees, agents
and others having business relationships with LTC or the Business. LTC will
confer with PLL concerning operational matters of a material nature and report
periodically to PLL concerning the Business, operations and finances of LTC.
Without limiting the generality or effect of the foregoing, prior to the Closing
Date, except with the prior written consent of PLL, LTC will not:
(a) Amend or modify its certificate of incorporation or bylaws or
other similar constituent documents from its form on the date of this Agreement
except to increase the number of authorized shares of common stock up to 200
million shares;
(b) Change any salaries or other compensation of, or pay any
bonuses to, any current or former director, officer, employee or stockholder of
LTC, or enter into any employment, severance or similar agreement with any
current or former director, officer, stockholder or employee of LTC;
(c) Adopt or increase any benefits under any profit sharing,
bonus, deferred compensation, savings, insurance, pension, retirement or other
Benefit Plan for or with any of its employees;
(d) Incur or commit to make any capital expenditures in excess of
the remaining balance of the planned capital expenditures under the LTC's
current capital expenditure budget to the extent approved by PLL;
(e) Enter into any contract or commitment, except for contracts
and commitments entered into by LTC in the Ordinary Course of Business;
(f) Modify or amend in any material respect or terminate any
Contract listed or required to be listed in Schedule 5.11(a);
(g) Incur, assume or guarantee any Indebtedness;
(h) Enter into any transaction or commitment relating to the
assets or the Business of LTC which, individually or in the aggregate, could be
material to LTC, or cancel or waive any claim or right which, individually or in
the aggregate, could be material to LTC;
(i) Make any change in accounting methods or practices (including
changes in reserve or accrual amounts or policies);
(j) Issue or sell any Capital Stock, or make any other changes in
its capital structure, other than the grant in the Ordinary Course of Business
of stock options or other rights to purchase shares of Capital Stock of LTC
pursuant to any existing Benefit Plan of LTC or the repricing of existing
warrants or options to induce their exercise by the holders thereof in a manner
satisfactory to PLL, or with the prior written approval of PLL, in connection
with the settlement of existing indebtedness of LTC;
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(k) Sell, lease or otherwise dispose of any material asset or
property of LTC;
(l) Write-off as uncollectible any notes or Accounts Receivable,
except write-offs in the Ordinary Course of Business charged to applicable
reserves, none of which individually or in the aggregate is material; write-off,
write-up or write-down any other material asset of LTC; or alter LTC's customary
time periods for collection of Accounts Receivable or payments of accounts
payable;
(m) Create or assume any Lien, other than a Permitted Lien;
(n) Make any loan, advance or capital contributions to or
investment in any Person;
(o) Terminate or close any material facility, business or
operation of LTC;
(p) Cause or permit to occur any event, occurrence, development or
state of circumstances or facts which, individually or together with other
matters, has had or could reasonably be expected to have a Material Adverse
Effect;
(q) Take any action that would cause any of the representations
and warranties made by LTC in this Agreement not to remain true and correct or
any of the conditions set forth in any subsection of Section 8.1 from being
satisfied;
(r) Enter into any discussions or negotiations with any Person
regarding the sale, transfer, disposition or licensing of any Intellectual
Property Rights;
(s) Settle, release or forgive any claim or litigation or waive
any right thereto that relates to LTC or the Business; or
(t) Agree to do any of the foregoing.
7.2 Exclusive Dealing. During the period from the date of this
Agreement to the earlier of the Closing Date and the termination of this
Agreement in accordance with its terms, subject to the fiduciary duties of their
respective officers and directors, each of LTC and PLL will not, and will not
authorize or permit any of their stockholders or any of their respective
Affiliates, or any of their officers or directors or any of their respective
Affiliates, or any representative of any of the foregoing (including financial
advisors, investment bankers, agents, attorneys, employees or consultants) to,
take any action to, directly or indirectly, encourage, initiate, solicit or
engage in discussions or negotiations with, or provide any information to any
Person, or enter into any agreement with any Person, other than LTC or PLL (as
the case may be) and its Affiliates and representatives, concerning any purchase
of any Capital Stock, the Business or Intellectual Property Rights of LTC or any
merger, asset sale or similar transaction involving LTC or any transaction
involving a competing thin film technology or any transaction that would
frustrate the purposes of this Agreement, without the prior written consent of
the other party. Each party will disclose to the other party the existence or
occurrence of any proposal or contact which it or any of its Affiliates or
representatives described above may receive in respect of any such transaction
and the identity of the Person from whom such a proposal or contact is received.
7.3 Review of LTC; Confidentiality. (a) PLL may, prior to the Closing
Date, directly or through its representatives, review the properties, books and
records of LTC and its financial and legal condition to the extent it deems
necessary or advisable to familiarize itself with such properties and other
matters. LTC will permit PLL and its representatives to have, after the date of
execution of this Agreement, reasonable access to the premises and to all the
books and records of LTC and to cause the officers, accountants and other
representatives of LTC to furnish PLL with such financial and operating data and
other information with respect to the Business and properties of LTC as PLL may
from time to time reasonably request. LTC will deliver or
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cause to be delivered to PLL such additional instruments, documents,
certificates and opinions as PLL may reasonably request for the purpose of (i)
verifying the information set forth in this Agreement or on any Schedule
attached hereto and (ii) consummating or evidencing the transactions
contemplated by this Agreement.
(b) LTC may, prior to the Closing Date, directly or through its
representatives, review the properties, books and records of PLL and its
financial and legal condition to the extent necessary to prepare the
Registration Statement and Proxy Statement. PLL will cause the officers
accountants and other representatives to furnish LTC with such financial and
operating data and other information with respect to the business and properties
of PLL as may be necessary to prepare the Registration Statement and Proxy
Statement.
(c) Prior to the Closing, neither LTC nor PLL will, or will permit
any of its Affiliates to, without the prior written consent of the other,
disclose to any other Person (other than such Person's financing sources,
existing stockholders and such Person's directors, officers, employees, advisors
and other representatives that need to know) any proprietary, non-public
information of another party previously delivered or made available to such
other party in connection with the transactions contemplated hereby (including
the existence of and terms of this Agreement, the Interim Agreements and the
Ancillary Closing Agreements), other than to the extent required by applicable
Law and upon the advice of counsel. Each of LTC and PLL will direct its
financing sources, stockholders, directors, officers, employees and
representatives to keep all such information in strict confidence; provided,
however, that each such Person may disclose such information to the extent
required by Law and upon the advice of counsel.
7.4 Reasonable Best Efforts. (a) Subject to the fiduciary duties of
their respective officers and directors, LTC and PLL will cooperate and use
their respective reasonable best efforts to take, or cause to be taken, all
appropriate actions, and to make, or cause to be made, all filings necessary,
proper or advisable under applicable Laws to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
their respective reasonable best efforts to obtain, prior to the Closing Date,
all licenses, Permits, consents, approvals, authorizations, qualifications and
orders of Governmental Authorities and parties to Contracts with LTC as are
necessary to consummate the transactions contemplated by the Agreement and to
fulfill the conditions to the sale contemplated hereby. The parties will pay or
cause to be paid all of their own fees and expenses contemplated by this
Section, including but not limited to the fees and expenses of any broker,
finder, financial advisor, legal advisor or similar person engaged by such
party. Notwithstanding any other provision hereof, in no event will PLL or any
of its Affiliates be required to (a) enter into or offer to enter into any
divestiture hold-separate, business limitation or similar agreement or
undertaking in connection with this Agreement or the transactions contemplated
hereby, (b) institute or defend any litigation or other legal proceeding,
whether judicial or administrative, including, without limitation, seeking to
have any stay or temporary restraining order vacated or reversed, or (c) incur
any liability or make any payment in connection with any consent or approval or
condition to Closing set forth in any subsection of Section 8.1 in order to
consummate the transactions contemplated by this Agreement. Each of the parties
will notify and keep the other advised in reasonable detail as to such party's
efforts in complying with its obligations under this Section 7.4.
(b) LTC will, within 10 days after the end of the applicable
calendar month, deliver to PLL the Monthly Financial Statements prepared in
accordance with U.S. GAAP consistently applied and which fairly present in all
material respects the financial position of LTC at the date thereof and the
results of operations and cash flows for the month then ended.
(c) Prior to the Closing Date, LTC agrees to obtain a consent to
the transactions contemplated herein from the Ben Franklin Technology Center of
Southeastern Pennsylvania ("Ben Franklin") pursuant to that certain Applied
Research and Development Fund Funding Agreement, dated as of February 1, 1998,
between Ben Franklin and LTC. In addition, prior to the Closing Date LTC agrees
to obtain a subordination of Ben Franklin's security interest in the assets of
LTC to PLL's security interest in such assets.
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7.5 Transfer of Employees and Benefit Plans. As of the Closing
Date:
(a) PLL will offer to each full-time employee of LTC who is not on
leave of absence (whether on disability or otherwise) immediately prior to the
Closing Date (the "Transferred Employees") employment with PLL or an Affiliate
of PLL with each such offer to include a substantially equivalent title, level
of responsibility and compensation and benefits as each such employee had as an
employee of LTC on the date hereof. Any such employment will be subject to the
terms and conditions of PLL's standard Employment Agreement;
(b) Upon the Closing, PLL will offer employment to David Cade and
George Ferment in accordance with the terms and conditions of the Employment
Agreements; and
(d) PLL will grant a minimum of three hundred thousand (300,000)
options (the "Options") to the Transferred Employees for the purchase of PLL
Stock at an exercise price of $2.25 per share. The Options will be distributed
to the Transferred Employees on the Closing Date in the amounts set forth in
Schedule 7.5(c). The Options shall vest on the Closing Date. The Options will be
issued by PLL (Delaware) in the form of the Employee Share Option Deed attached
hereto as Exhibit D and shall be registered on a Form S-8 (or equivalent form).
Nothing contained in this Agreement will confer upon any Transferred Employee
any rights or remedies, including, without limitation, any right to employment,
of any nature or kind whatsoever, from any specified period or at any level of
compensation or benefits under or by reason of this Agreement. Notwithstanding
anything to the contrary contained in this Agreement, neither PLL nor any
Affiliate of PLL will be required to continue any particular Benefit Plan after
the Closing Date for the Transferred Employees, and any such Benefit Plan may be
amended or terminated in accordance with its terms and any applicable Law.
Transferred Employees will be eligible to participate in any benefit program
maintained by PLL for similarly-situated employees of PLL and will receive full
credit for their service with LTC and PLL for eligibility and vesting purposes
with respect to such benefit program, provided that such crediting of service
does not result in duplication of benefits and provided further, that such
crediting of service will not be given for benefit accrual. Transferred
Employees will also be given credit for any deductible or co-payment amounts
paid in respect of the plan year in which they became eligible to participate in
any plan of PLL for which deductibles or co-payments are required. PLL will also
cause each plan of PLL to waive (i) any preexisting condition restriction which
was waived under the terms of any analogous plan of LTC immediately prior to the
Closing or (ii) any waiting period limitation which would otherwise be
applicable to any Transferred Employee on or after the Closing to the extent
such Transferred Employee had satisfied any similar waiting period limitation
under an analogous plan of LTC prior to the Closing. LTC and PLL will coordinate
all communications with the employees of LTC regarding the transactions
contemplated by this Agreement.
7.6 Proxy and Registration Statements. In connection with the
transactions contemplated by this Agreement:
(a) Promptly after the date hereof, LTC shall prepare and file
with the Securities and Exchange Commission a proxy statement to be mailed to
LTC's shareholders in connection with the meeting to be called to consider the
Merger and shall provide PLL with such copies thereof as it may request.
Contemporaneously with the IPO process described in Section 7.16, PLL shall file
with the Securities and Exchange Commission the Registration Statement to
register under the Securities Act the Merger Securities to be issued to the
holders of the LTC Common and shall provide LTC with the necessary copies of the
prospectus included as a part of the Registration Statement (the "Prospectus")
for the shareholders of LTC at the earliest practicable date after the effective
date of the Registration Statement and prior to the Closing. PLL shall file all
such amendments to the Registration Statement as shall be necessary to keep it
current and effective until the Merger Securities have been distributed.
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(b) In connection with the preparation of the Registration
Statement and the Proxy Statement (i) LTC shall also provide to PLL in writing
all information relating to LTC or its Subsidiaries and the management,
operations and finances of any of them which may be advisable or necessary to
include in the Registration Statement or any amendment thereto as may be
necessary to keep it current and effective until the distribution of the Merger
Securities, none of which information, with respect to the subject matter
thereof shall contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (ii) PLL shall provide LTC in writing with all information
relating to PLL or its Subsidiaries and the management, operations and finances
of any of them which may be advisable or necessary to include in the
Registration Statement or any amendment thereto as may be necessary to keep it
current and effective until the distribution of the Merger Securities, none of
which information, with respect to the subject matter thereof shall contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
(c) Contemporaneously with the IPO process described in Section
7.16, PLL and LTC shall file all applicable state securities or "blue sky"
applications and use its reasonable efforts to qualify the Merger Securities
issuable pursuant to this Agreement under such applicable state securities or
"blue sky" laws prior to the Closing Date.
(d) Information which is obtained by either party pursuant to this
Section 7.6 will be kept confidential by such party; provided, however that in
the event the party or any of its representatives is requested or required
pursuant to applicable Law by any Governmental Authority to disclose any such
information, the party may do so after providing the other party with notice of
the request or requirement so that the other party may attempt, at its own
expense, to obtain a protective order. Each party will use reasonable efforts to
limit access to such information on a "need to know" basis. Neither party may
use information obtained from the other party pursuant to this subsection to
compete with the other party.
7.7 LTC SEC Filings; Disclosure of Material Information. LTC will file
with the Securities and Exchange Commission its Annual Report on Form 10-K SB
for the fiscal year ended December 31, 1999, in a timely manner and in
compliance with the requirements of such form. LTC agrees to disclose to PLL all
material information and any new developments arising after the date hereof
regarding the Business. PLL agrees to disclose to LTC all material information
and any new developments arising after the date hereof regarding the business of
PLL.
7.8 Transfer Taxes. LTC will pay all transfer, documentary, sales, use,
stamp, registration and value added Taxes incurred in connection with this
Agreement.
7.9 Further Assurances. From time to time, as and when requested by
either party hereto, the other party will execute and deliver, or cause to be
executed and delivered, all such documents and instruments and will take, or
cause to be taken, all such further actions, as the requesting party may
reasonably deem necessary or desirable to consummate the transactions
contemplated by this Agreement.
7.10 Insurance. LTC will continue to carry and maintain in full force
and effect the insurance policies listed on Schedule 5.12, or policies with
comparable coverage, to the Closing Date. LTC will cause PLL to be included as
an additional insured on all such policies designated on Schedule 5.12 as
"Occurrence Form" from and after the Closing Date with respect to claims
occurring on or prior to the Closing Date and, with respect to policies
designated on Schedule 5.12 as "Claims Made", cause PLL to be included as an
additional insured with respect to claims made and reported to LTC on or prior
to the Closing Date. PLL acknowledges and agrees that effective on the Closing
Date, all insurance policies and coverages provided or made available by LTC to
or for the benefit of the Business will terminate and PLL will, at PLL's sole
cost and expense, be responsible for
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making any and all necessary or appropriate arrangements for the provision of
insurance coverage and similar matters for or relating to the Business.
7.11 Transfer of Intellectual Property Rights. Prior to the Closing
Date, if PLL deems it necessary, LTC agrees to take all actions necessary to
Transfer all of its Intellectual Property Rights to an entity organized under
the laws of the Netherlands Antilles or a similar jurisdiction, for tax
purposes.
7.12 Board of Directors. Effective at the Closing, PLL will allow LTC
to appoint one member to the Board of Directors of PLL and to use its reasonable
best efforts to cause such appointee to be elected to the Board of Directors.
7.13 Repricing of Options and Warranties; Purchase of Additional Stock.
(a) Prior to the Closing Date, LTC shall use its best efforts to cause all
outstanding warrants and options issued by LTC to be exercised by the holders
thereof, including to re-price and accelerate the vesting of such outstanding
warrants and options as an inducement to their exercise by the holders thereof.
The repricing of the warrants and options will be conditioned upon the holders
of such warrants and options consenting to the termination of the warrant and
option owned by such holder as of a date not later than immediately prior to the
Effective Time of the Merger. LTC will terminate all LTC Stock Plans and
outstanding and unexercised stock options as of a date not later than
immediately prior to the Effective Time. Any LTC warrants outstanding at the
Effective Time that are not terminated other than warrants held by PLL will be
converted and adjusted at the Effective Time into warrants to purchase shares of
PLL (or its successor) in accordance with their terms.
(b) In the event that any holder of warrants or options issued by
LTC exercises such warrants or options prior to the Closing Date, LTC agrees to
use the proceeds from the exercise of the warrants and options (the "Exercise
Funds") as follows: (1) the first three hundred fifty thousand dollars
($350,000) shall be used by LTC to finance the operations of LTC in lieu of
obtaining financing under the Bridge Loan Financing Agreements and (2) the
second two hundred thousand dollars ($200,000) shall be used by LTC to pay a
portion of the accrued salary due and owing to Mr. Thomsen.
Any Exercise Funds in excess of the foregoing five hundred fifty
thousand dollars ($550,000) (the "Excess Exercise Funds") shall be used by LTC
to pay LTC's Continuing Costs directly by LTC. To the extent LTC pays its
Continuing Costs through the Excess Exercise Funds rather than through Bridge
Loan Financing funds the Merger Securities to be distributed to the LTC
stockholders in the Merger shall be increased on the following basis: one share
of PLL Common Stock shall be added to the 3,500,000 Merger Securities set forth
in Section 3.3 of the Merger Agreement for every $2.25 of Excess Exercise Funds
received by LTC (the "Additional Merger Securities"). The Additional Merger
Securities shall be distributed to the LTC stockholders on the same basis as the
Merger Securities set forth in Section 3.3 of the Merger Agreement. (By way of
example, if LTC receives $1,450,000 in Exercise Funds, (1) LTC shall first use
$350,000 to finance the operations of LTC in lieu of using Bridge Loan Financing
funds, (2) LTC shall use $200,000 to pay accrued salary due and owing Thomas
Thomsen, (3) LTC shall use the remaining $900,000 to pay LTC's Continuing Costs
and (4) the LTC stockholders shall receive in the Merger 400,000 additional
Merger Securities.)
7.14 Bridge Financing; Additional Security. PLL shall advance an amount
up to $1,100,000, subject to adjustment pursuant to Section 7.13, and the
additional amounts necessary during the term of this Agreement to fund LTC's
expenses pursuant to Section 2(d) of the Bridge Financing Agreement. Promptly
after a vote of the LTC stockholders approving the Merger, the parties will
enter into the Security Agreement and Assignment of Lease (and, upon the request
of PLL, LTC shall use its best efforts (subject to market, economic and business
conditions) to obtain the express written consent thereto of the lessor
thereunder) to provide additional security to PLL under the Bridge Loan
Financing Agreements.
7.15 Line of Business; Non-Compete. Until the earlier of (i) an IPO or
(ii) two years from the date hereof, each of PLL and LTC agrees that it shall
not engage in any business other than its business as currently
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conducted and as contemplated on the date hereof in accordance with PLL's
business plans, except to the extent as would not be material to PLL and its
Subsidiaries, taken as a whole. In addition, LTC agrees not to compete directly
or indirectly with PLL.
7.16 IPO; Reincorporation. As soon as practicable after a vote of LTC
stockholders approving the Merger, PLL will use all reasonable efforts (subject
to market, economic and business conditions) to consummate an IPO and prior to
Closing, PLL will change its name to "Ilion Technology Corporation" and its
jurisdiction of incorporation to Delaware by means of a domestication in
Delaware pursuant to Section 388 of the Delaware General Corporation Law or
otherwise. Contemporaneously with the consummation of the Merger and the IPO,
PLL shall distribute the Merger Securities to the shareholders of LTC pursuant
to an effective Registration Statement. The LTC shareholders may elect to
include the Merger Securities owned by such shareholders in the IPO and PLL
shall use its best efforts to include such Merger Securities in the IPO. If the
managing underwriter of the IPO advises PLL in writing that in their opinion,
the number of Merger Securities together with the other PLL shares proposed to
be offered, exceeds the number of securities which can be sold in such offering
without having a material adverse effect on the price of such securities (the
"Maximum Primary Number"), PLL shall include in such registration, up to the
Maximum Primary Number, (i) first, the securities that PLL proposes to sell and
(ii) second the Merger Securities and other PLL shares requested to be included
in such registration pro rata among the holders thereof on the basis of the
number of shares of PLL in good faith requested to be registered by such
holders.
7.17 Consulting Services. Upon the approval of this Agreement by the
shareholders of LTC (the "Approval Date") the following provisions shall become
effective from the Approval Date until the Effective Time of the Merger or the
termination of this Agreement pursuant to Section 9.1 (the "Bridge Period"):
(a) PLL shall retain LTC as a consultant during the Bridge Period
and LTC shall provide management and technical services to PLL. Management
services shall include, without limitation: general management services
including executive functions, supervisory support, capital raising support,
corporate strategy development, strategic alliance development and negotiations,
financial planning services; strategic planning services; sales, marketing and
business development services. Technical services shall include, without
limitation, research and development services, engineering, and other technical
assistance and advice related to the development and manufacturing of lithium
polymer rechargeable cells (the "Services"). PLL shall request such Services in
writing and specify:
(i) Nature of work to be performed;
(ii) Date on which assignment is to begin;
(iii) Length of assignment; and
(iv) Individual who will coordinate for PLL.
(b) Each work assignment shall be governed by the terms and
conditions of this Agreement, the terms and conditions of the work assignment,
and by such supplementary written amendments of this Agreement or the work
assignment as may be from time to time executed between the parties.
(c) In the event of a conflict between the terms and conditions of
this Agreement and the terms and conditions of any work assignment, the terms
and conditions of the work assignment shall govern.
(d) The Services shall be performed both at the LTC facilities and
the facilities of PLL as designated by PLL.
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(e) LTC's staff are not nor shall they be deemed to be at any time
during the term of this Agreement to be employees of PLL.
(f) PLL shall have the right to interview any prospective new hire
of LTC and may in its sole discretion reject any such person upon written notice
to LTC
(g) PLL shall be responsible for the technical direction of the
Services performed by LTC's staff. LTC shall be responsible for supervision and
general control of its staff and shall provide only personnel who are and remain
acceptable to PLL to carry out this responsibility.
(h) LTC shall instruct its employees to use the same care and
discretion with respect to PLL's confidential information that they use with
respect to LTC's confidential information.
(i) The work product and New Technology resulting from LTC's
services to PLL hereunder is hereby deemed assigned and shall belong exclusively
to PLL. PLL shall have the exclusive right to obtain copyrights, registrations
and such other proprietary protections on the New Technology as it wishes. LTC
will provide PLL with all assistance reasonably required to protect said rights,
at PLL's expense. "New Technology" means all inventions, patents, know-how,
trade secrets, information, data, manufacturing processes, designs, ideas, and
the like and any new or improved process, method or design change to LTC
technology existing prior to the date of this Agreement and developed by LTC or
PLL on or after the date of this Agreement.
(j) The parties agree to promptly disclose to each other all New
Technology.
(k) Services will include provision by LTC of, and PLL's right to
use, premises at Plymouth Meeting, with the right for PLL to erect additional
signs subject to landlord consent and existing signage.
(l) LTC shall not, directly or indirectly, engage in any conduct
competitive to PLL during the term of the consultancy.
(m) All business opportunities introduced to LTC by PLL (including
opportunities introduced prior to the Approval Date in anticipation of this
consultancy agreement) shall be owned solely by PLL.
(n) If this Agreement shall be terminated other than pursuant to
Section 9.1(a)(iii), PLL shall have the right and option to purchase LTC's pilot
plant and equipment at book value as of the date of this Agreement, by giving
notice of exercise of this option to LTC within 60 days after such termination.
The parties shall use all reasonable efforts to cause the closing of such
purchase to occur as soon as practicable after such notice shall have been
given.
ARTICLE VIII
CONDITIONS TO CLOSING
8.1 Conditions to Obligations of PLL. The obligations of PLL to
consummate the Closing are subject to the satisfaction (or waiver by PLL) of the
following conditions:
8.1.1 Representations, Warranties and Covenants of LTC (a) The
representations and warranties of LTC made in this Agreement shall be true and
correct in all respects (or, if any such representation is not expressly
qualified by "materiality," "Material Adverse Effect" or words of similar
import, then in all material respects) as of the date hereof and as of the
Closing Date, as though made as of the Closing and (b) LTC shall have performed
and complied in all material respects with all terms, agreements and covenants
contained in this Agreement required to be performed or complied with by LTC on
or before the Closing Date.
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8.1.2 No Injunction, etc. No provision of any applicable Law and no
judgment, injunction, order or decree of any Governmental Authority shall be in
effect which shall prohibit the consummation of the Closing.
8.1.3 No Proceedings. No action, suit or proceeding challenging this
Agreement, the Interim Agreements, the Ancillary Closing Agreements or the
transactions contemplated hereby or thereby or seeking to prohibit, alter,
prevent or materially delay the Closing or seeking material damages shall have
been instituted or threatened by any Person.
8.1.4 Ancillary Closing Agreements. Each of the Ancillary Closing
Agreements shall have been executed and delivered by LTC where LTC is a party
thereto.
8.1.5 Third-Party Consents; Governmental Approvals. The Registration
Statement shall have been declared effective by the SEC, the information
contained therein shall be true and correct in all material respects as of the
Closing Date, no stop order shall have been issued or proceedings instituted or
threatened to suspend the effectiveness of the Registration Statement and all
consents, approvals, waivers, subordinations and Permits, if any, disclosed or
required to be disclosed on any Schedule attached hereto or otherwise required
in connection with the consummation of the transactions contemplated by this
Agreement shall have been received including, but not limited to, any consents
from Ben Franklin or relating to the Mitsubishi Materials and the approval by
LTC's and PLL's shareholders of the transactions contemplated by this Agreement
and the Ancillary Closing Agreements.
8.1.6 No Material Adverse Change. Prior to the Closing Date, no event
shall have occurred which, individually or when considered together with all
other matters, has had, or could reasonably be expected to have, a Material
Adverse Effect on LTC, and PLL shall not have discovered any fact or
circumstance (previously unknown to PLL) which, individually or when considered
together with all other matters, has, or could reasonably be expected to have, a
Material Adverse Effect on LTC
8.1.7 Transfer of Intellectual Property Rights. If PLL deems it
necessary, LTC shall have Transferred all of its Intellectual Property Rights to
an entity organized under the laws of the Netherland Antilles or a similar
jurisdiction, for tax purposes.
8.1.8 SEC Filings. LTC's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1999, containing audited financial statements shall have
been filed with the SEC.
8.1.9 Due Diligence. PLL shall have completed to its satisfaction its
due diligence review of LTC and its subsidiaries in connection with the
transactions contemplated by this Agreement, the Interim Agreements and the
Ancillary Closing Agreements.
8.1.10 IPO Closing. The IPO shall have closed contemporaneously with
the Closing of the Merger.
8.1.11 Termination of Options and Employment Agreements. All option
plans, option agreements and employment agreements between LTC or its
subsidiaries and its employees, directors or any other Person (whether oral or
written) shall have been terminated prior to the Closing Date with no further
obligation or liability to LTC or PLL.
8.2 Conditions to Obligations of LTC The obligations of LTC to
consummate the Closing are subject to the satisfaction (or waiver by LTC) of the
following conditions:
8.2.1 Representations, Warranties and Covenants of PLL. The
representations and warranties of PLL made in this Agreement shall be true and
correct in all respects (or, if any such representation is not expressly
qualified by "materiality," "Material Adverse Effect" or words of similar
import, then in all material respects) as of the date hereof and as of Closing,
as though made as of the Closing and (b) PLL shall have performed and
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complied in all material respects with all terms, agreements and covenants
contained in this Agreement required to be performed or complied with by PLL on
or before the Closing Date.
8.2.2 No Injunction, etc. No provision of any applicable Law and no
judgment, injunction, order or decree of any Governmental Authority shall be in
effect which shall prohibit the consummation of the Closing.
8.2.3 No Proceedings. No action, suit or proceeding challenging this
Agreement, the Interim Agreements, the Ancillary Closing Agreements or the
transactions contemplated hereby or thereby or seeking to prohibit, alter,
prevent or materially delay the Closing or seeking material damages shall have
been instituted or threatened by any Person.
8.2.4 Ancillary Closing Agreements. Each of the Ancillary Closing
Agreements shall have been executed and delivered by PLL where PLL is a party
thereto.
8.2.5 Third-Party Consents; Governmental Approvals. The Registration
Statement shall have been declared effective by the SEC, the information
contained therein shall be true and correct in all material respects as of the
Closing Date, no stop order shall have been issued or proceedings instituted or
threatened suspending the effectiveness of the Registration Statement and all
consents, approvals, waivers and Permits, if any, disclosed or required to be
disclosed on any Schedule attached hereto or otherwise required in connection
with the consummation of the transactions contemplated by this Agreement shall
have been received including, but not limited to, any consents relating to the
Mitsubishi Materials and the approval by LTC's and PLL's shareholders of the
transactions contemplated by this Agreement and the Ancillary Closing
Agreements.
8.2.6 No Material Adverse Change. Prior to the Closing Date, no event
shall have occurred which, individually or when considered together with all
other matters, has had, or could reasonably be expected to have, a Material
Adverse Effect on PLL and LTC shall not have discovered any fact or circumstance
(previously unknown to LTC) which, individually or when considered together with
all other matter has, or could reasonably be expected to have, a Material
Adverse Effect on PLL.
8.2.7 IPO Closing. The IPO shall have closed contemporaneously with the
Closing of the Merger.
8.2.8 Fairness Opinion. LTC shall have received from its financial
adviser, Schuler Associates, an opinion, dated the date of the execution of the
Merger Agreement and the mailing of the Proxy Statement, that the proposed
Merger is fair from a financial point of view to the LTC shareholders, and such
opinion shall not have been withdrawn prior to the Closing Date.
8.2.9 Tax Opinion. LTC shall have received an opinion from Moore
Stephens in form and substance reasonably satisfactory to LTC and its counsel to
the effect that the Merger will qualify as a tax free reorganization under the
Code.
ARTICLE IX
TERMINATION; REMEDIES
9.1 Termination.
(a) This Agreement may be terminated and the Merger abandoned at
any time prior to the Closing:
(i) By the mutual written consent of PLL and LTC;
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(ii) By PLL, if there has been a material violation or breach
by LTC of any covenant, representation or warranty contained in this
Agreement and such violation or breach has not been waived by PLL or
cured by LTC within 60 days after written notice thereof from PLL;
(iii) By LTC, if there has been a material violation or breach
by PLL of any covenant, representation or warranty contained in this
Agreement and such violation or breach has not been waived by LTC or
cured by PLL within 60 days after written notice thereof from LTC (a
"PLL Default");
(iv) By PLL or LTC if the transactions contemplated hereby
have not been consummated by February 28, 2002; provided, however, that
(i) neither PLL nor LTC will be entitled to terminate this Agreement
pursuant to this Section 9.1(a)(iv) if such Person's breach of this
Agreement has prevented the consummation of the transactions
contemplated hereby;
(v) By PLL if LTC's shareholders fail to approve the
transactions contemplated herein on or before July 31, 2000, or, in
such circumstances, by LTC if LTC has met its obligations under Section
7.4 with respect to such approval;
(vi) By LTC, if PLL's shareholders fail to approve the
transactions contemplated herein or, in such circumstances, by PLL if
PLL has met its obligations under Section 7.4 with respect to such
approval;
(vii) By PLL, if the condition to Closing set forth in Section
8.1.6 has not been satisfied; or
(viii) By LTC, if the condition to Closing set forth in 8.2.6
has not been satisfied.
(b) In the event that this Agreement is terminated pursuant to Section
9.1(a), all further obligations of each party hereto under this Agreement (other
than pursuant to Sections 7.3(c), 7.17(n) and 10.6 and the Interim Agreements,
which will continue in full force and effect) will terminate without further
liability or obligation of any party to the other party hereunder; provided,
however, that no party will be released from liability hereunder if this
Agreement is terminated and the transactions abandoned by reason of (i) the
failure of such party to have performed its obligations hereunder or (ii) any
misrepresentation made by such party of any matter set forth herein.
9.2 Remedies. Subject to Section 10.1, nothing contained in this
Agreement shall be construed to restrict or limit in any manner the remedies
which the parties might have at law or in equity for any breach of the
covenants, representations or warranties contained in this Agreement. In
addition to such remedies, upon termination of this Agreement, the parties shall
have the remedies set forth in the Interim Agreements.
ARTICLE X
MISCELLANEOUS
10.1 Non-Survival of Representations and Warranties. None of the
representations and warranties in Articles V or VI of this Agreement shall
survive the Effective Time.
10.2 Notices. All notices, requests, claims, demands and other
communications to any party hereunder must be in writing (including facsimile
transmission, which must be confirmed) and will be given to such party at its
address and facsimile number set forth in Schedule 10.2 (which may be changed by
such party upon notice in accordance with this Section 10.2). All such notices,
requests and other communications will be deemed received on the date of receipt
by the recipient thereof if received prior to 5:00 p.m. in the place of receipt
and such day is a Business Day in the place of receipt. Otherwise, any such
notice, request or communication will
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be deemed not to have been received until the next succeeding Business Day in
the place of receipt following the date of receipt.
10.3 Waiver. Any party hereto may, by written notice to the other
parties hereto, (i) extend the time for the performance of any of the
obligations or other actions of the other parties under this Agreement; (ii)
waive any inaccuracies in the representations or warranties of the other parties
contained in this Agreement or in any document delivered pursuant to this
Agreement; (iii) waive compliance with any of the conditions or covenants of the
other parties contained in this Agreement; or (iv) waive or modify performance
of any of the obligations of the other parties under this Agreement. Except as
provided in the preceding sentence, no action taken pursuant to this Agreement,
including, without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any of the representations, warranties, covenants, conditions or
agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach.
10.4 Amendments, Supplements, Etc. At any time before or after the
adoption of the Plan of Merger by the shareholders of PLL or the stockholders of
LTC, this Agreement or the Plan of Merger may be amended or supplemented by
additional agreements, article or certificates, as may be determined by the
parties to be necessary, appropriate or desirable to further the purpose of this
Agreement or the Plan of Merger, to clarify the intention of the parties, or to
add to or to modify the covenants, terms or conditions hereof or thereof. The
parties hereto shall make such technical changes to this Agreement or the Plan
of Merger, not inconsistent with the purpose hereof or thereof, as may be
required to effect or facilitate any governmental approval or acceptance of the
Merger or of this Agreement or of the Plan of Merger or to effect or facilitate
any filing or recording required for the consummation of any of the transactions
contemplated hereby or thereby. This Agreement or the Plan of Merger may not be
amended except by an instrument in writing signed by both of the parties.
10.5 Delegation. To the extent permitted by law and the charters or the
by-laws or others similar constituent documents of the respective parties
hereto, the powers of the Board of Directors of any party under and with respect
to this Agreement may be delegated by such Board of Directors to a Committee of
such Board or by such Board (or by such Committee to the extent any matter has
been delegated to such Committee by the Board) to any officer or officers of
such party, and any notices, consents or other actions referred to in this
Agreement to be given or taken by any party may be given or taken on its behalf
by any officer so authorized, and the other parties hereto may rely thereon.
10.6 Expenses. Subject to the provisions set forth in the Bridge Loan
Financing Agreements, whether or not the transactions contemplated by this
Agreement are consummated, except as otherwise expressly provided for herein,
the parties will pay or cause to be paid all of their own fees and expenses
incident to this Agreement and in preparing to consummate and in consummating
the transactions contemplated hereby, including the fees and expenses of any
broker, finder, financial advisor, investment banker, legal advisor or similar
person engaged by such party.
10.7 Successors and Assigns. The provisions of this Agreement will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. No party may assign, delegate or otherwise transfer any
of its rights or obligations under this Agreement (including any transfer by way
of merger or operation of law) without the consent of each other party hereto;
provided that PLL may assign its rights and obligations under this Agreement to
a wholly-owned Affiliate of PLL, it being understood that such assignment will
not relieve PLL from its obligations hereunder. Any assignment in violation of
the preceding sentence will be void ab initio.
10.8 No Third-Party Beneficiaries. This Agreement is for the sole
benefit of the parties hereto and their permitted successors and assigns, and
nothing herein expressed or implied will give or be construed to give to
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any Person, other than the parties hereto and such permitted successors and
assigns, any legal or equitable rights hereunder.
10.9 Governing Law. This Agreement will be governed by, and construed
in accordance with, the laws of the State of Delaware, regardless of the Laws
that might otherwise govern under principles of conflict of laws thereof.
10.10 Jurisdiction. Any suit, action or proceeding seeking to enforce
any provision of, or based on any matter arising out of or in connection with,
this Agreement or the transactions contemplated hereby may be brought in the
courts of the State of New York located in the County of New York and the
federal courts of the United States of America located in such State and County.
Each of the parties (i) consents to the exclusive jurisdiction of such courts
(and of the appropriate appellate courts therefrom) in any such suit, action or
proceeding, (ii) irrevocably waives, to the fullest extent permitted by Law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient forum, (iii) will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (iv)
will not bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any other court. Process in any such suit,
action or proceeding may be served on any party anywhere in the world, whether
within or without the jurisdiction of any such court. Without limiting the
foregoing, each party agrees that service of process on such party as provided
in Section 10.2 will be deemed effective service of process on such party.
10.11 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING,
CLAIM OR COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING
OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
10.12 Public Announcements. From the date hereof until the Closing
Date, LTC and PLL will consult with each other before issuing, or permitting any
agent or Affiliate to issue, any press releases or otherwise making or
permitting any agent or Affiliate to make any public statements with respect to
this Agreement and the transactions contemplated hereby.
10.13 Counterparts. This Agreement may be executed in one or more
counterparts, all of which will be considered one and the same agreement and
will become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
10.14 Table of Contents; Headings. The table of contents and headings
in this Agreement are for convenience of reference only and will not control or
affect the meaning or construction of any provisions hereof.
10.15 Entire Agreement. This Agreement (including the Schedules and
Exhibits hereto), the Interim Agreements, the Ancillary Closing Agreements and
the Confidentiality Disclosure Agreement, dated as of August 27, 1999, between
PLL and LTC constitute the entire agreement among the parties with respect to
the subject matter of this Agreement. This Agreement (including the Schedules
and Exhibits hereto), the Interim Agreements and the Ancillary Closing
Agreements supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof of this
Agreement, including but not limited to the Memorandum of Agreement dated
September 29, 1999 between the parties hereto.
10.16 Severability; Injunctive Relief. (a) If any provision of this
Agreement or the application of any such provision to any Person or circumstance
is held invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, the remainder of the provisions of this Agreement (or the
application of such
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provision in other jurisdictions or to Persons or circumstances other than those
to which it was held invalid, illegal or unenforceable) will in no way be
affected, impaired or invalidated, and to the extent permitted by applicable
Law, any such provision will be restricted in applicability or reformed to the
minimum extent required for such provision to be enforceable. This provision
will be interpreted and enforced to give effect to the original written intent
of the parties prior to the determination of such invalidity or
unenforceability.
(b) The parties acknowledge and agree that the provisions of Sections
7.2 and 7.3(c) are reasonably necessary to protect the legitimate interests of
PLL, LTC, their Affiliates and their businesses and that any violation of
Sections 7.2 or 7.3(c) will result in irreparable injury to PLL, LTC and their
Affiliates, the exact amount of which will be difficult to ascertain and the
remedies at Law for which will not be reasonable or adequate compensation to
PLL, LTC and their Affiliates for such a violation. Accordingly, each party
agrees that if it violates any of the provisions of Section 7.2 or 7.3(c), in
addition to any other remedy available at Law or in equity, the other party will
be entitled to seek specific performance or injunctive relief without posting a
bond, or other security, and without the necessity of proving actual damages.
10.17 Certain Interpretive Matters. (a) When a reference is made in
this Agreement to an Article, Section, Exhibit or Schedule, such reference will
be to an Article or Section of, or an Exhibit or Schedule to, this Agreement
unless otherwise indicated. Whenever the words, "include," "includes" or
"including" are used in this Agreement, they will be deemed to be followed by
the words "without limitation." The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. All terms defined
in this Agreement have the defined meanings when used in any certificate or
other document made or delivered pursuant hereto unless otherwise defined
therein. The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such term. All references to "$" or
dollar amounts will be to lawful currency of the United States of America. Any
agreement, instrument or statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement,
instrument or statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver or consent and
(in the case of statutes) by succession of comparable successor statutes and
references to all attachments thereto and instruments incorporated therein.
References to a Person are also to its permitted successors and assigns. Each of
the Schedules will apply only to the corresponding Section or subsection of this
Agreement. Each accounting term not otherwise defined in this Agreement has the
meaning assigned to it in accordance with GAAP. To the extent the term "day" or
"days" is used, it will mean calendar days unless referred to as a "Business
Day".
(b) No provision of this Agreement will be interpreted in favor of, or
against, any of the parties hereto by reason of the extent to which any such
party or its counsel participated in the drafting thereof or by reason of the
extent to which any such provision is inconsistent with any prior draft hereof
or thereof.
(c) (i) All references to the "knowledge of LTC" or to words of similar
import will be deemed to be references to the actual knowledge of one or more of
the officers or directors of LTC whose names are listed on Schedule 10.17(c)(i),
and will include such knowledge as such officers or directors would have had
after due inquiry of the responsible employees of LTC and its counsel and
accountants.
(ii) All references to the "knowledge of PLL" or to words of
similar import will be deemed to be references to the actual knowledge
of one or more of the officers or directors of PLL whose names are
listed on Schedule 10.17(c)(ii) and, will include such knowledge as
such officers or directors would have had after due inquiry of the
responsible employees of PLL and its counsel and accountants.
[Remainder of page intentionally left blank.]
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The parties hereto have caused this Agreement to be duly executed by
their respective authorized officers as of the day and year first above written.
PACIFIC LITHIUM LIMITED
By: /s/ Robin T. Johannink
Name: Robin T. Johannink
Title: Managing Director
LITHIUM TECHNOLOGY CORPORATION
By: /s/ David J. Cade
Name: David J. Cade
Title: Chairman and CEO
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EXHIBIT 3.5
CERTIFICATE OF DESIGNATION
OF
LITHIUM TECHNOLOGY CORPORATION
Lithium Technology Corporation, a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. In accordance with the authority of the Corporation's Board of
Directors (the "Board") pursuant to Section 151 of the General Corporation Law
of the State of Delaware and the Certificate of Incorporation of the Corporation
(the "Charter"),the Board hereby amends Article FOURTH of the Corporation's
Charter to designate a series of Preferred Stock as "Series A Preferred Stock",
and to designate the powers, preferences and relative, participating, optional
and other special rights and the qualifications, limitations or restrictions
thereof as follows:
SERIES A PREFERRED STOCK
1. Certain Defined Terms, Etc. In addition to the terms
defined elsewhere herein, certain capitalized terms used in this Article
FOURTH have the meanings given to them in Section 11. References in this
Article FOURTH to Sections are, unless otherwise stated, references to
Sections herein.
2. Designation. Of the one hundred thousand (100,000) shares
of Preferred Stock, par value $.01 per share, that the Corporation is
authorized to issue, eleven thousand (11,000)are hereby designated as
"Series A Preferred Stock" having the powers, preferences and relative
participating, optional and other special rights and the qualifications,
limitations or restrictions thereof as set forth in this Article FOURTH
(the "Series A Preferred").
3. Dividends and Distributions. The holders of shares of
Series A Preferred shall be entitled to receive dividends and
distributions in an amount per share, at the time and in the manner, that
the holders of shares of Common Stock into which it is convertible would
be entitled to
<PAGE> 2
receive if such Series A Preferred had been so converted into Common Stock
as of the record date established for determining holders entitled to
dividends, or if no such record date is established, as of the time of
declaration of any such dividend or distribution.
4. Voting Rights. (a) Holders of Series A Preferred will have
the right to vote or consent in writing as set forth in this Section 4.
(b) In addition to the voting rights provided by Sections 4(c)
and 4(d), as long as any shares of Series A Preferred are outstanding, the
affirmative vote or consent of the holders of two-thirds of the
then-outstanding shares of Series A Preferred, voting as a separate class,
will be required in order for the Corporation to:
(i) amend, alter or repeal, whether by merger, consolidation
or otherwise, the terms of this Article FOURTH or any other
provision of the Charter or By-laws of the Corporation, in any way
that adversely affects any of the powers, designations, preferences
and relative, participating, optional and other special rights of
the Series A Preferred, and the qualifications, limitations or
restrictions thereof;
(ii) issue any shares of capital stock ranking prior or
superior to, or on parity with, the Series A Preferred;
(iii) subdivide or otherwise change shares of Series A
Preferred into a different number of shares whether in a merger,
consolidation, combination, recapitalization, reorganization or
otherwise (whether or not any provision of Section 7 is applicable
to such transaction); or
(iv) issue any shares of Series A Preferred other than in
accordance with this Article FOURTH.
(c) On all matters as to which shares of Common Stock or
shares of Series A Preferred are entitled to vote or consent (by written
request or otherwise), each share of Series A Preferred will be entitled
to the number of votes (rounded up to the nearest whole number) that the
Common Stock into which it is convertible would have if such Series
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A Preferred had been so converted into Common Stock as of the record date
established for determining holders entitled to vote, or if no such record
date is established, as of the time of any vote or consent (by written
request or otherwise) of stockholders of the Corporation. Each share of
Series A Preferred shall initially be entitled to the number of votes that
one thousand (1,000) shares of Common Stock would have, subject to
adjustment as provided in Section 7 hereof.
(d) Notwithstanding any other provision of the Charter or
Bylaws of the Corporation (the "Bylaws"), the holders of a majority of the
then-outstanding Series A Preferred may consent in writing to any matter
about which a class vote is contemplated by Section 4(b) or 4(c), which
written consent when so executed by the holders of a majority of the
then-outstanding Series A Preferred will be deemed, subject to applicable
Delaware law, to satisfy the requirements of Section 4(b) or 4(c), as
applicable.
(e) A special meeting of stockholders shall be called by the
Board or by the Secretary of the Corporation upon receipt of a written
request to do so specifying the matter or matters (which must be
appropriate for action at a special meeting) proposed to be presented to
the meeting and signed by the holders of record of a majority of the
shares of Series A Preferred outstanding on the date of receipt of such
request. At any such special meeting only such business may be transacted
as is related to the purpose or purposes set forth in the notice of such
meeting required by Section 2.4 of the Bylaws.
5. Reacquired Shares. Any shares of Series A Preferred that
are converted, purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after the
acquisition thereof. None of such shares of Series A Preferred shall be
reissued by the Corporation.
6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the corporation the holders of
shares of Series A Preferred shall be entitled to receive the same
distribution paid to the holders of Common Stock, on an as-converted
basis. Neither a consolidation or merger of the Corporation with another
corporation or other legal entity, nor a sale or
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transfer of all or part of the Corporation's assets for cash, securities
or other property will be considered a liquidation, dissolution or winding
up of the Corporation for purposes of this Section 6.
7. Conversion. (a) Automatic Conversion. Each share of the
Series A Preferred will automatically be converted into the number of
fully paid and nonassessable shares of Common Stock determined, subject to
adjustment as described below, by dividing $0.10 by the Conversion Price,
immediately upon the authorization and reservation of a sufficient number
of shares of Common Stock by all requisite action by the Corporation
including action by the Board and by the shareholders of the Corporation
to provide for the conversion of all outstanding shares of Series A
Preferred into fully paid and nonassessable shares of Common Stock.
(b) Mechanics of Conversion. Upon conversion as set forth in
Section 7(a), the Series A Preferred shall be eliminated, and thereafter
all shares of Series A Preferred shall become and be known as shares of
"Common Stock" without further action or exchange on the part of the
holder thereof. The holder of any certificate for Series A Preferred shall
be entitled to request and to receive promptly from the Corporation a
certificate or certificates setting forth the corresponding number of
shares of Common Stock, by delivering a written notice to the attention of
the Secretary or Treasurer of the Corporation at the Corporation's
principal place of business of its desire to receive such replacement
certificate or certificates, specifying the number of shares of Series A
Preferred that have been so converted and the holder's calculation of the
Conversion Rate. Such computation will be deemed correct for all purposes
hereof absent manifest error. In the event of any disagreement between the
Corporation and the holder as to the correct Conversion Price, the
Conversion Price will be finally determined by an investment banking or
brokerage firm with no material prior or current relationship with the
Corporation or any of its subsidiaries selected by the Board in good
faith, the fees and expenses of which will be paid by the Corporation. The
Corporation will, promptly upon receipt of all certificates representing
Series A Preferred as have been issued to such holder that are to be
converted, issue a certificate or certificates
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registering the appropriate number of shares of Common Stock to such
holder.
(c) Adjustment for Subdivisions or Combinations of Common
Stock. In the event that the Corporation at any time or from time to time
after the issuance on the Series Preferred effects a subdivision, dividend
payable in shares of capital stock, recapitalization, combination or other
similar transaction of its outstanding Common Stock into a greater or
lesser number of shares, then and in each such event the Conversion Price
will be increased or decreased proportionately.
(d) Reorganization, Merger, Consolidation or Sale of Assets.
If at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this
Section 7 or a merger or consolidation of the Corporation with or into
another corporation or other legal entity, or the sale of all or
substantially all of the Corporation's properties and assets to any other
Person which is effected so that holders of Common Stock are entitled to
receive (either directly or upon subsequent liquidation) stock, securities
or assets with respect to or in exchange for Common Stock, then, as a part
of such capital reorganization, merger, consolidation or sale, proper
provision will be made so that the holders of the Series A Preferred will
thereafter be entitled to receive upon conversion of the Series A
Preferred the number of shares of stock, securities or assets of the
Corporation, or of the successor corporation or other legal entity
resulting from such merger or consolidation or sale, to which a holder of
the Common Stock deliverable upon conversion of Series A Preferred would
have been entitled on such capital reorganization, merger, consolidation
or sale. In any such case, appropriate adjustment will be made in the
application of the provisions of this Section 7(d) with respect to the
rights of the holders of the Series A Preferred after the reorganization,
merger, consolidation or sale to the end that the provisions of this
Section 7(d) (including adjustment of the Conversion Price then in effect
and the number of shares purchasable upon conversion of the Series A
Preferred) will be applicable after that event as nearly equivalent as may
be practicable. This provision will apply to successive capital
reorganizations, mergers,
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<PAGE> 6
consolidations or sales. Nothing herein will diminish or otherwise offset
the rights of the Series A Preferred under Section 4(b).
(e) Rights Offering. If at any time or from time to time the
Corporation shall offer to any of the holders of Common Stock any right,
option or warrant to acquire additional shares of capital stock of the
Corporation, then each holder of a share of then-outstanding Series A
Preferred will be entitled to receive rights, options or warrants to
acquire such number of additional shares of capital stock of the
Corporation as such holder would have been entitled to receive had such
holders of Series A Preferred been converted immediately prior to the
record date for the offering of such rights, options or warrants, at the
Conversion Rate then in effect.
(f) No Adjustment. No adjustment to the Conversion Price will
be made if such adjustment would result in a change in the Conversion
Price of less than 0.001%. Any adjustment of less than 0.001% which is not
made will be carried forward and will be made at the time of and together
with any subsequent adjustment which, on a cumulative basis, amounts to an
adjustment of 0.001% or more in the Conversion Price.
(g) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this
Section 7, the Corporation at its expense will promptly compute such
adjustment or readjustment in accordance with the terms hereof and cause
independent public accountants selected by the Corporation to verify such
computation and prepare and furnish to each holder of Series A Preferred a
certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation will, upon the written request at any time of any holder of
Series A Preferred, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Rate at that time in effect, and (iii) the number of shares of
Common Stock and the amount, if any, of other property which at that time
would be received upon the conversion of Series A Preferred.
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<PAGE> 7
(h) Reservation of Stock Issuable Upon Conversion. The
Corporation will at all times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the shares of the Series A Preferred such
number of its shares of Common Stock as will from time to time be
sufficient to effect the conversion of all then-outstanding shares of the
Series A Preferred; and if at any time the number of authorized but
unissued shares of Common Stock will not be sufficient to effect the
conversion of all then-outstanding shares of the Series A Preferred, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as will be sufficient for such
purpose.
8. Fractional Shares. Series A Preferred may be issued in
fractions of a share which will entitle the holder, in proportion to such
holder's fractional shares, to participate in distributions, vote, consent
and to have the benefit of all other rights of holders of Series A
Preferred.
9. Rank. The Series A Preferred will rank on a parity with the
Common Stock as to any distributions or upon liquidation, dissolution or
winding up.
10. Notice to Holders. Any notice given by the Corporation to
holders of record of Series A Preferred will be effective if addressed to
such holders at their last addresses as shown on the stock books of the
Corporation and deposited in the U.S. mail, sent first-class, and will be
conclusively presumed to have been duly given, whether or not the holder
of the Series A Preferred receives such notice.
11. Certain Defined Terms. In addition to the terms defined
elsewhere in this Article FOURTH, the following terms will have the
following meanings when used herein with initial capital letters:
"Conversion Price" means $0.0001 per share of Common Stock;
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"Conversion Rate" means the number of shares of Common Stock into
which each share of Series A Preferred may be converted;
"Person" means any individual, firm, corporation or other entity and
included any successor (whether by merger or otherwise) of such
entity; and
"Surviving Person" means the continuing, surviving or resulting
Person in a Business Combination, the Person receiving a transfer of
all or a substantial part of the properties and assets of the
Corporation, or the Person consolidating with or merging into the
Corporation in a Business Combination in which the Corporation is
the continuing or surviving Person, but in connection with which the
Series A Preferred or Common Stock is exchanged or converted into
the securities of any other Person or the right to receive cash or
any other property.
2. The foregoing amendment is adopted by the Board of Directors as
of January 4, 2000.
3. The foregoing amendment was duly adopted by the Board of
Directors without shareholder action and shareholder action was not required.
4. No shares of the Series A Preferred Stock have heretofore been
issued.
IN WITNESS WHEREOF, this amendment to the Certificate of Designation
is executed on behalf of the Corporation as of this March 7, 2000.
LITHIUM TECHNOLOGY CORPORATION
/s/ David J. Cade
------------------------------
David J. Cade
Chairman & CEO
8
<PAGE> 1
EXHIBIT NUMBER 10.11
<PAGE> 2
PACIFIC LITHIUM LIMITED
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
EXCLUSIVE PATENT LICENSE AGREEMENT
(rev. 1/8/98)
This Agreement, effective as of the date set forth above the signatures
of the parties below (the "Effective Date"), is between the Massachusetts
Institute of Technology ("M.I.T."), a Massachusetts corporation, with a
principal place of business at 77 Massachusetts Avenue, Cambridge, MA 02139-4307
and Pacific Lithium ("COMPANY"), a New Zealand corporation, with the mailing
address of its principal place of business at 5th Floor, Gosling Chapman Centre,
63 Albert St., Auckland City, New Zealand.
WHEREAS, M.I.T. is the owner of certain PATENT RIGHTS (as later defined
herein) relating to:
M.I.T. Case No. 7960, "Glass Compositions for Anode Materials in
Rechargeable Lithium Batteries," by Gerbrand Ceder and Yet-Ming Chiang;
M.I.T. Case No. 7959, "Solid Polymer Electrolyte Lithium Battery and
Process of Manufacture," by Yet-Ming Chiang and Anne M. Mayes;
M.I.T. Case No. 7799, "Mixed Ionic-Electronic Conducting Binder for Lithium
Battery Electrodes," by Yet-Ming Chiang, Anne M. Mayes, and Donald R.
Sadoway;
M.I.T. Case No. 7124, "High Voltage Cathode Materials For Li Batteries," by
Mehmet K. Aydinol, Gerbrand Ceder, Yet-Ming Chiang, Biying Huang, and
Young-il Jang;
M.I.T. Case No. 7054, "Block Copolymer Electrolytes for Lithium Solid
Polymer Electrolyte Batteries," by Anne M. Mayes and Philip P. Soo; and
M.I.T. Case No. 6774, "Cathodes For Lithium Solid Polymer Electrolyte
Batteries," by Anne M. Mayes and Donald R. Sadoway.
M.I.T. has the right to grant licenses under said PATENT RIGHTS, subject only to
a royalty-free, nonexclusive non-transferable license to practice the PATENT
RIGHTS reserved by the United States Government for M.I.T. Cases 7054 and 7799.
WHEREAS, M.I.T.'s Vice President for Research has approved that
Yet-Ming Chiang, Anne M. Mayes, and Gerbrand Ceder, inventors of the PATENT
RIGHTS, now hold or shall
February 10, 1998 Page-1-of-26-
<PAGE> 3
shortly acquire an equity position in COMPANY and that M.I.T. is accepting
equity as partial consideration for the rights and licenses granted under this
Agreement;
WHEREAS, the Conflict Avoidance Statement of Yet-Ming Chiang, Anne M.
Mayes, and Gerbrand Ceder is Exhibit A hereto; and a Waiver of M.I.T equity
sharing for Yet-Ming Chiang, Anne M. Mayes, Gerbrand Ceder, and Donald Sadoway
is attached hereto as Exhibit B;
WHEREAS, M.I.T. desires to have the PATENT RIGHTS developed and
commercialized to benefit the public and is willing to grant a license
thereunder;
WHEREAS, COMPANY has represented to M.I.T., to induce M.I.T. to enter
into this Agreement, that COMPANY shall commit itself to a thorough, vigorous
and diligent progam of exploiting the PATENT RIGHTS so that public utilization
shall result therefrom; and
WHEREAS, COMPANY intends to form a majority owned subsidiary to be
incorporated under the laws of the United States and located in Massachusetts
(hereinafter referred to as "NEWCO"), for the exploitation of the PATENT RIGHTS;
and
WHEREAS promptly upon formation of NEWCO, COMPANY shall assign its
rights and obligations to NEWCO, and
NOW, THEREFORE, M.I.T. and COMPANY hereby agree as follows:
1. Definitions.
1.1. "AFFILIATE" shall mean any legal entity (such as a corporation,
partnership, or limited liability company) that is controlled by COMPANY. For
the purposes of this definition, the term "control" means (i) beneficial
ownership of at least fifty percent (50%) of the voting securities of a
corporation or other business organization with voting securities or (ii) a
fifty percent (50%) or greater interest in the net assets or profits of a
partnership or other business organization without voting securities.
1.2 "EXCLUDED FIELDS" shall mean "batteries for military applications,
and for aerospace applications such as satellites and space vehicles" but not
batteries that are essentially equivalent to those sold in commercial,
mass-markets.
1.3 "FIELD" shall mean all fields but EXCLUDED FIELDS, as Section 1.3
defines.
February 10, 1998 Page-2-of-26-
<PAGE> 4
1.4 "LICENSED PRODUCT" shall mean any product that cannot be
manufactured, used, leased, or sold, in whole or in part, without infringing one
or more claims under the PATENT RIGHTS.
1.5 "LICENSED PROCESS" shall mean any process that cannot be performed,
in whole or in part, without using at least one process that infringes one or
more claims under the PATENT RIGHTS.
1.6 "NET REVENUES" shall mean the gross amount billed or invoiced by
COMPANY and its AFFILIATES and SUBLICENSEES for sales and leases of LICENSED
PRODUCTS and LICENSED PROCESSES, less the following: (i) customary trade,
quantity, or cash discounts to the extent actually allowed and taken; (ii)
amounts repaid or credited by reason of rejection or return; (iii) to the extent
separately stated on purchase orders, invoices, or other documents of sale, any
taxes or other governmental charges levied on the production, sale,
transportation, delivery, or use of a LICENSED PRODUCT or LICENSED PROCESS which
is paid by or on behalf of COMPANY; and (iv) outbound transportation costs
prepaid or allowed and costs of insurance in transit.
No deductions shall be made for commissions paid to
individuals whether they be with independent sales agencies or regularly
employed by COMPANY and on its payroll, or for cost of collections. NET REVENUES
shall occur on the date of invoice or billing for a LICENSED PRODUCT or LICENSED
PROCESS. If a LICENSED PRODUCT or a LICENSED PROCESS is distributed, billed or
invoiced to AFFILIATES or others at a discounted price that is substantially
lower than the customary price charged by COMPANY to independent third parties,
NET REVENUES shall be calculated based on the invoice amount of the LICENSED
PRODUCT or LICENSED PROCESS to an independent third party during the same
REPORTING PERIOD or, in the absence of such invoice, on the fair market value of
the LICENSED PRODUCT or LICENSED PROCESS as mutually determined by the parties
in good faith.
COMPANY nor an AFFILIATE nor any SUBLICENSEE shall accept
non-monetary consideration for any LICENSED PRODUCTS or LICENSED PROCESSES
without the prior written consent of M.I.T.
1.7. "PATENT RIGHTS" shall mean:
(a) the United States and international patents listed on
Appendix A;
(b) the United States and international patent applications
listed on Appendix A and the resulting patents;
February 10, 1998 Page-3-of-26-
<PAGE> 5
(c) any divisionals, continuations, continuation-in-part
applications, and continued prosecution applications (and their relevant
international equivalents) of the patent applications listed on Appendix A to
the extent the claims are directed to subject matter specifically described in
the patent applications listed on Appendix A, and the resulting patents;
(d) any patents resulting from reissues, reexaminations, or
extensions (and their relevant international equivalents) of the patents
described in (a), (b), and (c) above; and
(e) international (non-United States) patent applications
filed after the Effective Date in the countries listed on Appendix B and the
relevant international equivalents to divisionals, continuations,
continuation-in-part applications and continued prosecution applications of such
patent applications to the extent the claims are directed to subject matter
specifically described in the patents or patent applications referred to in (a),
(b), (c), and (d) above, and the resulting patents.
1.8. "REPORTING PERIOD" shall begin on the first day of each calendar
quarter and end on the last day of such calendar quarter; except that the first
and last REPORTING PERIODS under this Agreement may be partial calendar quarters
in that the first REPORTING PERIOD shall begin on the Effective Date, and the
last REPORTING PERIOD shall end on the later of (i) the date of termination of
this Agreement or (ii) the date upon which COMPANY completes and sells its
remaining work-in-progress and inventory of LICENSED PRODUCTS pursuant to
Section 8.5.
1.9. "SUBLICENSE INCOME" shall mean any payments that COMPANY receives
from a SUBLICENSEE in consideration of the sublicense of the rights granted
COMPANY under Section 2.2, including, without limitation, license fees,
milestone payments, license maintenance fees, and other payments, but
specifically excluding running royalties.
1.10. "SUBLICENSEE" shall mean any permitted sublicensee of the rights
granted COMPANY under this Agreement, as further described in Section 2.3.
1.11. "TERM" shall mean the term of this Agreement as further defined
in Section 8.1. below.
1.12. "TERRITORY" shall mean worldwide.
1.13. "FINANCING EVENT DATE" shall mean each date on which the COMPANY
sells equity in the COMPANY.
February 10, 1998 Page-4-of-26-
<PAGE> 6
2. Grant of Rights.
2.1 COMPANY agrees that the following are preconditions to the
license being granted in this agreement:
(a) NEWCO shall be incorporated by June 30, 1998 with
an initial capitalization from COMPANY of at least $500,000.
(b) Promptly upon formation of NEWCO, COMPANY shall
assign all of its rights and obligations under this license
agreement to NEWCO, and M.I.T hereby consents and approves of
this assignment.
In the event either condition of this section 2.1 is not fulfilled, this
agreement will automatically terminate on June 30, 1998 without further notice.
Any amounts due to be paid or paid hereunder prior to June 30, 1998 are
nonrefundable.
2.2. License Grant. Subject to the terms of this Agreement, M.I.T. hereby grants
to COMPANY and its AFFILIATES a royalty-bearing license under its rights in the
PATENT RIGHTS, to the extent not prohibited by other patents, to develop, make,
have made, use, sell, lease, and import LICENSED PRODUCTS in the FIELD in the
TERRITORY and to develop and perform LICENSED PROCESSES in the FIELD in the
TERRITORY.
2.3 Exclusivity.
M.I.T. agrees that it shall not grant any other license to
make, have made, use, sell, lease and import LICENSED PRODUCTS in the FIELD in
the TERRITORY or to develop and perform LICENSED PROCESSES in the FIELD in the
TERRITORY during the period of time of commencing on the Effective Date to the
end of the TERM, unless sooner terminated as provided in this Agreement.
2.4. Sublicenses. COMPANY shall have the right to grant sublicenses of
its rights under Section 2.2. COMPANY shall incorporate terms and conditions
into its sublicense agreements sufficient to enable COMPANY to comply with this
Agreement. COMPANY shall promptly furnish M.I.T. with a fully executed copy of
any sublicense agreement. Upon termination of this Agreement for any reason, any
SUBLICENSEE not then in default shall have the right to seek a license from
M.I.T. M.I.T. agrees to negotiate such licenses in good faith under reasonable
terms and conditions.
February 10, 1998 Page-5-of-26-
<PAGE> 7
2.5. Retained Rights.
(a) M.I.T. M.I.T. retains the right to practice under the
PATENT RIGHTS for research, teaching, and educational purposes, without payment
of compensation to COMPANY.
(b) Federal Government. To the extent that any invention
claimed in the PATENT RIGHTS has been partially funded by the U.S. federal
government, COMPANY acknowledges that the federal government retains a
royalty-free, non-exclusive, non-transferable license to practice any
government-funded invention claimed in any PATENT RIGHTS. This Agreement and the
grant of any rights in such government funded inventions in the PATENT RIGHTS
are subject to and governed by federal law as set forth in 35 U.S.C.
Sections 201-211, and the regulations promulgated thereunder, as amended,
or any successor statutes or regulations. If any term of this Agreement fails to
conform with such laws and regulations, the relevant term shall be deemed an
invalid provision and modified in accordance with Section 10.10.
2.6 Access to lists of technologies available for license. M.I.T agrees
to answer periodic requests from COMPANY to provide under a nondisclosure
agreement descriptions of technologies available for licensing from M.I.T in the
battery area.
2.7 No Additional Rights. Nothing in this Agreement shall be construed
to confer any rights upon COMPANY by implication, estoppel, or otherwise as to
any technology or patent rights of M.I.T. or any other entity other than the
PATENT RIGHTS, regardless of whether such rights shall be dominant or
subordinate to any PATENT RIGHTS.
3. COMPANY Obligations Relating to Commercialization.
3.1. Diligence Requirements. COMPANY shall use diligent efforts, or
shall cause its AFFILIATES and SUBLICENSEES to use diligent efforts, to develop
LICENSED PRODUCTS or LICENSED PROCESSES and to introduce LICENSED PRODUCTS or
LICENSED PROCESSES into the commercial market; thereafter, COMPANY or its
AFFILIATES or SUBLICENSEES shall make LICENSED PRODUCTS or LICENSED PROCESSES
reasonably available to the public. Specifically, COMPANY or AFFILIATE or
SUBLICENSEE shall fulfill the following obligations:
(a) Within six (6) months after the Effective Date, Company
shall furnish M.I.T. with a written research and development plan
documenting the major tasks and dates to be achieved from inception
through first sale specifying the number of staff and
February 10, 1998 Page-6-of-26-
<PAGE> 8
other resources devoted to the commercialization of LICENSED PRODUCTS or
LICENSED PROCESSES in the FIELD.
(b) Consistent with Section 5.l(a) (Frequency of Reports), within
sixty (60) days after the end of each calendar year, COMPANY shall furnish
M.I.T. with a written report on the progress of its efforts during the
immediately preceding calendar year to develop and commercialize LICENSED
PRODUCTS or LICENSED PROCESSES, including without limitation research and
development efforts, efforts to obtain regulatory approval, marketing efforts,
and sales figures. The report shall also contain a discussion of intended
efforts and sales projections for the year in which the report is submitted.
(c) COMPANY shall raise at least Ten Million Dollars ($10,000,000) by
March 30, 1999 from the sale of COMPANY's equity securities for its own account.
(d) In the aggregate, COMPANY shall raise at least One Hundred Million
Dollars ($100,000,000) by December 31, 2000 from the sale of COMPANY's equity
securities for its own account or demonstrate that it owns the production
capacity to produce at least 5,000,000 batteries based on LICENSED PRODUCTS per
annum or that COMPANY has signed multi year contracts for the contract
manufacture of at least 5,000,000 batteries based on LICENSED PRODUCTS per
annum.
(e) By January 31, 1999, COMPANY shall start construction of pilot
plants each capable of producing at least 100 tons per year of lithium carbonate
and/or lithium hydroxide and by January 31, 2000 demonstrate that a
commercial-sized plant can produce such salts at costs commercially practical
for the use in producing at least 5,000,000 batteries based on LICENSED PRODUCTS
per annum; or shall demonstrate to the satisfaction of M.I.T. that it has
procured a long-term source of such salts at commercially practical prices to
produce at least 5,000,000 batteries based on LICENSED PRODUCTS per annum.
(f) COMPANY shall sponsor a minimum of Seven Hundred and Twenty Four
Thousand Dollars ($724,000) of research at M.I.T. starting no later than June
30, 1998 and continuing for the next twenty-four months, under the terms of
M.I.T.'s standard Research Agreement (as may be modified by mutual agreement
between the parties.) and further provided that:
any additional patent rights arising from such research sponsored by
COMPANY shall be added, at COMPANY'S election by amendment to the License
Agreement for a license issue fee to be negotiated but not to exceed $50,000 per
patent added, and otherwise under the royalty terms and other terms of the
License Agreement.
February 10, 1998 Page-7-of-26-
<PAGE> 9
(g) COMPANY shall develop working developmental prototypes
according to the following schedule:
<TABLE>
<CAPTION>
YEAR DEVELOPMENTAL PROTOTYPE
---- -----------------------
<S> <C>
January 1, 2000 Lithium batteries for laptop
computers and cellular telephones
January 1, 2004 Lithium batteries for electric vehicle
applications
January 1, 2008 Large energy storage systems and/or
large energy leveling systems
</TABLE>
If COMPANY documents that the major reason for a delay in meeting the
requirements of paragraph (g) are directly attributable to equivalent delays in
achieving the results projected in the sponsored research described in paragraph
(f) then M.I.T. shall consider such impact in the making the determination of
whether COMPANY has met the requirements of paragraph (g).
(h) COMPANY shall permit an in-plant inspection by M.I.T. on or before
December, 1998, and thereafter permit in-plant inspections by M.I.T. at regular
intervals with at least six (6) months between each such inspection.
(i) COMPANY shall make a first commercial sale of a LICENSED PRODUCT on
or before December 31, 1999.
(j) COMPANY shall establish commercial relationships with one or more
potential customers for LICENSED PRODUCTS by selling Lithium containing products
which need not be LICENSED PRODUCTS with net revenues of at least $500,000 in
the year ending Dec. 31, 1999 to such customers.
(k) COMPANY shall make NET REVENUES according to the following
schedule:
in the year ending Dec. 31, 2000 $2,500,000;
in the year ending Dec. 31, and each year thereafter $15,000,000
In the event that M.I.T. determines that COMPANY (or an AFFILIATE or
SUBLICENSEE) has failed to fulfill its obligations under this Section 3.1 then
M.I.T. will treat such failure as a Material Breach as described in Section
8.3(b).
3.2 Indemnification.
(a) Indemnity. COMPANY shall indemnify, defend, and hold
harmless M.I.T. and its trustees, officers, faculty, students, employees and
agents and their respective successors,
February 10, 1998 Page-8-of-26-
<PAGE> 10
heirs and assigns (the "Indemnitees"), against any liability, damage, loss, or
expense (including reasonable attorneys fees and expenses) incurred by or
imposed upon any of the Indemnitees in connection with any claims, suits,
actions, demands or judgments arising out of any theory of liability (including
without limitation actions in the form of tort, warranty, or strict liability
and regardless of whether such action has any factual basis) concerning any
product, process, or service that is made, used, sold, or imported pursuant to
any right or license granted under this Agreement.
(b) Procedures. The Indemnitees agree to provide COMPANY with
prompt written notice of any claim, suit, action, demand, or judgment for which
indemnification is sought under this Agreement. COMPANY agrees, at its own
expense, to provide attorneys reasonably acceptable to M.I.T. to defend against
any such claim. The Indemnitees shall cooperate fully with COMPANY in such
defense and will permit COMPANY to conduct and control such defense and the
disposition of such claim, suit, or action (including all decisions relative to
litigation, appeal, and settlement); provided, however, that any Indemnitee
shall have the right to retain its own counsel, at the expense of COMPANY, if
representation of such Indemnitee by the counsel retained by COMPANY would be
inappropriate because of actual or potential differences in the interests of
such Indemnitee and any other party represented by such counsel. COMPANY agrees
to keep M.I.T. informed of the progress in the defense and disposition of such
claim and to consult with M.I.T. with regard to any proposed settlement.
(c) Insurance. COMPANY shall obtain and carry in full force
and effect commercial general liability insurance, including product liability
and errors and omissions insurance which shall protect COMPANY and Indemnitees
with respect to events covered by Section 3.2(a) above. Such insurance shall be
issued by an insurer pre-approved by M.I.T, such approval not to be unreasonably
withheld, shall list M.I.T. as an additional named insured thereunder, shall be
endorsed to include product liability coverage, and shall require thirty (30)
days written notice to be given to M.I.T. prior to any cancellation or material
change thereof. The limits of such insurance shall not be less than One Million
Dollars ($1,000,000) per occurrence with an aggregate of Three Million Dollars
($3,000,000) for bodily injury including death; One Million Dollars ($1,000,000)
per occurrence with an aggregate of Three Million Dollars ($3,000,000) for
property damage; and One Million Dollars ($1,000,000) per occurrence with an
aggregate of Three Million Dollars ($3,000,000) for errors and omissions. In the
alternative, COMPANY may self-insure subject to prior approval of M.I.T. COMPANY
shall provide M.I.T. with Certificates of Insurance evidencing compliance with
this Section. COMPANY shall continue to maintain such insurance or self-
insurance after the expiration or termination of this Agreement during any
period in which COMPANY or any AFFILIATE or SUBLICENSEE continues (i) to
February 10, 1998 Page-9-of-26-
<PAGE> 11
make, use, or sell a product that was a LICENSED PRODUCT under this Agreement or
(ii) to perform a service that was a LICENSED PROCESS under this Agreement, and
thereafter for a period of five (5) years.
3.3. Use of M.I.T. Name. COMPANY and its AFFILIATES and SUBLICENSEES
shall not use the name of "Massachusetts Institute of Technology," "Lincoln
Laboratory" or any variation, adaptation, or abbreviation thereof, or of any of
its trustees, officers, faculty, students, employees, or agents, or any
trademark owned by M.I.T., or any terms of this Agreement in any promotional
material or other public announcement or disclosure without the prior written
consent of M.I.T. The foregoing notwithstanding, without the consent of M.I.T.,
COMPANY may state that it is licensed by M.I.T. under one or more of the patents
and/or patent applications comprising the PATENT RIGHTS and may disclose such
information in any prospectus, offering memorandum, or other document or filing
required by applicable securities laws or other applicable law or regulation.
3.4. Marking of LICENSED PRODUCTS. To the extent commercially feasible
and consistent with prevailing business practices, COMPANY shall mark, and shall
cause its AFFILIATES and SUBLICENSEES to mark, all LICENSED PRODUCTS that are
manufactured or sold under this Agreement with the number of each issued patent
under the PATENT RIGHTS that applies to such LICENSED PRODUCT.
3.5. Compliance with Law. COMPANY shall use reasonably commercial
efforts to comply with, and shall ensure that its AFFILIATES and SUBLICENSEES
use reasonably commercial efforts to comply with, all commercially material
local, state, federal, and international laws and regulations relating to the
development, manufacture, use, and sale of LICENSED PRODUCTS and LICENSED
PROCESSES. COMPANY expressly agrees to comply with the following:
(i) COMPANY and its AFFILIATES and SUBLICENSEES shall comply
with all United States laws and regulations controlling the export of
certain commodities and technical data, including without limitation
all Export Administration Regulations of the United States Department
of Commerce. Among other things, these laws and regulations prohibit or
require a license for the export of certain types of commodities and
technical data to specified countries. COMPANY hereby gives written
assurance that it will comply with, and will cause its AFFILIATES and
SUBLICENSEES to comply with, all United States export control laws and
regulations, that it bears sole responsibility for any violation of
such laws and regulations by itself or its AFFILIATES or SUBLICENSEES,
and that it
February 10, 1998 Page-10-of-26-
<PAGE> 12
will indemnify, defend, and hold M.I.T. harmless (in accordance with
Section 3.2.) for the consequences of any such violation.
(ii) COMPANY agrees that any LICENSED PRODUCTS used or sold in
the United States will be manufactured substantially in the United
States or its territories unless a waiver is obtained from the U.S.
government.
4. Consideration for Grant of Rights.
4.1. License Issue Considerations. In partial consideration of the
rights granted COMPANY under this Agreement, COMPANY shall pay to M.I.T.:
(i) a total license issue fee of Four Hundred and Fifty Thousand
dollars ($450,000) to be paid as follows:
(a) One Hundred Thousand Dollars ($100,000) to be due
within five working days of the Effective Date of
this Agreement plus
(b) Five (5) percent of the amount received by
COMPANY for equity provided on each FINANCING EVENT
DATE due fifteen days after receipt until a total of
Three Hundred and Fifty Thousand ($350,000) has been
paid to M.I.T with any balance remaining unpaid to be
paid by December 31, 1998;
(ii) shares of the COMPANY as set forth in Section 4.6 below; and
(iii) such amount as set forth in Section 6.3 to reimburse M.I.T.
for its actual expenses incurred as of the Effective Date in
connection with obtaining the PATENT RIGHTS. These fees and
payments are due on or before June 1, 1998 and are nonrefundable
and are not creditable against any other payments due to M.I.T.
under this Agreement. In the event that payment in full is not
made by June 1, 1998, this agreement will automatically terminate
on June 1, 1998 without further notice.
4.2. License Maintenance Fee. For each calendar year during the TERM,
COMPANY shall pay to M.I.T. the following license maintenance fees on the dates
set forth below:
January 1, 1999 and each January 1st thereafter $100,000
This annual license maintenance fee is nonrefundable; however, the license
maintenance fee may be credited to running royalties subsequently due on NET
REVENUES and SUBLICENSE INCOME
February 10, 1998 Page-11-of-26-
<PAGE> 13
earned during the same calendar year, if any. License maintenance fees' paid in
excess of running royalties and SUBLICENSE INCOME due in such calendar year
shall not be creditable to amounts due for future years.
4.3. Running Royalties. In partial consideration of the rights granted
COMPANY under this Agreement, COMPANY shall pay to M.I.T. a running royalty of
five percent (5%) of NET REVENUES. These milestone payments are nonrefundable.
4.4. Sharing of SUBLICENSE INCOME. COMPANY shall pay M.I.T. a total of
fifty (50%) of all SUBLICENSE INCOME.
4.5. No Multiple Royalties. If the manufacture, use, lease, or sale of
any LICENSED PRODUCT or the performance of any LICENSED PROCESS is covered by
more than one of the PATENT RIGHTS, multiple royalties shall not be due.
4.6. Equity.
(a) Initial Grant. In partial consideration of the license
granted COMPANY under this Agreement, COMPANY shall issue to M.I.T shares (the
"Shares") of Common Stock of COMPANY, for a total consideration of Three Dollars
and Fifty Cents ($3.50) to be paid by M.I.T to COMPANY.
COMPANY represents to M.I.T. that, as of the Effective Date,
the aggregate number of Shares issued to M.I.T equals at least three and one
half Percent (3.5%) of the COMPANY's issued and outstanding Common Stock
calculated on a "Fully Diluted Basis." For purposes of this Section 4.6, "Fully
Diluted Basis" shall mean that the total number of issued and outstanding shares
of the COMPANY's Common Stock shall be calculated to include conversion of all
issued and outstanding securities then convertible into common stock, the
exercise of all then outstanding options and warrants to purchase shares of
common stock, whether or not then exercisable, and shall assume the issuance or
grant of all securities reserved for issuance pursuant to any COMPANY stock or
stock option plan in effect on the date of the calculation.
(b) Anti-Dilution Protection. COMPANY shall issue additional
shares of Common Stock to M.I.T., such that M.I.T.'s ownership of outstanding
Common Stock shall not fall below three and on half Percent (3.5%) on a Fully
Diluted Basis, as calculated after giving effect to the anti-dilutive issuance.
Such issuances shall continue until and including the date upon which a total of
Ten Million Dollars ($10,000,000) in cash in exchange for COMPANY's capital
February 10, 1998 Page-12-of-26-
<PAGE> 14
stock (the "Funding Threshold") shall be received by COMPANY.
Thereafter, no additional shares shall be due to M.I.T.
(c) Participation in Future Private Equity Offerings.
After the date of the Funding Threshold, M.I.T. shall have the right to
purchase additional shares of the COMPANY's Common Stock in any private
offering by the COMPANY of its equity securities in exchange for cash,
to maintain its pro rata ownership as calculated immediately prior to
such offering on a Fully Diluted Basis, pursuant to the terms and
conditions at least as favorable as those granted to the other
offerees. All rights granted to M.I.T. pursuant to this Section 4.6(c)
shall terminate immediately prior to a firm commitment underwritten
public offering of the COMPANY's common stock resulting in gross
proceeds to the COMPANY of at least $10 million.
5. Reports; Payments; Records.
5.1. Frequency of Reports.
(a) Before First Commercial Sale.
(i) COMPANY must report FINANCING EVENT DATES
within five working days of their occurrence.
(ii) COMPANY must report the achievement of the
diligence provisions listed under Section 3.1
(c), (d), (e), (f), (g), (i), (j), and (k) by
fax to M.I.T at 617-258-6790 or the fax number
within 15 days of achievement.
(ii) Prior to the first commercial sale of any
LICENSED PRODUCT or first commercial performance
of any LICENSED PROCESS, COMPANY shall deliver
reports to M.I.T. annually, within sixty (60)
days of the end of each calendar year,
containing information concerning the
immediately preceding calendar year, as further
described in Section 5.2 (to the extent
applicable).
(b) After First Commercial Sale.
After the first commercial sale of any LICENSED
PRODUCT or first commercial performance of any
LICENSED PROCESS, COMPANY shall deliver reports
to M.I.T. within sixty (60) days of the end of
each REPORTING PERIOD, containing information
concerning the immediately preceding REPORTING
PERIOD, as further described in Section 5.2.
(c) Upon First Commercial Sale of each LICENSED
PRODUCT or Commercial Performance of LICENSED PROCESS. COMPANY shall
report to M.I.T. the date
February 10, 1998 Page-13-of-26-
<PAGE> 15
of first commercial sale of each LICENSED PRODUCT and the date of first
commercial performance of each LICENSED PROCESS within sixty (60) days of
occurrence in each country.
5.2. Content of Reports and Payments. Each report delivered by COMPANY
to M.I.T. shall contain at least the following information for the immediately
preceding REPORTING PERIOD:
(i) the number of LICENSED PRODUCTS sold, leased or
distributed by COMPANY, its AFFILIATES and SUBLICENSEES to independent
third parties in each country, and, if applicable, the number of
LICENSED PRODUCTS used by COMPANY, its AFFILIATES and SUBLICENSEES in
the provision of services in each country;
(ii) the number of LICENSED PROCESSES performed by COMPANY,
its AFFILIATES and SUBLICENSEES in each country;
(iii) the gross price charged by COMPANY, its AFFILIATES and
SUBLICENSEES for each LICENSED PRODUCT and, if applicable, the gross
price charged for each LICENSED PRODUCT used to provide services in
each country; and the gross price charged for each LICENSED PROCESS
performed by COMPANY, its AFFILIATES and SUBLICENSEES in each country;
(iv) calculation of NET REVENUES for the applicable REPORTING
PERIOD in each country, including a listing of applicable deductions;
(v) total royalty payable on NET REVENUES in U.S. dollars,
together with the exchange rates used for conversion;
(vi) the amount of SUBLICENSE INCOME received by COMPANY from
each SUBLICENSEE and the amount due to M.I.T. from such SUBLICENSE
INCOME, including an itemized breakdown of the sources of income
comprising the SUBLICENSE INCOME; and
(vii) the number of sublicenses entered into for the PATENT
RIGHTS, LICENSED PRODUCTS and/or LICENSED PROCESSES.
February 10, 1998 Page-14-of-26-
<PAGE> 16
If no amounts are due to M.I.T. for any REPORTING PERIOD, the report shall so
state. Concurrent with each report, COMPANY shall remit to M.I.T. any payment
due for the applicable REPORTING PERIOD.
5.3. Financial Statements. On or before the ninetieth (90th) day
following the close of COMPANY's fiscal year, COMPANY shall provide M.I.T. with
COMPANY's financial statements for the preceding fiscal year including, at a
minimum, a balance sheet and an income statement, certified by COMPANY's chief
financial officer or by an independent auditor.
5.4. Payments in U.S. Dollars. All payments due under this Agreement
shall be payable in United States dollars. Conversion of foreign currency to
U.S. dollars shall be made at the conversion rate existing in the United States
(as reported in the Wall Street Journal) on the last working day of the calendar
quarter preceding the applicable REPORTING PERIOD. Such payments shall be
without deduction of exchange, collection, or other charges, and, specifically,
without deduction of withholding or similar taxes or other government imposed
fees or taxes, except as defined in NET REVENUES.
5.5. Payments in Other Currencies. If by law, regulation, or fiscal policy of a
particular country, conversion into United States dollars or transfer of funds
of a convertible currency to the United States is restricted or forbidden,
COMPANY shall give M.I.T. prompt written notice of such restriction, which
notice shall satisfy the sixty-day payment deadline described in Section 5.2.
COMPANY shall pay any amounts due M.I.T. through whatever lawful methods M.I.T.
reasonably designates; provided, however, that if M.I.T. fails to designate such
payment method within thirty (30) days after M.I.T. is notified of the
restriction, COMPANY may deposit such payment in local currency to the credit of
M.I.T. in a recognized banking institution selected by COMPANY and identified by
written notice to M.I.T., and such deposit shall fulfill all obligations of
COMPANY to M.I.T. with respect to such payment.
5.6. Records. COMPANY shall maintain, and shall cause its AFFILIATES
and SUBLICENSEES to maintain, complete and accurate records relating to the
rights and obligations under this Agreement and any amounts payable to M.I.T. in
relation to this Agreement, which records shall contain sufficient information
to permit M.I.T. to confirm the accuracy of any reports delivered to M.I.T.
under Section 5.2 and compliance in other respects with this Agreement. The
relevant party shall retain such records for at least five (5) years following
the end of the calendar year to which they pertain, during which time M.I.T., or
M.I.T.'s appointed agents, shall have the right, at M.I.T.'s expense, to inspect
such records during normal business hours to verify any reports and payments
made or compliance in other respects under this Agreement. In the event that
February 10, 1998 Page-15-of-26-
<PAGE> 17
any audit performed under this Section reveals an underpayment in excess of ten
percent (10%), COMPANY shall bear the full cost of such audit and shall remit
any amounts due to M.I.T. within thirty (30) days of receiving notice thereof
from M.I.T.
5.7. Late Payments. Any payments by COMPANY that are not paid on or
before the date such payments are due under this Agreement shall bear interest,
to the extent permitted by law, at two percentage points above the Prime Rate of
interest as reported in the Wall Street Journal on the date payment is due, with
interest calculated based on the number of days that payment is delinquent.
5.8. Method of Payment. All payments under this Agreement should be
made payable to "Massachusetts Institute of Technology" and sent to the address
identified below. Each payment should reference this Agreement and identify the
obligation under this Agreement that the payment satisfies.
6. Patent Prosecution.
6.1. Responsibility for PATENT RIGHTS. M.I.T. shall prepare, file,
prosecute, and maintain all of the PATENT RIGHTS. COMPANY shall have reasonable
opportunities to advise M.I.T. and shall cooperate with M.I.T. in such filing,
prosecution and maintenance. Such cooperation includes, without limitation, (i)
promptly executing all reasonable and appropriate papers and instruments to
enable M.I.T. to file, prosecute, and maintain such PATENT RIGHTS in any
country; and (ii) promptly informing M.I.T. of matters that may affect the
preparation, filing, prosecution, or maintenance of any such PATENT RIGHTS (such
as becoming aware of an additional inventor who is not listed as an inventor in
a patent application).
6.2. International (non-United States) Filings. Appendix B is a list of
countries in which patent applications corresponding to the United States patent
applications listed in Appendix A shall be filed. Appendix B may be amended by
mutual agreement of COMPANY and M.I.T.
6.3. Payment of Expenses. Payment of all fees and costs, including
attorneys fees, relating to the filing, prosecution and maintenance of the
PATENT RIGHTS shall be the responsibility of COMPANY, whether such amounts were
incurred before or after the Effective Date. As of February 2, 1998, M.I.T. has
incurred approximately $44,000 for such patent-related fees and costs. COMPANY
shall reimburse all amounts due pursuant to this Section within thirty (30) days
of invoicing except as specified in Section 4.1 (iii) for expenses incurred
prior to the
February 10, 1998 Page-16-of-26-
<PAGE> 18
Effective Date. Late payments shall accrue interest pursuant to Section 5.7. In
all instances, M.I.T. shall pay the fees prescribed for large entities to the
United States Patent and Trademark Office.
7. Infringement.
7.1. Notification of Infringement. Each party agrees to provide written
notice to the other party promptly after becoming aware of any infringement of
the PATENT RIGHTS.
7.2. COMPANY Right to Prosecute. So long as COMPANY remains the only
licensee of the PATENT RIGHTS in the FIELD, COMPANY, to the extent permitted by
law, shall have the right, under its own control and at its own expense, to
prosecute any third party infringement of the PATENT RIGHTS or to defend the
PATENT RIGHTS in any declaratory judgment action brought by a third party that
alleges invalidity, unenforceability, or non-infringement of the PATENT RIGHTS.
Prior to commencing any such action, COMPANY shall consult with M.I.T. and shall
consider the views of M.I.T. regarding the advisability of the proposed action
and its effect on the public interest. COMPANY shall not enter into any
settlement, consent judgment, or other voluntary final disposition of any
infringement action under this Section without the prior written consent of
M.I.T.
7.3. Recovery. Any recovery obtained in an action brought by COMPANY
under Section 7.2 shall be distributed as follows: (i) each party shall be
reimbursed for any expenses incurred in the action (including the amount of any
royalty or other payments withheld from M.I.T. as described below), (ii) as to
ordinary damages, COMPANY shall receive an amount equal to its lost profits or a
reasonable royalty on the infringing sales (whichever measure of damages the
court shall have applied), and COMPANY shall pay to M.I.T. based upon such
amount a reasonable approximation of the royalties and other amounts that
COMPANY would have paid to M.I.T. if COMPANY had sold the infringing products,
processes and services rather than the infringer, and (iii) as to special or
punitive damages, the parties shall share equally in any award. COMPANY may
offset a total of fifty percent (50%) of any expenses incurred under this
Section and Section 7.2 against any running royalty payments due to
M.I.T. under this Agreement, provided that in no event shall the running royalty
payments under Section 4.3., when aggregated with any other offsets and credits
allowed under this Agreement, be reduced by more than fifty percent (50%) in any
REPORTING PERIOD.
7.4. M.I.T. as Indispensable Party. M.I.T. shall permit any action
under Section 7.2 to be brought in its name, including being joined as a
party-plaintiff, if required by law, provided that
February 10, 1998 Page-17-of-26-
<PAGE> 19
COMPANY shall hold M.I.T. harmless from, and if necessary indemnify M.I.T.
against, any costs, expenses, or liability that M.I.T. may incur in connection
with such action.
7.5. M.I.T. Right to Prosecute. In the event that COMPANY fails to
initiate an infringement action within a reasonable time after it first becomes
aware of the basis for such action, or to answer a declaratory judgment action
within a reasonable time after such action is filed, or if COMPANY does not have
standing to bring an action under this Article, M.I.T. shall have the right, at
its sole discretion, to prosecute such infringement or answer such declaratory
judgment action, under its sole control and at its sole expense, and any
recovery obtained shall be given to M.I.T.
7.6. Cooperation. Each party agrees to cooperate fully in any action
under this Article which is controlled by the other party, provided that the
controlling party reimburses the cooperating party promptly for any costs and
expenses incurred by the cooperating party in connection with providing such
assistance.
8. TERM and Termination.
8.1. TERM. This Agreement shall commence on the Effective Date and
shall remain in effect until the expiration or abandonment of all issued patents
and filed patent applications within the PATENT RIGHTS, unless earlier
terminated in accordance with the provisions of this Agreement.
8.2. Voluntary Termination by COMPANY. COMPANY shall have the right to
terminate this Agreement, for any reason, (i) upon at least six (6) months prior
written notice to M.I.T., such notice to state the date at least six (6) months
in the future upon which termination is to be effective, and (ii) upon payment
of all amounts due to M.I.T. through such effective date.
8.3. Termination for Default.
(a) Nonpayment. Except as provided in Section 4.1 (iii), in
the event COMPANY fails to pay any amounts due and payable to M.I.T. hereunder,
and fails to make such payments within thirty (30) days after receiving written
notice thereof, M.I.T. may terminate this Agreement immediately upon written
notice to COMPANY.
(b) Material Breach. Except as provided in Section 2.1 and 8.3
(a), in the event COMPANY commits a material breach of its obligations under
this Agreement, and fails to cure
February 10, 1998 Page-18-of-26-
<PAGE> 20
that breach within sixty (60) days after receiving written notice thereof,
M.I.T. may terminate this Agreement immediately upon written notice to COMPANY.
8.4. Force Majeure. Neither party will be responsible for delays
resulting from causes beyond the reasonable control of such party, including
without limitation fire, explosion, flood, war, strike, or riot, provided that
the nonperforming party uses commercially reasonable efforts to avoid or remove
such causes of nonperformance and continues performance under this Agreement
with reasonable dispatch whenever such causes are removed.
8.5. Effect of Termination. The following provisions shall survive the
expiration or termination of this Agreement: Articles 1 and 9, and Sections
3.2., 3.5., 4.6, 5.2. (obligation to provide final report and payment), 5.6.,
8.5., and 10.8. Upon the early termination of this Agreement, COMPANY and its
AFFILIATES and SUBLICENSEES may complete and sell any work-in-progress and
inventory of LICENSED PRODUCTS that exist as of the effective date of
termination, provided that (i) COMPANY is current in payment of all amounts due
M.I.T. under this Agreement, (ii) COMPANY pays M.I.T. the applicable running
royalty or other amounts due on such sales of LICENSED PRODUCTS in accordance
with the terms and conditions of this Agreement, and (iii) COMPANY and its
AFFILIATES and SUBLICENSEES shall complete and sell all work-in-progress and
inventory of LICENSED PRODUCTS within six (6) months after the effective date of
termination.
9. Dispute Resolution.
9.1. Mandatory Procedures. The parties agree that any dispute arising
out of or relating to this Agreement shall be resolved solely by means of the
procedures set forth in this Article, and that such procedures constitute
legally binding obligations that are an essential provision of this Agreement;
provided, however, that all procedures and deadlines specified in this Article
may be modified by written agreement of the parties. If either party fails to
observe the procedures of this Article, as may be modified by their written
agreement, the other party may bring an action for specific performance of these
procedures in any court of competent jurisdiction.
9.2. Dispute Resolution Procedures.
(a) Negotiation. In the event of any dispute arising out of or
relating to this Agreement, the affected party shall notify the other party, and
the parties shall attempt in good faith to resolve the matter within ten (10)
days after the date of such notice (the "Notice Date"). Any disputes not
resolved by good faith discussions shall be referred to the Director or
Assistant
February 10, 1998 Page-19-of-26-
<PAGE> 21
Director of the Technology Licensing Office for M.I.T. and to a senior executive
for the COMPANY (collectively, the "Executives"), who shall meet at a mutually
acceptable time and location within thirty (30) days after the Notice Date and
attempt to negotiate a settlement.
(b) Mediation. If the matter remains unresolved within sixty
(60) days after the Notice Date, or if the Executives fail to meet within thirty
(30) days after the Notice Date, either party may initiate mediation upon
written notice to the other party, whereupon both parties shall be obligated to
engage in a mediation proceeding under the then current Center for Public
Resources ("CPR") Model Procedure for Mediation of Business Disputes
(http://www.cpradr.org/medmodel.htm), except that specific provisions of this
Article 9 shall override inconsistent provisions of the CPR Model Procedure. The
mediator will be selected from the CPR Panels of Neutrals. If the parties cannot
agree upon the selection of a mediator within ninety (90) days after the Notice
Date, then upon the request of either party, the CPR shall appoint the mediator.
The parties shall attempt to resolve the dispute through mediation until one of
the following occurs: (i) the parties reach a written settlement; (ii) the
mediator notifies the parties in writing that they have reached an impasse;
(iii) the parties agree in writing that they have reached an impasse; or (iv)
the parties have not reached a settlement within one hundred and twenty (120)
days after the Notice Date.
(c) Trial Without Jury. If the parties fail to resolve the
dispute through mediation, or if neither party elects to initiate mediation,
each party shall have the right to pursue any other remedies legally available
to resolve the dispute, provided, however, that the parties expressly waive any
right to a jury trial in any legal proceeding under this Article 9.
9.3. Preservation of Rights Pending Resolution.
(a) Performance to Continue. Each party shall continue to
perform its obligations under this Agreement pending final resolution of any
dispute arising out of or relating to this Agreement; provided, however, that a
party may suspend performance of its obligations during any period in which the
other party fails or refuses to perform its obligations. Nothing in this Article
is intended to relieve COMPANY from its obligation to make payments pursuant to
Articles 4 and 6 of this Agreement.
(b) Provisional Remedies. Although the procedures specified in
this Article 9 are the sole and exclusive procedures for the resolution of
disputes arising out of or relating to this Agreement, either party may seek a
preliminary injunction or other provisional equitable relief if, in
February 10, 1998 Page-20-of-26-
<PAGE> 22
its reasonable judgment, such action is necessary to avoid irreparable harm to
itself or to preserve its rights under this Agreement.
(c) Statute of Limitations. The parties agree that all
applicable statutes of limitation and time-based defenses (such as estoppel and
laches) shall be tolled while the procedures set forth in Sections 9.2.(a) and
9.2(b) are pending. The parties shall cooperate in taking any actions necessary
to effectuate this result.
10. Miscellaneous.
10.1. No Representations or Warranties. EXCEPT AS OTHERWISE EXPRESSLY
SET FORTH IN THIS AGREEMENT, M.I.T. MAKES NO REPRESENTATIONS OR WARRANTIES OF
ANY KIND CONCERNING THE PATENT RIGHTS, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
NONINFRINGEMENT, VALIDITY OF PATENT RIGHTS CLAIMS, WHETHER ISSUED OR PENDING,
AND THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE.
Specifically, and not to limit the foregoing, M.I.T. makes no warranty or
representation (i) regarding the validity or scope of the PATENT RIGHTS, (ii)
that the exploitation of the PATENT RIGHTS or any LICENSED PRODUCT or LICENSED
PROCESS will not infringe any patents or other intellectual property rights of
M.I.T. or of a third party, and (iii) that M.I.T. or a third party is not
currently infringing or will not infringe the PATENT RIGHTS.
IN NO EVENT SHALL M.I.T., ITS TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES
AND AFFILIATES BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND,
INCLUDING ECONOMIC DAMAGES OR INJURY TO PROPERTY AND LOST PROFITS, REGARDLESS OF
WHETHER M.I.T. SHALL BE ADVISED, SHALL HAVE OTHER REASON TO KNOW, OR IN FACT
SHALL KNOW OF THE POSSIBILITY OF THE FOREGOING.
10.2. Compliance with Law and Policies. COMPANY agrees to comply with
applicable law and the policies of M.I.T. in the area of technology transfer and
shall promptly notify M.I.T. of any violation that COMPANY knows or has reason
to believe has occurred or is likely to occur. The M.I.T. policies currently in
effect are available through the M.I.T. Technology Licensing Office and at the
following World Wide Web address: http://web.mit.edu/tlo/www/guide.toc.html.
February 10, 1998 Page-21-of-26-
<PAGE> 23
10.3. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
10.4. Headings. All headings are for convenience only and shall not
affect the meaning of any provision of this Agreement.
10.5. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective permitted successors and
assigns.
10.6. Assignment. This Agreement is personal to COMPANY and no rights
or obligations may be assigned by COMPANY without the prior written consent of
M.I.T. A purchase of a majority of COMPANY's outstanding voting securities by a
third party without M.I.T.'s prior written consent shall terminate this
Agreement effective on the date of such purchase.
10.7. Amendment and Waiver. This Agreement may be amended,
supplemented, or otherwise modified only by means of a written instrument signed
by both parties. Any waiver of any rights or failure to act in a specific
instance shall relate only to such instance and shall not be construed as an
agreement to waive any rights or fail to act in any other instance, whether or
not similar.
10.8. Governing Law. This Agreement and all disputes arising out of or
related to this Agreement, or the performance, enforcement, breach or
termination hereof, and any remedies relating thereto, shall be construed,
governed, interpreted and applied in accordance with the laws of the
Commonwealth of Massachusetts, U.S.A., without regard to conflict of laws
principles, except that questions affecting the construction and effect of any
patent shall be determined by the law of the country in which the patent shall
have been granted.
10.9. Notice. Any notices required or permitted under this Agreement
shall be in writing, shall specifically refer to this Agreement, and shall be
sent by hand, recognized national overnight courier, confirmed facsimile
transmission, confirmed electronic mail, or registered or certified mail,
postage prepaid, return receipt requested, to the following addresses or
facsimile numbers of the parties:
If to M.I.T.: Technology Licensing Office, Room NE25-230
Massachusetts Institute of Technology
77 Massachusetts Avenue
February 10, 1998 Page-22-of-26-
<PAGE> 24
Cambridge, MA 02139-4307
Attention: Director
Tel: 617-253-6966
Fax: 617-258-6790
If to COMPANY: Robin T. Johannink, President/CEO
PO Box 90725
Auckland Mail Centre, New Zealand
Tel: 64-9-309 5221
Fax: 64-9-307 1740
All notices under this Agreement shall be deemed effective upon receipt. A party
may change its contact information immediately upon written notice to the other
party in the manner provided in this Section.
10.10. Severability. In the event that any provision of this Agreement
shall be held invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect any other provision of this Agreement, and the
parties shall negotiate in good faith to modify the Agreement to preserve (to
the extent possible) their original intent. If the parties fail to reach a
modified agreement within sixty (60) days after the relevant provision is held
invalid or unenforceable, then the dispute shall be resolved in accordance with
the procedures set forth in Article 9. While the dispute is pending resolution,
this Agreement shall be construed as if such provision were deleted by agreement
of the parties.
10.11. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to its subject matter and supersedes
all prior agreements or understandings between the parties relating to its
subject matter.
February 10, 1998 Page-23-of-26-
<PAGE> 25
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives.
THE EFFECTIVE DATE OF THIS AGREEMENT IS FEBRUARY 10, 1998.
MASSACHUSETTS INSTITUTE OF PACIFIC LITHIUM LIMITED
TECHNOLOGY
By: /s/ J. David Litster By: /s/ Robin T. Johannink
Name: J. David Litster Name: Robin Theodorus Johannink
Title: Vice President for Research Title: Managing Director
MASSACHUSETTS INSTITUTE OF
TECHNOLOGY
By:
Name:
Title: Vice President for Research
February 10, 1998 Page-24-of-26-
<PAGE> 26
APPENDIX A
List of Patent Applications and Patents
M.I.T. Case No. 7960
"Glass Compositions for Anode Materials in Rechargeable Lithium Batteries"
by Gerbrand Ceder and Yet-Ming Chiang;
disclosure filed with M.I.T. Technology Licensing Office on 2/2/98
M.I.T. Case No. 7959
"Solid Polymer Electrolyte Lithium Battery and Process of Manufacture"
by Yet-Ming Chiang and Anne M. Mayes
disclosure filed with M.I.T. Technology Licensing Office on 2/1/98
M.I.T. Case No. 7799
"Mixed Ionic-Electronic Conducting Binder for Lithium Battery Electrodes,"
by Yet-Ming Chiang, Anne M. Mayes, and Donald R. Sadoway
disclosure filed with M.I.T. Technology Licensing Office on 7/2/97
M.I.T. Case 7124
"Polymer Electrolyte, Intercalation Compounds and Electrodes for Batteries"
by Mehmet K. Aydinol, Gerbrand Ceder, Yet-ming Chiang, Biying Huang, And
Young-il Jang
U.S. Patent Application filed 10/10/97
based on Provisional Patent Applications 60/028278 filed 10/11/96 and 60/053876
filed 7/28/97
M.I.T. Case 7054
"Polymer Electrolyte, Intercalation Compounds and Electrodes for Batteries"
by Anne M. Mayes And Philip P. Soo
U.S. Patent Application No. filed 10/10/97
based on Provisional Patent Application 60/028,341 filed 10/11/96
M.I.T. Case 6774
"Polymer Electrolyte, Intercalation Compounds and Electrodes for Batteries"
by Anne M. Mayes And Donald R. Sadoway
U.S. Patent Application No. filed 10/10/97
based on Provisional Patent Application 60/08,342 filed 10/11/96
February 10, 1998 Page-25-of-26-
<PAGE> 27
PCT application PCT/US97/18839 filed on 10/10/97 designating all PCT
contracting states for the following M.I.T. Cases:
M.I.T. Case 7124
"Polymer Electrolyte, Intercalation Compounds and Electrodes for
Batteries" by Mehmet K. Aydinol, Gerbrand Ceder, Yet-ming Chiang,
Biying Huang And Young-il Jang
M.I.T. Case 7054
"Polymer Electrolyte, Intercalation Compounds and Electrodes for
Batteries" by Anne M. Mayes And Philip P. Soo
M.I.T. Case 6774
"Polymer Electrolyte, Intercalation Compounds and Electrodes for
Batteries" by Anne M. Mayes And Donald R. Sadoway
February 10, 1998 Page -26- of -26-
<PAGE> 28
FIRST AMENDMENT
This is an Amendment with the effective date of to
the License Agreement dated February 10, 1998 between the Massachusetts
Institute of Technology ("M.I.T.") and PACIFIC LITHIUM, LTD.
("COMPANY"). The parties thereto now further agree as follows:
1. Paragraph 3.1 (f) shall be deleted, thereby deleting the
requirement for COMPANY to sponsor research at M.I.T. as a
condition of the License Agreement.
2. The remaining portion of the License Issue Fee of $350,000
due on December 31, 1998 under Paragraph 4.1 of the License
Agreement, and the License Maintenance Fee of $100,000 due on
January 1, 1999 under Paragraph 4.2 of the License Agreement
shall both be due on May 15, 1999. Furthermore, if such fees
are not received by June 15, 1999 then, paragraph 8.3(a)
notwithstanding, M.I.T. shall have the right to terminate the
License Agreement effective immediately upon notice to
COMPANY.
3. As a substitute for the equity shares to be provided by
COMPANY to M.I.T. under the provisions of Paragraph 4.6 (a)
and (b) of the License Agreement, COMPANY shall grant to
M.I.T. Two Hundred Thousand (200,000) shares of common stock
of Pacific Lithium Limited, such shares to be delivered to
M.I.T. within 15 days of the effective date of this Amendment.
Thereafter, no further shares shall be due to M.I.T. except as
provided in Paragraph 4.6 (c) as amended in Item 4 below.
4. The Participation provisions of Paragraph 4.6 of the
License Agreement shall pertain to shares of Pacific Lithium,
Limited.
Agreed to for:
MASSACHUSETTS INSTITUTE PACIFIC LITHIUM LIMITED
OF TECHNOLOGY
By: /s/ Lita Nelson By: /s/ Robin T. Johannink
Name: Lita Nelson Name: Robin T. Johannink
Title: Director
Technology Licensing Office Title: Managing Director
Date: December 10, 1998 Date: 14 December 1998
<PAGE> 29
SECOND AMENDMENT
This is an Amendment with the effective date of 14 December 1998 to the
License Agreement dated February 10, 1998 between the Massachusetts Institute of
Technology ("M.I.T.") and PACIFIC LITHIUM, LTD. ("COMPANY"). The parties thereto
now further agree as follows:
1. The grant of Article II, as it pertains to anodes, shall be
nonexclusive, with full rights to sublicense.
2. M.I.T. further grants to COMPANY an option to add to the Patent
Rights of this Agreement by amendment, an exclusive license, only in the field
of use of "cathodes, "any new invention arising from the research laboratories
of Prof. Yet-Ming Chiang or Prof. Gerbrandt Ceder at M.I.T. which is:
(a) Dominated by the claims of the Patent Rights of the License
Agreement existing as of the Effective Date of the Agreement or as
shall be subsequently narrowed by the patent prosecution process of
these original Patent Rights by the time the new invention is
disclosed; and
(b) Invented within five years of the Effective Date of the License
Agreement.
Such option shall be exercisable in the following manner under the
following terms:
(i) COMPANY shall notify M.I.T. in writing within three months of
receipt of a description of the new invention that it wishes to add the
invention to the License Agreement.
(ii) COMPANY shall reimburse M.I.T. for the costs of filing,
prosecution and maintenance of the patent rights of the new invention,
but any such costs incurred shall be shared pro rata with any other
optionee(s) or licensee(s) to the patent rights at the time the costs
are incurred.
(iii) All other terms and conditions shall be as in the License
Agreement.
(iv) The exclusivity of COMPANY's license to the new invention shall be
subject to the nonexclusive license rights of the U.S. Government if
the Government was a sponsor in whole or in part to the research
leading to the invention.
Agreed to for:
MASSACHUSETTS INSTITUTE PACIFIC LITHIUM LIMITED
OF TECHNOLOGY
By: /s/Lita Nelson By: /s/Robin T. Johannink
Name: Lita Nelson Name: Robin T. Johannink
Title: Director Title: Managing Director
Technology Licensing Office
Date: December 10, 1998 Date: 14 December 1998
<PAGE> 30
THIRD AMENDMENT
This is an Amendment with the effective date of ______________________
to the License Agreement dated February 10, 1998 between the Massachusetts
Institute of Technology ("M.I.T.") and PACIFIC LITHIUM, LTD. ("COMPANY") as
amended. The parties thereto now further agree as follows.
Paragraph 3.1 (c) shall be revised to read:
COMPANY shall raise at least Ten Million Dollars ($10,000,000) by June 15, 1999
from the sale of COMPANY's equity securities for its own account. Furthermore,
Paragraph 8.3(b) notwithstanding, if COMPANY has not provided notification and
evidence to M.I.T. by June 16, 1999 that such funds have been committed to the
COMPANY, M.I.T. shall have the right to terminate this Agreement effective
immediately upon notice to COMPANY.
Agreed to for:
MASSACHUSETTS INSTITUTE PACIFIC LITHIUM LIMITED
OF TECHNOLOGY
By: /s/Lita Nelson By: /s/Robin T. Johannink
Name: Lita Nelson Name: Robin T. Johannink
Title: Director Title: Managing Director
Technology Licensing Office
Date: February 2nd, 1999 Date: 26 February 1999
<PAGE> 31
FOURTH AMENDMENT
This is an Amendment with the effective date of March 30, 1999 to the
License Agreement dated February 10, 1998, between the Massachusetts Institute
of Technology ("M.I.T.") and PACIFIC LITHIUM, LTD. ("COMPANY") as amended. The
parties now further agree as follows:
1. Paragraph 1.2 of the License Agreement shall be deleted.
2. Paragraph 1.3 of the License Agreement shall hereafter read:
"FIELD" shall mean all fields, without exception; provided
however that the field of "anodes" shall be nonexclusive as
provided in the Second Amendment dated December 14, 1998.
Agreed to for:
MASSACHUSETTS INSTITUTE PACIFIC LITHIUM LIMITED
OF TECHNOLOGY
By: /s/Lita Nelson By: /s/Robin T. Johannink
Name: Lita Nelson Name: Robin T. Johannink
Title: Director Title: Managing Director
Technology Licensing Office
Date: March 30, 1999 Date: 10 April 1999
<PAGE> 1
EXHIBIT NUMBER 10.12
<PAGE> 2
AGREEMENT FOR RESEARCH,
DEVELOPMENT AND LICENSING OF TECHNOLOGIES
BETWEEN
ENERGY VENTURES INC. (CANADA)
AND
PACIFIC LITHIUM LIMITED
PLL
OCTOBER 13, 1999
Agreement for Research, Development and Licensing of Technologies,
dated October 13, 1999 1
<PAGE> 3
AGREEMENT FOR RESEARCH, DEVELOPMENT
AND COMMERCIALISATION OF TECHNOLOGIES
PARTIES
1. ENERGY VENTURES INC. (CANADA) a duly incorporated company having its
registered office in Canada (with its affiliates, called "EVI") and
2. PACIFIC LITHIUM LIMITED a duly incorporated company having its
registered office in New Zealand (with its affiliates, called "PLL")
BACKGROUND
A. EVI is the sole and exclusive world-wide licensee and/or owner of the
proprietary rights in certain valuable Products and Processes
comprising lithium manganese oxide compounds for use as cathodes in
battery applications developed and/or owned by National Research
Council of Canada ("NRC") which proprietary rights include patents,
copyright and confidential information.
B. EVI wishes NRC and PLL to carry out additional research and development
on the Products and Processes to develop them into commercially
feasible processes and products.
C. In the event that NRC and PLL are able to work together to develop
their respective Products and Processes to produce commercially
feasible Products and Processes, PLL will elect to exercise the License
Rights to be granted by EVI under this Agreement.
D. EVI grants PLL the rights to the Licensed Products set out in this
Agreement on the terms and conditions in this Agreement.
THE PARTIES AGREE
1. The terms set out in Parts 1, 2 and 4 of this Agreement shall apply as
from the Commencement Date.
2. The terms set out in Parts 1, 2, 3 and 4 of this Agreement shall apply
in the event that the preconditions set out in Part 3 are satisfied.
Agreement for Research, Development and Licensing of Technologies,
dated October 13, 1999 2
<PAGE> 4
THIS AGREEMENT WAS EXECUTED as of the 13th day of October 1999
SIGNED by PACIFIC LITHIUM
LIMITED in accordance with its
Constitution:
<TABLE>
<S> <C>
/s/ Robin T. Johannink /s/ Keith Young
Signature of authorised person Signature of authorised person
MANAGING DIRECTOR DIRECTOR
Office held Office held
ROBIN T. JOHANNINK KEITH YOUNG
Name of authorised person (print) Name of authorised person (print)
</TABLE>
SIGNED by ENERGY VENTURES INC. (CANADA)
in accordance with its Constating Documents:
<TABLE>
<S> <C>
/s/ D. Wayne Hartford /s/ Peter F. Searle
Signature of authorised person Signature of authorised person
President and Chief Executive Officer Vice President of Finance and Treasurer
D. Wayne Hartford Peter F. Searle
Name of authorised person (print) Name of authorised person (print)
</TABLE>
Agreement for Research, Development and Licensing of Technologies,
dated October 13, 1999 3
<PAGE> 5
PART 1
INTERPRETATION
PRESUMPTIONS OF INTERPRETATION
1.0 Unless the context otherwise requires, a word which denotes:
1.1 The singular denotes the plural and vice versa;
1.2 Any gender denotes the other genders; and
1.3 A person includes an individual, a body corporate and a
government.
2.0 Unless the context otherwise requires, a reference to:
2.1 Any legislation includes any regulation or instrument made
under it and where amended, re-enacted or replaced means that
amended, re-enacted or replacement legislation;
2.2 Any other agreement or instrument where amended or replaced
means that agreement or instrument as amended or replaced;
2.3 A Clause, Schedule or annexure is a reference to a clause of,
annexure to, schedule to or exhibit to this Agreement;
2.4 A group of persons includes any one or more of them;
2.5 A party or parties is a reference to a party to or the parties
to this Agreement; and to their affiliates ("affiliate" having
the same meaning given to it in section 1(4) of the Ontario
Business Corporations Act); and
2.6 A thing or amount is a reference to the whole and each part of
it.
JOINT AND SEVERAL
3.0 An Agreement warranty representation or obligation which binds or
benefits 2 or more persons under this Agreement binds or benefits those
persons jointly and separately.
SUCCESSORS AND ASSIGNS
4.0 A person includes the trustee, executor, administrator, successor in
title and assign of that person. This Clause must not be construed as
permitting a party to assign any right under this Agreement.
Agreement for Research, Development and Licensing of Technologies,
dated October 13,1999. 4
<PAGE> 6
BUSINESS DAY
5.0 A business day is a day during which banks are open for general banking
business in Ontario.
6.0 Unless the context otherwise requires, a term of this Agreement which
has the effect of requiring anything to be done on or by a date which
is not a business day must be interpreted as if it required it to be
done on or by the next business day.
DEFINITIONS
7.0 Where commencing with a capital letter:
"COMMENCEMENT DATE" means 9 August 1999
"CONFIDENTIAL INFORMATION" means, in respect to each disclosing party,
all information provided by that party including its Intellectual
Property, and all other information relating to its processes, business
and products where knowledge of such information is not in the public
domain and might reasonably be regarded by the receiving party to be
confidential.
"CONFIRMATION DATE" means the date on which PLL gives notice of its
intention to take up its License Rights under Clause 20 but in any
event shall be not later than 31 March 2000.
"CONTRACT YEARS" refers to the 12 month periods commencing on 1 April
2000.
"INTELLECTUAL PROPERTY" means, in respect to each party, all
intellectual property of such party and of any related entity including
the patents, patents pending, copyright, secret information and
processes, all trade marks, trade names, know-how and all other
information which is commercially sensitive or commercially valuable to
that party;
"LICENSE RIGHTS" means the rights for PLL to take a license of the
Licensed Products in accordance with the terms of Part 3 of this
Agreement.
"LICENSE TERM" means the period starting on 1 April 2000 and continuing
until the last expiry date of the Patents.
"LICENSED PRODUCTS" means all Intellectual Property and Confidential
Information with respect to the Products and Processes owned by EVI or
licensed or assigned to it and/or owned by NRC, either wholly or
jointly with PLL or any other persons.
"MINIMUM GUARANTEED ROYALTY FEES" means the Minimum Guaranteed Royalty
Fees payable by PLL set out in column 4 of SCHEDULE D.
"PATENTS" means the patents for the Products set out in SCHEDULE A and
such other patents owned by EVI or NRC which are added by mutual
agreement with PLL to Schedule A during the License Term.
Agreement for Research, Development and Licensing of Technologies,
dated October 13,1999. 5
<PAGE> 7
"PROCESSES" means the processes relating to the synthesis of Products
and "PLL'S PROCESSES" shall mean the processes developed by PLL prior
to, during and after the Research and Development Program which enable
or will enable it to synthesise the Products on a commercial basis.
"PRODUCTS" means lithium manganese oxide-based products for use as
cathodes in battery applications which have been made using the
Processes developed by or licensed or assigned to EVI or by PLL and EVI
during the conduct of the Research and Development Program or R&D
program, and such other products as the parties may from time to time
include but which shall exclude Products developed by PLL prior to or
outside of the Research and Development Program or R&D program.
"R&D" means the research and development program referred to in Clause
13.2.
"RESEARCH AND DEVELOPMENT CONTRIBUTIONS" means fees payable by PLL to
EVI on account of NRC's costs in carrying out the Research and
Development Program pursuant to Clause 13.1.
"RESEARCH AND DEVELOPMENT PROGRAM" means the research program set forth
in SCHEDULE B.
"ROYALTY FEES" means the fees or share of revenue payable by PLL to EVI
on the Licensed Products set out in SCHEDULE C.
"$" and "DOLLARS" mean US dollars.
"TERRITORY" means the World
EXTENSION OF DEFINITIONS
8.0 Where a word or phrase is given a defined meaning, another part of
speech or other grammatical form in respect of that word or phrase has
a corresponding meaning.
Agreement for Research, Development and Licensing of Technologies,
dated October 13,1999. 6
<PAGE> 8
PART 2
RESEARCH AND DEVELOPMENT OF PROCESSES AND PRODUCTS
CONDUCT OF RESEARCH AND DEVELOPMENT PROGRAM
9.0 PLL shall use its best efforts to conduct the Research and Development
Program with NRC and EVI in accordance with the timetable, protocols,
objectives and procedures set out in Schedule B.
10.0 The Research and Development Program shall be carried out by the
personnel set out in Schedule B or by such other persons who shall be
acceptable to PLL, NRC and EVI.
11.0 The Research and Development Program shall be carried out at PLL and
NRC's respective research centres and PLL shall give the researchers
access to all necessary facilities to enable the Research and
Development Program to be conducted efficiently. EVI shall ensure that
NRC cooperates with PLL in relation to the Research and Development
Program.
12.0 PLL shall appoint one person to an Oversight Committee and EVI shall
ensure NRC also appoints one person. The Oversight Committee shall
supervise the conduct of the Research and Development Program and shall
be responsible for resolving all issues relating to the day to day
conduct of the Research and Development Program.
COSTS OF THE RESEARCH AND DEVELOPMENT PROGRAM AND OF R&D
13.0 PLL shall pay EVI:
13.1 The Research and Development Contributions in respect to the
Research and Development Program at the rate of $22,225 per
calendar month commencing on Commencement Date and monthly
thereafter, terminating on the expiry of three month's notice
given by PLL of its intention to cease participation in the
Research and Development Program, such notice not to be given
before 1 January 2000, such that the total Research and
Development Contributions required to be paid by PLL in
respect to the Research and Development Program shall be not
less than $200,000; and
13.2 In respect of R&D required by PLL to be carried out by NRC,
following the completion of the Research and Development
Program, for further research and development of the Licensed
Products, such fee amount, not to be less than $100,000 per
Contract Year, as is stipulated by PLL, and such further
amounts per Contract Year as PLL and EVI shall agree PROVIDED
THAT if PLL wishes to stipulate an amount below $100,000 in
any Contract Year, it shall only be entitled to license any
new Products developed by EVI or NRC in and after that
Contract Year on the commercial terms that EVI shall determine
and PROVIDED FURTHER that
Agreement for Research, Development and Licensing of Technologies,
dated October 13,1999. 7
<PAGE> 9
all R&D must be documented in a manner similar to that of
Schedule B and agreed to by both EVI and NRC.
GRANT OF RIGHTS TO LICENSED PRODUCTS
14.0 EVI grants to PLL and PLL accepts the following:
14.1 The sole and exclusive rights to exploit those Licensed
Products exclusively licensed or assigned to EVI by NRC as at
the Commencement Date.
14.2 The non-exclusive rights to exploit those Licensed Products
which are licensed to EVI or jointly owned by EVI with any
other party following license or assignment to EVI by NRC as
at the Commencement Date.
for a term commencing on the Commencement Date and terminating on the
later of 31 March 2000 or the date of effective termination of this
Agreement. During this term, EVI shall not itself use for commercial
purposes (except for research and development) nor shall it license
any of the rights granted to PLL under this Agreement to any other
person and shall ensure that NRC shall do the same.
OWNERSHIP OF JOINTLY DEVELOPED PRODUCTS
15.0 Any new Products conceived or first reduced to practice in the course
of or as a result of the Research and Development Program or the R&D
program shall, subject to Clause 13.2, be assigned into the joint
ownership of PLL and EVI and shall either be licensed exclusively to
PLL pursuant to this Agreement if PLL exercises its License Rights or
may be used by PLL and EVI independently of each other if PLL does not
exercise its License Rights PROVIDED THAT where the Products have been
developed using the intellectual property rights of any third person,
the parties shall be subject to the rights of such third person as to
the ownership and rights to the new Products.
For further clarification, prior to 1 April 2000, PLL agrees not to
sell Licensed Products or Products in commercial quantities to any
person, without the written permission of EVI.
PROTECTION OF THE INTELLECTUAL PROPERTY IN THE JOINTLY DEVELOPED PRODUCTS
16.0 PLL shall either at its discretion or at the request of EVI, file and
keep current in the joint names of EVI and PLL such patent applications
as are reasonably required to protect the interests of EVI and PLL in
the Intellectual Property for the jointly developed Products in the
countries that the parties consider appropriate. The costs of applying
for, prosecuting and maintaining such patent applications shall be
borne by PLL.
17.0 EVI shall at the request of PLL, provide PLL with all documents
required by PLL to effect the filing of the patent applications and
shall ensure NRC provides the same, including assignments of rights
signed by the inventors employed by NRC.
OWNERSHIP OF PROCESSES
18.0 EVI acknowledges:
Agreement for Research, Development and Licensing of Technologies,
dated October 13,1999 8
<PAGE> 10
18.1 as at the date of execution of this Agreement, PLL is the
owner of PLL's Processes and that neither EVI nor NRC have
developed their know-how to the point that they can synthesise
the Products on a commercially viable basis.
18.2 for itself and NRC, that all additions to PLL's Processes
conceived or first reduced to practice in the course of or as
a result of the Research and Development Program shall be
assigned into the sole and exclusive ownership of PLL.
Agreement for Research, Development and Licensing of Technologies,
dated October 13,1999 9
<PAGE> 11
PART 3
LICENSING OF PROCESSES AND PRODUCTS
CONFIRMATION OF UPTAKE OF LICENSE RIGHTS
19.0 This Part 3 shall commence and be in full force and effect if PLL in
its absolute discretion determines that the jointly developed Processes
and Products are capable of producing processes and products which meet
PLL's target specifications (which include performance, price, ability
to be commercially manufactured, stability and other factors) and gives
notice to EVI that it takes up the License Rights hereunder.
PART 3 CONDITIONAL
20.0 The application of this Part 3 is conditional upon PLL confirming its
wish to take up the License Rights on or before 31 March 2000 or such
later date agreed by EVI, failing which, this Part 3 shall have no
effect.
GRANT OF LICENSE RIGHTS
21.0 EVI or, at the election of EVI any related company of EVI, in respect
of any part of the following rights, grants to PLL and PLL accepts the
following for the License Term:
21.1 The sole and exclusive rights to exploit the Licensed Products
owned by EVI or exclusively licensed or assigned to EVI by NRC
as at the Confirmation Date.
21.2 The non-exclusive rights to exploit the Licensed Products
owned by EVI or jointly owned by EVI with any other party or
non-exclusively licensed or assigned to EVI by NRC as at the
Confirmation Date.
21.3 The exclusive rights to exploit the Licensed Products and
Processes either owned by EVI or licensed or assigned to EVI
by NRC or jointly owned by EVI with PLL following licensing or
an assignment to EVI by NRC which exist at 1 April 2000 or
which arise at any time during the License Term, subject to
the provisions of Clause 13.2.
Should EVI elect that the grant of the above rights be in part or in
total by a related company of EVI, the parties agree, in such event, to
execute such appropriate other agreement or agreements containing the
terms herein agreed.
CONSIDERATION FOR LICENSE RIGHTS
22.0 PLL shall pay to EVI the following:
22.1 The Minimum Guaranteed Royalty Fee for the first Contract Year
of $100,000 which shall be paid within 90 days of the
Confirmation Date; and
Agreement for Research, Development and Licensing of Technologies,
dated October 13, 1999. 10
<PAGE> 12
22.2 Either:
(a) The Royalty Fees calculated on the license fees and
royalties or on the net sales of manufactured
Licensed Products and Products in each Contract
Year, as set out in SCHEDULE C, subject to adjustment
pursuant to Clauses 25 and 26; or
(b) The Minimum Guaranteed Royalty Fees of each Period or
Contract Year as set out in Column 4 of SCHEDULE D.
whichever shall be the greater
PROVIDED THAT
(c) respecting the first Contract Year only, the amount
so computed shall be reduced by the $100,000 to be
paid as per Clause 22.1;
(d) the amounts paid by PLL to EVI in respect of R&D as
per Clause 13.2 shall be credited to PLL as
non-refundable payments on account of the Minimum
Guaranteed Royalty Fees of the Contract Year of
receipt of payment;
(e) The Minimum Guaranteed Royalty Fees payable
respecting any Contract Year shall be adjusted to
reflect the actual selling price of Licensed Products
or Products and of battery cells utilising the
Licensed Products or Products.
23.0 The Royalty Fees, shall be calculated quarterly and payable no later
than 30 days following the end of each Contract Year quarter. The
payment respecting the final quarter of any Contract Year shall be
adjusted as required to attain at least the Minimum Guaranteed Royalty
Fees for that Contract Year.
24.0 Research and Development Contributions shall be treated by EVI as
non-refundable advance payments of the Minimum Guaranteed Royalty Fees
through 31 March 2000. Amounts paid by PLL to EVI in respect of R&D as
per Clause 13.2 shall be credited to PLL as non-refundable payments on
account of the Minimum Guaranteed Royalty Fees as set out in Column 4
of Schedule D of the applicable Contract Year or on account of Royalty
Fees of such year.
ADJUSTMENT TO ROYALTY FEES
25.0 EVI acknowledges that:
25.1 PLL is the licensee of products and processes developed and
owned by third parties (including Massachusetts Institute of
Technology) and that there may be advantages in combining
those third parties' know-how with the Licensed Products;
25.2 It will join in negotiations with PLL and such third parties
and shall in good faith, use its best efforts to agree on the
amount of Royalty Fees or royalties to be paid by PLL to EVI
and the third parties provided that the total Royalty Fees or
royalties
Agreement for Research, Development and Licensing of Technologies,
dated October 13, 1999. 11
<PAGE> 13
payable by PLL to all parties shall not exceed the Royalty
Fees that would have been payable to EVI if the third parties
know-how had not been used. Multiple Royalty Fees shall not be
due to EVI if the sale, use, lease or manufacture of any
Licensed Products or Products is covered by more than one of
the Patents. Nothing in this Clause shall oblige EVI to accept
a reduction in the Royalty Fees due to it.
26.0 If PLL funds R&D as per Clause 13.2 in an amount below $100,000 for any
Contract Year within the first five years of the License Term, the
license set out in this Agreement shall cease to be "sole and
exclusive" for Contract Years subsequent to such year and the Minimum
Guaranteed Royalty Fees as set out in Column 4 of Schedule D shall
reduce by:
26.1 one third for the sixth to tenth Contract Years of the License
Term; subsequent to such year
26.2 two thirds for the eleventh to fifteenth Contract Years of the
License Term subsequent to such year;
and thereafter be at zero.
PAYMENT OF PATENT COSTS
27.0 PLL shall manage the prosecution, grant and continuing registration of
all patents filed or required by the parties to be filed in respect to
the Licensed Products or Products and shall promptly pay all such
costs.
TARGET SALES
28.0 PLL shall use its best endeavours to:
28.1 Construct and commission a pilot plant capable of producing
commercial quality Products on or before the Confirmation
Date; and
28.2 Achieve the target sales of Products set out in SCHEDULE D.
INFORMATION AND AUDIT
29.0 EVI shall be entitled to receive:
29.1 Quarterly reports from PLL detailing research and development,
manufacturing, marketing and sales activities in the preceding
Contact Year quarter, within 30 days of the end of such
quarter;
29.2 Such information that EVI may reasonably require to calculate
the amount of Royalty Fees computed as per Schedule C; and
29.3 Advice of all sublicenses granted by PLL respecting Licensed
Products or Products and, within a reasonable period of time
after the grant of any such sublicense, a certified copy of
such sublicense agreement.
Agreement for Research, Development and Licensing of Technologies,
dated October 13, 1999. 12
<PAGE> 14
30.0 EVI may from time to time, by its representative or by an independent
accountant or auditor, examine or audit the records of PLL relating to
any information which PLL has provided to EVI or which PLL is required
to have provided to EVI but has failed to do so.
31.0 EVI shall pay the cost of any inspection or audit carried out pursuant
to the immediately preceding Clause if the audit or inspection
establishes that information provided by PLL to EVI was complete and
correct.
32.0 PLL shall pay the cost of any inspection or audit carried out pursuant
to Clause 30 if the audit or inspection is required to obtain
information which PLL has failed to provide or if the audit or
inspection establishes that information provided by PLL to EVI was
incorrect or incomplete other than in a particular which is trivial or
minor.
COLLABORATIVE MARKETING
33.0 PLL acknowledges that EVI wishes PLL to sublicense the use of the
Licensed Products or Products by battery manufacturers for maximum
generation of Royalty Fees. PLL and EVI agree to collaborate on the
identification, presentation and marketing of sub-licenses of the
Licensed Products or Products to battery manufacturers and such other
potential sub-licensees as the parties consider appropriate from time
to time. PLL shall not refuse to grant a sub-license of the License
Rights to any person who meets the criteria reasonably set by PLL and
EVI for a suitable licensee except with the prior approval of EVI, such
approval not to be unreasonably withheld.
TERMINATION OF EXCLUSIVITY OF LICENSE RIGHTS
34.0 The exclusivity of the License Rights may be reduced to non-exclusive
License Rights by:
34.1 EVI, in the event that PLL fails to meet a) the Minimum
Guaranteed Royalty Fees in any two consecutive Contract Years
and b) the accumulative Minimum Guaranteed Royalty Fees of the
same two consecutive Contract Years, or
34.2 PLL, in the event that it reasonably believes that it will be
unable to meet the Minimum Guaranteed Royalty Fees respecting
Contract Years ending 31 March 2003 or later,
and in such circumstances:
(a) the Minimum Guaranteed Royalty Fees shall reduce in
accordance with Clause 26 PROVIDED THAT if PLL has
paid EVI Royalty Fees of at least $1,000,000 as at
that date, the Minimum Guaranteed Royalty Fees shall
then not apply to PLL; and
(b) EVI may grant License Rights to any other person or
persons on such terms and conditions as it considers
appropriate.
Agreement for Research, Development and Licensing of Technologies,
dated October 13,1999. 13
<PAGE> 15
(c) where EVI grants License Rights to another person on
terms and conditions more favourable than those
applying to PLL under this Agreement, EVI shall
extend the more favourable terms and conditions to
PLL.
Agreement for Research, Development and Licensing of Technologies,
dated October 13,1999. 14
<PAGE> 16
PART 4
GENERAL TERMS AND CONDITIONS
OWNERSHIP OF INTELLECTUAL PROPERTY
35.0 PLL acknowledges and agrees that EVI has license or other rights to the
Intellectual Property in respect to EVI's and NRC's Processes and
Products. In order to protect and maintain EVI's and NRC's rights in
the above, PLL shall:
35.1 Use EVI's and NRC's Intellectual Property solely in accordance
with this Agreement and in accordance with all instructions,
rules and procedures prescribed by EVI and NRC from time to
time;
35.2 Not orally or in writing attack or contest, including by or in
any administrative or judicial action or proceeding before any
governmental authority, the ownership of EVI's or NRC's
Intellectual Property nor will PLL orally or in writing
disparage the name, the Intellectual Property or the
reputation of EVI or NRC.
36.0 EVI acknowledges and agrees on behalf of itself and NRC, that PLL has
sole and exclusive rights to the Intellectual Property in respect to
PLL's Processes and Products. In order to protect and maintain PLL's
rights in the above, EVI shall (and shall ensure that NRC shall also):
36.1 Use PLL's Intellectual Property solely in accordance with this
Agreement and in accordance with all instructions, rules and
procedures prescribed by PLL from time to time;
36.2 Not orally or in writing attack or contest, including by or in
any administrative or judicial action or proceeding before any
governmental authority, the ownership of PLL's Intellectual
Property nor orally or in writing disparage the name, the
Intellectual Property or the reputation of PLL.
37.0 EVI warrants and undertakes to PLL that EVI and/or its related
companies have full right, power and entitlement to grant to PLL the
License Rights over all of NRC's Licensed Products and Products and
NRC's Processes set out in this Agreement and NRC shall provide PLL
with such evidence as PLL shall reasonably require to establish such
claim.
RIGHTS IN THE INTELLECTUAL PROPERTY UPON TERMINATION OF THIS AGREEMENT
38.0 On termination of this Agreement PLL and EVI will:
38.1 Immediately cease to use the Intellectual Property of the
other (including, in the case of PLL ceasing to use the
Intellectual Property of NRC), except for Intellectual
Property jointly owned by PLL and EVI;
Agreement for Research, Development and Licensing of Technologies,
dated October 13,1999. 15
<PAGE> 17
38.2 Not thereafter do or display or suffer or permit to be done or
displayed any act matter or thing which may lead or induce or
shall be calculated or likely to lead or induce members of the
public to believe that the parties are still connected or
associated in any way with each other or are still entitled to
market or distribute the Products
and EVI shall ensure that NRC shall also comply with the obligations of
this Clause as if it were EVI.
39.0 If any party fails to comply with Clause 38.2 then the other party by
its employees and agents may enter the defaulting party's premises and
remove all of its Intellectual Property and material relating to its
Intellectual Property. All costs and expenses incurred in so doing
shall be recoverable as a debt owing by the defaulting party.
CONFIDENTIALITY
40.0 No party will (and EVI shall ensure that NRC shall not) disclose to any
person any Confidential Information, unless that disclosure is
expressly authorised in writing by the owner of such Confidential
Information.
41.0 Other than may be necessary to reasonably carry out either party's day
to day commercial activities, neither party shall (and EVI shall ensure
that NRC shall not) disclose the terms of this Agreement nor issue any
promotional material or other public announcement or disclosure in
respect to the existence or nature of the relationship between PLL, EVI
and NRC without the prior approval of all of such persons in writing.
SPECIFIC SECRECY OBLIGATIONS
42.0 Each of the Parties shall (and EVI shall ensure that NRC shall):
42.1 Treat as confidential and keep absolutely secret, all the
Confidential Information received by it from the other party;
42.2 Take all proper and effective precautions to prevent the
disclosure of the Confidential Information and to preserve the
secrecy and confidentiality of the Confidential Information
including, without limitation, taking all necessary action to
prevent unauthorised persons from obtaining access to the
Confidential Information whether by a direct or indirect
exposure to it or otherwise;
42.3 Take all reasonable steps to ensure that its employees or
agents also observe the secrecy requirements of this
Agreement; and
42.4 Return to the owner all physical or written records containing
the Confidential Information or documentation relating to or
concerning the Confidential Information including copies of
documentation then in existence immediately upon the
termination or expiration of this Agreement.
Agreement for Research, Development and Licensing of Technologies,
dated October 13, 1999 16
<PAGE> 18
CIRCUMSTANCES WHEN DISCLOSURE OF CONFIDENTIAL INFORMATION IS PERMITTED
43.0 A party is relieved of its obligations to preserve the confidentiality
of the Confidential Information if and only to the extent that:
43.1 Such Confidential Information is or becomes generally publicly
available other than as a result of a breach of this Agreement
by the party; or
43.2 Such Confidential Information was developed independently by
the party; or
43.3 Specific disclosure was required by law.
BEST ENDEAVOURS
44.0 Each of the parties shall do (and EVI shall ensure that NRC will do)
all things necessary to carry out the terms of this Agreement to the
fullest effect in accordance with best business practice. In
particular, each of the parties shall:
44.1 Diligently and fully exploit (or support the exploitation of)
the License Rights under this Agreement; and
44.2 Keep free from conflicting enterprises or any other activities
which would be detrimental to or interfere with the conduct of
this Agreement.
PROHIBITIONS
45.0 None of the parties shall (and EVI shall ensure that NRC shall not):
45.1 Use the Intellectual Property of the other parties except in
the manner permitted in this Agreement;
45.2 Be a party to the doing of any act whereby the goodwill trade
or business of the other party may be prejudicially affected;
45.3 Hold itself out as an affiliate of the other;
45.4 Pledge the credit of the other party;
INDEMNITY AND WARRANTIES
46.0 Each of the parties unconditionally and irrevocably indemnifies the
other against any loss, liability, costs or expenses which the other
party may incur because it or NRC:
46.1 Fails to pay any moneys due and payable to the other party (or
within any applicable period of grace) or in the manner
required;
46.2 Fails to perform any of its obligations under this Agreement
or under any other contractual arrangement between it and the
other party;
Agreement for Research, Development and Licensing of Technologies,
dated October 13, 1999 17
<PAGE> 19
46.3 Has infringed the intellectual property rights of any other
person.
And it will on demand pay to the other party the amount of that loss,
liability, cost or expense.
RIGHT TO PROSECUTE INFRINGEMENTS OF THE INTELLECTUAL PROPERTY
47.0 PLL shall have the right under its control and at its own expense to
prosecute any third party infringements of EVI or NRC's Intellectual
Property so long as it is the sole and exclusive licensee of EVI's and
NRC's Intellectual Property. EVI shall cooperate with PLL (and shall
ensure NRC's cooperation) on any action brought by PLL under this
Clause subject only to PLL paying EVI and NRC's reasonable costs.
48.0 Nothing in Clause 47 shall oblige PLL to take any action that it does
not consider to be in its best interests. However, in such
circumstances, EVI may at its discretion and cost, take such action and
any recovery obtained by EVI shall be the property of EVI. PLL shall
cooperate with EVI on any action brought by EVI under this Clause
subject only to EVI paying PLL's reasonable costs.
TERMINATION
49.0 PLL shall have the right to terminate this Agreement at the end of any
Contract Year for any reason upon at least 12 month's written notice to
EVI.
50.0 Either Party may elect to terminate this Agreement by giving notice in
writing to the other party of its intention to do so if the other
party:
50.1 Commits a breach of any of the provisions of this Agreement
and fails to rectify the breach (if capable of being
rectified) within 30 days of being required to do so in
writing other than, in the case of PLL, a failure to meet the
target sales as set out in Schedule D;
50.2 Commits an act of bankruptcy or fails to contest within ten
working days of service of any petition in liquidation;
50.3 Becomes the subject of any proceedings to obtain an order or
resolution for its winding up (except as part of a bona fide
reconstruction scheme);
50.4 Has a receiver/manager, official manager or provisional
liquidator appointed over the whole or part of its
undertakings or assets;
50.5 Has an execution or other process of any court or authority or
any distress levied upon any of its property without it being
paid out, set aside or withdrawn within 14 days of its issue;
50.6 Has a substantial part of its assets resumed, confiscated or
forfeited;
Agreement for Research, Development and Licensing of Technologies,
dated October 13, 1999 18
<PAGE> 20
50.7 Agrees with the other party in writing to terminate this
Agreement at the end of any Contract Year; or
50.8 After remedying any default in respect to which notice
requiring it to remedy such default was given, continues to
engage in the same non-compliance whether or not corrected
after such notice.
CONSEQUENCES OF TERMINATION OR EXPIRATION
51.0 In the event that this Agreement expires or is terminated:
51.1 All rights of PLL under this Agreement will terminate;
51.2 PLL will forthwith;
(a) Pay to EVI any outstanding Research and Development
Contributions, or fees in respect of R&D, or Royalty
Fees or Minimum Guaranteed Royalty Fees, or charges
due to NRC or EVI at the effective date of
termination or expiration within 30 days of the
effective date of termination or expiration;
(b) Cease to hold itself out as a licensee of the
Licensed Products or that it is associated with NRC
or EVI in any way;
(c) Cease using NRC's or EVI's Intellectual Property and
the Licensed Products except those Licensed Products
or Products jointly owned by PLL;
(d) Return to NRC and EVI all documents and other
material or matters relating to their respective
Intellectual Property and the Licensed Products or
Products except those Licensed Products or Products
jointly owned by PLL.
52.0 Termination or expiration of this Agreement shall be without prejudice
to any claim any party may have against the other or others under this
Agreement as at the date of effective termination or expiration.
GENERAL ACKNOWLEDGEMENTS
53.0 Each of the parties acknowledges that:
53.1 This Agreement contains all the terms conditions and
obligations of the parties.
53.2 It shall make, do perform and execute all documents acts
matters and things required to ensure that no term of this
Agreement shall be breached by it.
Agreement for Research, Development and Licensing of Technologies,
dated October 13, 1999 19
<PAGE> 21
NOTICES
54.0 Any notice, demand or other document under or relating to this
Agreement will be sufficiently served if delivered personally or if
sent by E-mail, fax, or prepaid registered letter to the party to be
served at the address of such party at such address as may from time to
time be notified in writing by such party to the other parties.
55.0 Any notice, demand or other document will be deemed to have been served
at the time of delivery or, if service is effected in any other manner
described, at the time when it would in the ordinary course be
delivered.
AMENDMENT
56.0 This Agreement may only be varied by the written agreement of the
parties.
APPROVALS AND CONSENT
57.0 Except when the contrary is stated in this Agreement, a party may give
or withhold an approval or consent to be given under this Agreement in
that party's absolute discretion and subject to those conditions
determined by the respective party.
58.0 A party is not obliged to give its reasons for giving or withholding a
consent or for giving a consent subject to conditions.
COUNTERPARTS
59.0 This Agreement may be executed in a number of counterparts and if so
executed, the counterparts taken together constitute one Agreement.
NO WAIVER
60.0 No failure by a party to exercise any power given to it or to insist
upon the strict compliance by the other or others with any obligations
or conditions and no customary practice of the parties or variances
with the terms of this Agreement shall constitute a waiver of that
party's right to demand exact compliance with the terms of this
Agreement other than in relation to breaches which have been waived nor
shall a waiver by it of any particular default affect or impair its
right in respect of any subsequent default of the same or different
nature, nor any delay or omission by that party to exercise any right
arising from default shall affect or impair its rights as to the said
default or any subsequent default.
FURTHER ASSURANCE
61.0 Each party shall promptly execute all documents and do all things that
another party from time to time reasonably requests to effect, perfect
or complete this Agreement and all transactions incidental to it.
LEGAL COSTS
62.0 The Parties shall each pay all their own legal and other expenses
relating directly or indirectly to the negotiation, preparation and
execution of this Agreement and all documents incidental to it.
Agreement for Research, Development and Licensing of Technologies,
dated October 13, 1999 20
<PAGE> 22
SEVERANCE
63.0 In the event of illegality, each of the terms of this Agreement is
severable from the other terms of this Agreement and the severance of
one term does not affect the other terms.
DISPUTE RESOLUTION
64.0 The parties agree that any dispute arising out of or relating to this
Agreement shall be resolved solely by:
64.1 Negotiation between the chief executive officers of the
parties in good faith discussions, such discussions to be held
within 5 working days of one party notifying the other of a
dispute and the nature of such dispute;
64.2 If the parties fail to resolve the dispute through mediation
within 120 working days, either party shall have the right to
pursue any other remedies available to it.
65.0 Should PLL confirm its wish to take up the License Rights as per this
Agreement, PLL shall, after the Confirmation Date and after receipt of
the sum of $1 to be paid by EVI to PLL, issue to EVI 100,000 fully paid
Class B ordinary shares in the capital of PLL in consideration for the
support provided to PLL by EVI. Such 100,000 fully paid Class B shares
of PLL are as presently constituted, adjusted as appropriate to give
effect to share subdivisions, consolidations, mergers and
amalgamations, stock dividends, distributions in property and other
corporate changes.
66.0 This Agreement shall be governed by the laws of the Province of
Ontario, Canada, except that any questions affecting the construction
or effect of any of the Patents shall be determined by the law of the
country in which the Patent shall have been granted.
Agreement for Research, Development and Licensing of Technologies,
dated October 13, 1999 21
<PAGE> 23
SCHEDULE B
RESEARCH AND DEVELOPMENT PROGRAM
DEVELOPMENT OF COMMERCIAL Li(x)CR(y)Mn(z)O(2) CATHODE MATERIALS
TIMESCALE:
9 months
OVERALL GOAL:
To prepare reproducible pilot plant batches (200 kg) of Li(x)Cr(y)Mn(z)O(2)-
based cathode material meeting or exceeding the following market-driven
requirements:
- - 200 mAh/g capacity at 25 (degree)C using a 0.2C rate
- - 140 mAh/g capacity at -20 (degree)C using a 0.2C rate
- - capacity at 1C rate >90% of capacity at 0.2C rate
- - maximum charging voltage of 4.3 V
- - smooth discharge curve between ca. 4.2 and 2.8 V
- - fade rate <10% at 55 (degree)C over 100 cycles
- - safety better than LiCoO(2)
- - cost of production lower than LiCoO(2)
CORE PERSONNEL RESOURCES:
NRC
- - Rod McMillan (Project Manager for NRC)
- - Isobel Davidson (Senior Research Officer) 75%
- - Yves Grincourt (Research Assistant-Electrochemical) 75%
- - Post-doctoral fellow 100%
- - Technical Officer 1 100%
- - Technical Officer 2 100%
PLL
- - Paul Pickering (Project Manager for PLL)
- - Brett Ammundsen (Materials Development) 75%
- - Research Scientist (Materials Development) 75%
- - Hans Desilvestro (Electrochemical) 60%
- - Research Technician 1 (Synthetic) 100%
- - Research Technician 2 (XRD-structural analysis) 75%
- - Research Technician 3 (Electrochemical) 90%
- - Research Technician 4 (Electrochemical) 90%
- - David Hassell (Process Engineering) 75%
- - Process Engineer 100%
- - Process Technician 1 100%
- - Process Technician 2 100%
Agreement for Research, Development and Licensing of Technologies, dated October
13, 1999
23
<PAGE> 24
This project will be jointly managed between NRC and PLL. NRC's representative
will be Dr Rod McMillan and PLL's representative will be Dr Paul Pickering. Dr
McMillan will be responsible for work performed at NRC, Dr Pickering will be
responsible for work performed at PLL
LABORATORY AND EQUIPMENT RESOURCES:
NRC
- - Preparative labs
- - Laboratory furnaces
- - Benchtop spray dryer
- - Electrochemical testing facility
- - AC impedance spectrometer
- - X-ray diffraction (XRD)
- - Thermal analysis (TGA-DSC)
- - Accelerated rate calorimeter (ARC)
- - AA
- - BET surface area
- - Particle sizer
- - Gas pycnometer
- - Scanning electron microscope (SEM)
- - X-ray photoelectron spectrometer (XPS)
PLL
- - Preparative labs
- - Laboratory furnaces
- - Large-scale furnaces
- - Electrochemical testing facility
- - AC impedance spectrometer
- - X-ray diffraction
- - AA and ICP
- - High-resolution SEM (University of Auckland)
PROGRAM
The program is divided into inter-related tasks. Each task has well-defined
objectives and to each task are assigned persons who will be overall responsible
for guiding and coordinating the task to ensure that the objectives are met
within the timescale, and that relevant information is communicated to those
responsible for related tasks. While responsibility for individual tasks has
been assigned variously to the NRC and PLL, it is nonetheless envisaged that
work will be cooperative with contributions from both parties to all tasks.
For approximately the first half of the program, a strong effort at both centres
will be directed toward materials development at the laboratory scale and
electrochemical test cell development. In the second half of the program,
resources at PLL will be more focussed on scale-up of process and production,
with the NRC both contributing to this and continuing materials development.
TASK 1: DEVELOP COMPOSITIONS
Coordinators Isobel Davidson (NRC) & Brett Ammundsen (PLL)
Key objectives:
Agreement for Research, Development and Licensing of Technologies, dated October
13, 1999
24
<PAGE> 25
- - Prepare Li(x)Cr(y)Mn(z)O(2)-based compounds with controlled composition and
particle size/structure designed to exceed the minimum market-defined
criteria for rate-related capacity and stability of capacity.
- - Determine the best composition for scale-up and commercialisation.
WORK PLAN
1.1 ESTABLISH CHEMICAL COMPOSITION RANGE FOR MATERIAL
- - PLL to reproduce Li(x)Cr(0.5)Mn(0.5)O(2) by coprecipitation, and to
optimise coprecipitation procedure (including temperature/time/gas
requirements for subsequent processing) to produce material showing
equivalent or better electrochemical properties compared with spray-dried
samples.
- - NRC to optimise spray-drying procedure (including
temperature/time/atmosphere requirements for subsequent processing).
- - Parallel exploration of varying composition using spray drying (NRC) and
coprecipitation (PLL).
1.2 ESTABLISH INFLUENCE OF SYNTHESIS ROUTE AND CONDITIONS
- - Simplify synthetic procedure
- investigate formation and stability of compositions as a function
of temperature/time/atmosphere.
- analysis of each process step by XRD, AA and TGA
- - Investigate alternative process routes using readily available dry
precursors.
1.3 INVESTIGATE ALTERNATIVE FORMULATIONS
- - Investigate partial and total substitution of Cr by Ni, Fe, Co, Ti, V or
Al.
TASK 2: EXAMINE CRYSTAL STRUCTURE AND PARTICLE MORPHOLOGY
Coordinators Isobel Davidson (NRC) & Brett Ammundsen (PLL)
Key objectives:
- - Obtain data relevant to Task 1 and feed back to Task 1 observations and
correlations in combination with electrochemical data from Task 3.
WORK PLAN
2.1 DETERMINE EFFECT OF COMPOSITION ON CRYSTAL STRUCTURE
- - XRD
2.2 DETERMINE EFFECT OF SYNTHESIS ROUTE AND REACTION CONDITIONS ON CRYSTAL
STRUCTURE AND PARTICLE MORPHOLOGY
- - XRD, SEM, particle size analysis, BET, oxidation state analysis
2.3 DETERMINE INFLUENCE OF ALTERNATIVE FORMULATIONS ON CRYSTAL STRUCTURE AND
PHASE STABILITY
- - XRD
TASK 3: ELECTROCHEMICAL CHARACTERISATION AND TESTING OF SAMPLES
Coordinators Hans Desilvestro (PLL) & Yves Grincourt (NRC)
Key objectives:
- - Obtain data relevant to Task 1 and feed back to Task 1 observations and
correlations in combination with structural/morphological data from Task 2.
Agreement for Research, Development and Licensing of Technologies, dated October
13, 1999
25
<PAGE> 26
WORK PLAN
3.1 ESTABLISH REPRODUCIBILITY OF ELECTROCHEMICAL DATA BETWEEN NRC AND PLL.
- - Optimise electrode formulation and cell configuration.
- Exchange of electrodes, cells, and cell hardware between NRC and
PLL
3.2 OPTIMISATION OF TEST CELL ASSEMBLY
- - Investigate electrochemical conditions to increase rate-related capacity
and minimise capacity fade
- Optimise stack pressure
- Optimise for Li metal and Carbon anodes
3.3 INVESTIGATION OF INTERCALATION MECHANISMS AND RATE-LIMITING FACTORS
- - In-situ pulse experiments on different time scales during charge-discharge
- - AC impedance specroscopy
- - dQ/dV plots
- - XRD, chemical analysis, and thermal stability of cycled materials at
various states of charge and as a function of first charge conditions
3.4 EXTENDED CYCLING TESTS
- - Determine influence of composition and synthesis conditions on temperature-
and rate-related capacity, and on cycling stability.
TASK 4: DEVELOP SYNTHETIC PROCEDURES TOWARD PRODUCTION PROCESS
Coordinator Brett Ammundsen (PLL)
Key objectives:
- - Reproduce compounds prepared in Task 1 (retaining electrochemical
performance characteristics) using commercially viable synthesis procedures
streamlined toward scale-up and production.
TASK 5: SCALE-UP TRIALS (100 g TO 5 kg)
Coordinators David Hassell and Brett Ammundsen (PLL)
Key objectives:
- - Prepare Li(x)Cr(y)Mn(z)O(2)-based compounds developed in Task 1 (and Task
9) as reproducible 100 g and 5 kg batches.
TASK 6: SCALE UP TO 100 T PER ANNUM PILOT PLANT
Coordinator David Hassell (PLL)
Key objectives:
- - Produce reproducible 200 kg batches of the selected material (retaining
electrochemical performance characteristics of the small batch samples) in
the pilot plant.
TASK 7: VERIFY REPRODUCIBILITY OF COMPOSITION, STRUCTURE & MORPHOLOGY FOR
SCALE-UP SAMPLES
Coordinators Isobel Davidson (NRC) & Brett Ammundsen (PLL)
Agreement for Research, Development and Licensing of Technologies, dated October
13, 1999
26
<PAGE> 27
Key objectives:
- - Obtain data for samples produced in Tasks 5 & 6 and feed back to Tasks 5 &
6 observations and correlations.
TASK 8: ELECTROCHEMICAL TESTING OF SCALE-UP SAMPLES
Coordinator Hans Desilvestro (PLL)
Key objectives:
- - Obtain data for samples produced in Tasks 5 & 6 and feed back to Tasks 5 &
6 observations and correlations.
WORK PLAN
8.1 EXTENDED CYCLING TESTS
- - Determine reproducibility and influence of synthesis conditions on
temperature- and rate-related capacity, and on cycling stability.
TASK 9: CONTINUED MATERIAL DEVELOPMENT TO ENHANCE PROPERTIES
Coordinator Isobel Davidson (NRC)
Key objectives:
- - Continue development of Li(x)Cr(y)Mn(z)O(2)-based compounds to further
improve electrochemical characteristics after achievement of initial
performance goals.
- - Feed new developments into the loop of scale-up to commercial product.
Agreement for Research, Development and Licensing of Technologies, dated October
13, 1999
27
<PAGE> 28
Gantt Chart: Development of commercial Li(x)Cr(y)Mn(z)O(2) cathode materials
<TABLE>
<CAPTION>
<S> <C>
Task 1 (compositions) NRC+PLL........... Aug '99 - Dec '99
Task 2 (structure-morphology) NRC+PLL... Aug '99 - Dec '99
Task 3 (electrochemical) NRC+PLL........ Aug '99 - Apr '00
Task 4 (commercial synthetic procedures)
NRC+PLL................................ Sep '99 - Dec '99
ms stable rate-related capacity
objectives achieved.................... Dec '99
ms composition for scale-up
determined............................. Dec '99
ms precursor preparation defined for
scale-up............................... Dec '99
Task 5 (pre-scale-up trials 100 g to
5 kg) PLL................................ Aug '99 - Apr '00
Task 6 (scale up to pilot plant) PLL.... Jan '00 - Apr '00
Task 7 (reproducibility of scale-up
samples) PLL........................... Aug '99 - Apr '00
Task 8 (electrochemical testing scale-up
samples) PLL........................... Aug '99 - Apr '00
ms reproducible pilot plant batches
produced............................... Mar '00
Task 9 (continued material development)
NRC.................................... Jan '00 - Apr '00
</TABLE>
Agreement for Research, Development and Licensing of Technologies, dated October
13, 1999
28
<PAGE> 29
SCHEDULE C
ROYALTY FEES
ROYALTY FEES OF EACH CONTRACT YEAR TO BE CALCULATED AS:
a) 33% of the license fees earned by PLL from the sub-licensing to a third
party of the rights to the Licensed Products whether such fees are paid by
the sub-licensee in one sum or by installments, and
b) 4% of Net Sales where Licensed Products or Products are manufactured by
PLL, any related party of PLL or by any other party.
PROVIDED THAT
1) When the amount of Royalty Fees payable by PLL to EVI re any Contract Year
reaches the higher of $1 million or the Minimum Guaranteed Royalty Fees for that
Contract Year, the percentage of the license fees payable by PLL to EVI under
paragraph a) above shall then reduce from 33% to 25% on the balance of the
license fees upon which Royalty Fees are payable to EVI during that Contract
Year; and
2) "Net Sales" shall mean gross sales of Licensed Products or Products less
sales taxes, freight, insurances, reasonable sales persons' or agents'
commissions and packaging costs; and
3) In the event that PLL or any related party of PLL uses the Licensed
Products or Products in its manufacture of cells or batteries, the Royalty Fees
payable to EVI shall be the higher of (1) 4% of the best price that PLL or any
related party of PLL or any licensed manufacturer of the Licensed Products or
Products sells the Licensed Products or Products calculated on the Licensed
Products or Products used by PLL or any related party of PLL in its
manufacturing process, or (2) 1% of the Net Sales of cells or batteries
utilising the Licensed Products or Products which are sold by PLL or any related
party of PLL.
Agreement for Research, Development and Licensing of Technologies, dated October
13, 1999
29
<PAGE> 30
SCHEDULE D
TARGET SALES
<TABLE>
<CAPTION>
PERIOD OR CONTRACT YEAR ENDING GUARANTEED CELL CELL VALUES BASED ON GUARANTEED MINIMUM
31 MARCH VOLUMES CONTAINING THE GUARANTEED CELL ROYALTY FEES BASED ON
LICENSED CATHODE. VOLUMES AT A COST OF CELL COST OF $2.00 PER
$2.00 PER CELL. CELL.
(See Note 1 below) (See Note 1 Below) (See Note 1 Below)
------------------ ------------------ ------------------
<S> <C> <C> <C>
2000 Nil Nil $ 200,000
2001 Nil Nil $ 100,000
2002 500,000 $ 1,000,000 $ 100,000
2003 5,000,000 $10,000,000 $ 200,000
2004 10,000,000 $20,000,000 $ 400,000
2005 25,000,000 $50,000,000 $1,000,000
2006 50,000,000 $100,000,000 $2,000,000
2007 75,000,000 $150,000,000 $3,000,000
2008 and thereafter (See Note 2 below) (See Note 2 below) (See Note 2 below)
</TABLE>
NOTES:
1. An indicative cell cost value of $2.00 per cell has been used in
calculating the Minimum Guaranteed Royalty Fees. If the cell cost
values reduce to below $2.00 per cell and there is no corresponding
increase in the sale volumes of the cells so that the Minimum
Guaranteed Royalty Fees are achieved, then the parties shall negotiate
in good faith to either reduce the Minimum Guaranteed Royalty Fees or
to convert this Agreement to a non-exclusive arrangement. The term
"cost" means the aggregate of the raw materials cost, costs of
conversion and other costs including production overheads incurred in
the manufacture of the cell.
2. The above targets shall, in Contract Years ending 31 March 2008 and
later, increase each Contract Year by a percentage equivalent to the
overall world market $ of sales increase of similar Products, applied
to the previous Contract Year's actual values.
This is the final page of the Agreement.
Agreement for Research, Development and Licensing of Technologies, dated October
13, 1999
30
<PAGE> 1
EXHIBIT NUMBER 10.13
<PAGE> 2
OPTION AND LICENCE AGREEMENT
DATED [15] MARCH 2000
BETWEEN
AUCKLAND UNISERVICES LIMITED
UNISERVICES
AND
PACIFIC LITHIUM LIMITED
PLL
Jones Young
Lawyers Corporate Advisers Strategists
Auckland
Option and Licence Agreement
<PAGE> 3
OPTION AND LICENCE AGREEMENT
PARTIES
1. AUCKLAND UNISERVICES LIMITED a duly incorporated company having its
registered office at Auckland ("UNISERVICES") and
2. PACIFIC LITHIUM LIMITED a duly incorporated company having its
registered office at Auckland ("PLL")
BACKGROUND
A. UNISERVICES is the owner of the proprietary rights in certain valuable
Products comprising polymer compounds for use as electrolytes in
battery applications which proprietary rights include patents,
copyright and confidential information.
B. UNISERVICES wishes PLL to carry out additional research and development
on the Products to develop them into commercially feasible products.
C. UNISERVICES grants PLL an option to take an exclusive licence of the
rights to the Licensed Products on the terms and conditions in this
Agreement.
THE PARTIES AGREE
1. The terms set out in Parts 1, 2 and 4 of this Agreement shall apply as
from the Commencement Date.
2. The terms set out in Parts 1, 2, 3 and 4 of this Agreement shall apply
in the event that the Option set out in Part 3 is exercised by PLL.
THIS AGREEMENT WAS EXECUTED AS OF THE 15TH DAY OF MARCH 2000
SIGNED by PACIFIC LITHIUM
LIMITED in accordance with its
Constitution by:
/s/ Robin T. Johannink
- ------------------------------ ------------------------------
Signature of authorised person Signature of authorised person
Managing Director
- ------------------------------ ------------------------------
Office held Office held
Robin T. Johannink
- ------------------------------ ------------------------------
Option and Licence Agreement 1
<PAGE> 4
Name of authorised person (print) Name of authorised person (print)
SIGNED by AUCKLAND UNISERVICES
LIMITED in accordance with its
Constitution by:
/s/ Mark Burgess /s/ John A. Kernohan
- ------------------------------ ------------------------------
Signature of authorised person Signature of authorised person
Operations Manager Chief Executive Officer
- ------------------------------ ------------------------------
Office held Office held
Mark Burgess John A. Kernohan
- ------------------------------ ------------------------------
Name of authorised person (print) Name of authorised person (print)
Option and Licence Agreement 2
<PAGE> 5
PART 1
INTERPRETATION
PRESUMPTIONS OF INTERPRETATION
1.0 Unless the context otherwise requires, a word which denotes:
1.1 The singular denotes the plural and vice versa;
1.2 Any gender denotes the other genders; and
1.3 A person includes an individual, a body corporate and a
government.
2.0 Unless the context otherwise requires, a reference to:
2.1 Any legislation includes any regulation or instrument made
under it and where amended, re-enacted or replaced means that
amended, re-enacted or replacement legislation;
2.2 Any other agreement or instrument where amended or replaced
means that agreement or instrument as amended or replaced;
2.3 A Clause, Schedule or annexure is a reference to a clause of,
annexure to, schedule to or exhibit to this Agreement;
2.4 A group of persons includes any one or more of them;
2.5 A party or parties is a reference to a party to or the parties
to this Agreement; and to their related companies ("related
companies" having the same meaning given to it in section 2(3)
of the Companies Act 1993); and
2.6 A thing or amount is a reference to the whole and each part of
it.
JOINT AND SEVERAL
3.0 An agreement warranty representation or obligation which binds or
benefits 2 or more persons under this Agreement binds or benefits those
persons jointly and separately.
SUCCESSORS AND ASSIGNS
4.0 A person includes the trustee, executor, administrator, successor in
title and assign of that person. This Clause must not be construed as
permitting a party to assign any right under this Agreement.
BUSINESS DAY
5.0 A business day is a day during which banks are open for general banking
business in Auckland.
6.0 Unless the context otherwise requires, a term of this Agreement which
has the effect of requiring anything to be done on or by a date which
is not a business day must be interpreted as if it required it to be
done on or by the next business day.
Option and Licence Agreement 3
<PAGE> 6
DEFINITIONS
7.0 Where commencing with a capital letter:
"COMMENCEMENT DATE" means the date of this Agreement
"CONFIDENTIAL INFORMATION" means, in respect to each disclosing party,
all information provided by that party including its Intellectual
Property, and all other information relating to its processes, business
and products where knowledge of such information is not in the public
domain and might reasonably be regarded by the receiving party to be
confidential.
"CONFIRMATION DATE" means the date on which PLL gives notice of its
intention to take up its Option under Clause 9.
"CONTRACT YEARS" refers to the 12 month periods commencing on 1 April
2000.
"INTELLECTUAL PROPERTY" means, in respect to each party, all
intellectual property of such party and of any related entity including
the patents, patents pending, copyright, secret information and
processes, all trade marks, trade names, know-how and all other
information which is commercially sensitive or commercially valuable to
that party;
"LICENCE" means a Licence of the Patents and Products in accordance
with the terms of Part 3 of this Agreement.
"LICENCE TERM" means the period starting on the Confirmation Date and
continuing until the last expiry date of the Patents.
"MAXIMUM ROYALTY FEE" means the aggregate Royalty Fees of $1,000,000.
"NEW DEVELOPMENTS" means all improvements, variations, or derivatives
of the Products or the Patents developed by PLL and the processes
developed by PLL which enable or will enable it to synthesise the
Products or any New Developments on a commercial basis BUT SHALL NOT
INCLUDE any developments of the Patents which name Dr Allan Easteal as
co-inventor where the costs of such developments have not been directly
funded by PLL.
"OPTION" means the option to take a licence of the Patents described in
clause 9.
"PATENTS" means the patents for the Products set out in SCHEDULE A, any
subsequent developments of the Patents which name Dr Allan Easteal as
co-inventor and have not been directly funded by PLL, and such other
patents owned by UNISERVICES which are added by mutual agreement with
PLL to SCHEDULE A during the Licence Term.
"PRODUCTS" means the polymer products described in the Patents for use
as electrolytes in battery applications which have been developed by or
licensed or assigned to UNISERVICES.
Option and License Agreement 4
<PAGE> 7
"ROYALTY FEES" means the fees or share of revenue payable by PLL to
UNISERVICES on the Licensed Products set out in SCHEDULE B as amended
under this agreement.
"$" and "DOLLARS" mean NZ dollars.
"TERRITORY" means the World
EXTENSION OF DEFINITIONS
8.0 Where a word or phrase is given a defined meaning, another part of
speech or other grammatical form in respect of that word or phrase has
a corresponding meaning.
Option and Licence Agreement 5
<PAGE> 8
PART 2
OPTION ON PRODUCTS AND OWNERSHIP OF NEW DEVELOPMENTS
GRANT OF OPTION
9.0 In consideration for PLL agreeing to undertake further research and
development on the Products, UNISERVICES hereby irrevocably grants to
PLL the right to take a Licence of the Products on the following terms:
9.1 The Option must be exercised by PLL by giving UNISERVICES notice in
writing of its intention to exercise on or before 31 December 2001.
9.2 The terms of the Licence shall be as set out in Part 3.
9.3 UNISERVICES may not grant any option, licence or other rights to any
third party in relation to the Patents (whether conditional upon the
lapse of the Option or otherwise) during the term of this Agreement
without PLL's prior approval.
9.4 UNISERVICES shall not itself produce, manufacture or otherwise
distribute the Products except for bona fide research purposes.
CONDUCT OF FURTHER RESEARCH AND DEVELOPMENT
10.0 UNISERVICES agrees to permit PLL to conduct further research and
development on the Products prior to its exercise of the Option
PROVIDED THAT PLL shall cease all research and development if it does
not exercise the Option.
11.0 UNISERVICES shall provide PLL with access to all research materials,
laboratory books and other information relating to the Patents and the
Products in its possession or in the possession of the inventors named
in the Patents. UNISERVICES shall also co-operate with PLL where
reasonably possible to provide PLL with the services of the inventors
and other persons who may assist PLL in its research and development on
the Products, and PLL shall pay UNISERVICES its reasonable charges for
such services.
OWNERSHIP OF NEW DEVELOPMENTS
12.0 UNISERVICES acknowledges that all New Developments (including all
accretions to the Patents developed by UNISERVICES at the request and
cost of PLL) shall be the sole and exclusive property of PLL.
UNISERVICES shall at the request of PLL, provide PLL with all documents
required by PLL to effect the filing of the patent applications for
such developments, including assignments of rights signed by the
persons employed by UNISERVICES.
RESTRICTION ON SALE OF LICENSED PRODUCTS
13.0 PLL may not sell the Licensed Products prior to the exercise of the
Option. PLL may, however, provide samples of the Licensed Products to
potential buyers of the Licensed Products for evaluation purposes
provided PLL has obtained Non-Disclosure Agreements from such persons
in PLL's standard form (which shall include a prohibition on analysis).
Option and Licence Agreement
6
<PAGE> 9
PAYMENT OF PATENT COSTS
14.0 PLL shall manage the prosecution, grant and continuing registration of
all patents filed or required by the parties to be filed in respect to
the Products and shall promptly pay all such costs.
Option and Licence Agreement
7
<PAGE> 10
PART 3
LICENSING OF PATENTS AND PRODUCTS
CONFIRMATION OF UPTAKE OF LICENCE RIGHTS
15.0 This Part 3 shall commence and be in full force and effect if PLL gives
notice to UNISERVICES that it exercises the Option and takes up this
Licence on or before 31 December 2001 or such later date agreed by
UNISERVICES, failing which, this Part 3 shall have no effect.
GRANT OF LICENCE
16.0 Subject to the exercise of the Option, UNISERVICES grants to PLL and
PLL accepts the sole and exclusive rights to exploit the Patents and
the Products owned by UNISERVICES or exclusively licensed or assigned
to UNISERVICES as at the Confirmation Date for the Licence Term,
whether by manufacture, distribution, sub-licence or otherwise.
PAYMENT OF ROYALTY FEES
17.0 PLL shall pay to UNISERVICES the lower of the Royalty Fees or the
Maximum Royalty Fee during the Licence Term in consideration for the
Licence.
18.0 The Royalty Fees, shall be calculated quarterly and payable no later
than 30 days following the end of each Contract Year quarter.
ADJUSTMENT TO ROYALTY FEES
19.0 UNISERVICES acknowledges that if PLL establishes to UNISERVICES'
reasonable satisfaction that there may be strong commercial advantages
in combining third parties' know-how with the Patents, it will join in
negotiations with PLL and such third parties and shall in good faith,
use its best efforts to agree on the amount of royalties to be paid by
PLL to UNISERVICES and the third parties PROVIDED THAT PLL shall not be
obliged to agree to pay royalties to all parties where the total amount
would exceed the Royalty Fees that would have been payable to
UNISERVICES if the third parties' know-how had not been used. Multiple
Royalty Fees shall not be due to UNISERVICES if the sale, use, lease or
manufacture of any Products is covered by more than one of the Patents.
MAXIMISE SALES
20.0 PLL shall use its best endeavours to maximise the sale of the Products
during the Licence Term.
INFORMATION AND AUDIT
21.0 UNISERVICES shall be entitled to receive such information that
UNISERVICES may reasonably require to calculate the amount of Royalty
Fees computed as per Schedule B
22.0 UNISERVICES may from time to time, by its representative or by an
independent accountant or auditor, examine or audit the records of PLL
relating to any information
Option and Licence Agreement
8
<PAGE> 11
which PLL has provided to UNISERVICES or which PLL is required to have
provided to UNISERVICES but has failed to do so.
23.0 UNISERVICES shall pay the cost of any inspection or audit carried out
pursuant to the immediately preceding Clause 22.
Option and Licence Agreement
9
<PAGE> 12
PART 4
GENERAL TERMS AND CONDITIONS
OWNERSHIP OF INTELLECTUAL PROPERTY
24.0 PLL acknowledges and agrees that UNISERVICES has ownership, Licence or
other rights to the Intellectual Property in respect to the Patents. In
order to protect and maintain UNISERVICES' rights in the above, PLL
shall use UNISERVICES' Intellectual Property solely in accordance with
this Agreement.
25.0 UNISERVICES acknowledges and agrees that PLL has sole and exclusive
rights to the Intellectual Property in respect to the New Developments.
In order to protect and maintain PLL's rights in the above, UNISERVICES
shall use PLL's Intellectual Property solely in accordance with this
Agreement.
26.0 UNISERVICES warrants and undertakes to PLL that UNISERVICES and/or its
related companies have full right, power and entitlement to grant to
PLL the rights in respect to the Patents and the Products set out in
this Agreement and shall provide PLL with such evidence as PLL shall
reasonably require to establish such claim.
RIGHTS IN THE INTELLECTUAL PROPERTY UPON TERMINATION OF THIS AGREEMENT
27.0 On termination of this Agreement PLL and UNISERVICES will:
27.1 Immediately cease to use the Intellectual Property of the
other;
27.2 Not thereafter do or display or suffer or permit to be done or
displayed any act matter or thing which may lead or induce or
shall be calculated or likely to lead or induce members of the
public to believe that the parties are still connected or
associated in any way with each other or are still entitled to
market or distribute the Products.
28.0 If any party fails to comply with Clause 27.2 then the other party by
its employees and agents may enter the defaulting party's premises and
remove all of its Intellectual Property and material relating to its
Intellectual Property. All costs and expenses incurred in so doing
shall be recoverable as a debt owing by the defaulting party.
CONFIDENTIALITY
29.0 No party will disclose to any person any Confidential Information,
unless that disclosure is expressly authorised in writing by the owner
of such Confidential Information.
30.0 Other than may be necessary to reasonably carry out either party's day
to day commercial activities, neither party shall disclose the terms of
this Agreement nor issue any promotional material or other public
announcement or disclosure in respect to the existence or nature of the
relationship between PLL and UNISERVICES without the prior approval of
the other.
Option and Licence Agreement
10
<PAGE> 13
SPECIFIC SECRECY OBLIGATIONS
31.0 Each of the Parties shall:
31.1 Treat as confidential and keep absolutely secret, all the
Confidential Information received by it from the other party;
31.2 Take all proper and effective precautions to prevent the
disclosure of the Confidential Information and to preserve the
secrecy and confidentiality of the Confidential Information
including, without limitation, taking all necessary action to
prevent unauthorised persons from obtaining access to the
Confidential Information whether by a direct or indirect
exposure to it or otherwise;
31.3 Take all reasonable steps to ensure that its employees or
agents also observe the secrecy requirements of this
Agreement; and
31.4 Return to the owner all physical or written records containing
the Confidential Information or documentation relating to or
concerning the Confidential Information including copies of
documentation then in existence immediately upon the
termination or expiration of this Agreement.
CIRCUMSTANCES WHEN DISCLOSURE OF CONFIDENTIAL INFORMATION IS PERMITTED
32.0 A party is relieved of its obligations to preserve the confidentiality
of the Confidential Information if and only to the extent that:
32.1 Such Confidential Information is or becomes generally publicly
available other than as a result of a breach of this Agreement
by the party; or
32.2 Such Confidential Information was developed independently by
the party; or
32.3 Specific disclosure is required by law.
BEST ENDEAVOURS
33.0 Each of the parties shall do all things necessary to carry out the
terms of this Agreement to the fullest effect in accordance with best
business practice. In particular, each of the parties shall diligently
and fully exploit (or support the exploitation of) the rights under
this Agreement.
PROHIBITIONS
34.0 None of the parties:
34.1 Use the Intellectual Property of the other parties except in
the manner permitted in this Agreement;
34.2 Be a party to the doing of any act whereby the goodwill trade
or business of the other party may be prejudicially affected;
34.3 Hold itself out as a related party of the other;
Option and Licence Agreement
11
<PAGE> 14
34.4 Pledge the credit of the other party;
INDEMNITY AND WARRANTIES
35.0 Each of the parties ("the indemnifying party") unconditionally and
irrevocably indemnifies the other against any loss, liability, costs or
expenses which that other party may incur because the indemnifying
party:
35.1 Fails to pay any moneys due and payable to the other party (or
within any applicable period of grace) or in the manner
required;
35.2 Fails to perform any of the indemnifying party's obligations
under this Agreement or under any other contractual
arrangement between the indemnifying party and the other
party;
35.3 Has infringed the intellectual property rights of any other
person.
And the indemnifying party will on demand pay to the other party the
amount of that loss, liability, cost or expense
PROVIDED THAT
35.4 PLL acknowledges that UNISERVICES does not make any express or
implied warranty to PLL that the exercise by PLL of the rights
granted to PLL under this agreement will not infringe the
rights of any other party and that PLL indemnifies UNISERVICES
against any loss, liability, costs or expenses which
UNISERVICES may incur as a result of the exercise by PLL of
the rights in this agreement.
RIGHT TO PROSECUTE INFRINGEMENTS OF THE INTELLECTUAL PROPERTY
36.0 PLL shall have the right under its control and at its own expense to
prosecute any third party infringements of UNISERVICES' Intellectual
Property so long as it is the sole and exclusive licensee of
UNISERVICES' Intellectual Property. UNISERVICES shall cooperate with
PLL on any action brought by PLL under this clause subject only to PLL
paying UNISERVICES' reasonable costs.
37. Nothing in Clause 36 shall oblige PLL to take any action that it does
not consider to be in its best interests. However, in such
circumstances, UNISERVICES may at its discretion and cost, take such
action and any recovery obtained by UNISERVICES shall be the property
of UNISERVICES. PLL shall cooperate with UNISERVICES on any action
brought by UNISERVICES under this Clause subject only to UNISERVICES
paying PLL's reasonable costs.
TERMINATION
38.0 PLL shall have the right to terminate this Agreement at the end of any
Contract Year for any reason upon at least 3 month's written notice to
UNISERVICES or immediately without notice in the event that any third
party claims that it is the owner of the UNISERVICES Intellectual
Property.
Option and Licence Agreement
12
<PAGE> 15
39.0 Either Party may elect to terminate this Agreement by giving notice in
writing to the other party of its intention to do so if the other
party:
39.1 Commits a breach of any of the provisions of this Agreement
and fails to rectify the breach (if capable of being
rectified) within 30 days of being required to do so in
writing;
39.2 Commits an act of bankruptcy or fails to contest within ten
working days of service of any petition in liquidation;
39.3 Becomes the subject of any proceedings to obtain an order or
resolution for its winding up (except as part of a bona fide
reconstruction scheme);
39.4 Has a receiver/manager, official manager or provisional
liquidator appointed over the whole or part of its
undertakings or assets;
39.5 Has an execution or other process of any court or authority or
any distress levied upon any of its property without it being
paid out, set aside or withdrawn within 14 days of its issue;
39.6 Has a substantial part of its assets resumed, confiscated or
forfeited;
39.7 Agrees with the other party in writing to terminate this
Agreement at the end of any Contract Year; or
39.8 After remedying any default in respect to which notice
requiring it to remedy such default was given, continues to
engage in the same non-compliance whether or not corrected
after such notice.
CONSEQUENCES OF TERMINATION OR EXPIRATION
40.0 In the event that this Agreement expires or is terminated:
40.1 All rights of PLL under this Agreement will terminate;
40.2 PLL will forthwith;
(a) Pay to UNISERVICES any outstanding Royalty Fees or
charges due to UNISERVICES at the effective date of
termination or expiration within 30 days of the
effective date of termination or expiration;
(b) Cease to hold itself out as a licensee of the Patents
or Products or that it is associated with UNISERVICES
in any way;
(c) Cease using UNISERVICES's Intellectual Property;
(d) Return to UNISERVICES all documents and other
material or matters relating to its Intellectual
Property.
Option and Licence Agreement 13
<PAGE> 16
41.0 Termination or expiration of this Agreement shall be without prejudice
to any claim any party may have against the other or others under this
Agreement as at the date of effective termination or expiration.
GENERAL ACKNOWLEDGEMENTS
42.0 Each of the parties acknowledges that:
42.1 This Agreement contains all the terms conditions and
obligations of the parties.
42.2 It shall make, do perform and execute all documents acts
matters and things required to ensure that no term of this
Agreement shall be breached by it.
NOTICES
43.0 Any notice, demand or other document under or relating to this
Agreement will be sufficiently served if delivered personally or if
sent by E-mail, fax, or prepaid registered letter to the party to be
served at the address of such party at such address as may from time to
time be notified in writing by such party to the other parties.
44.0 Any notice, demand or other document will be deemed to have been served
at the time of delivery or, if service is effected in any other manner
described, at the time when it would in the ordinary course be
delivered.
AMENDMENT
45.0 This Agreement may only be varied by the written agreement of the
parties.
APPROVALS AND CONSENT
46.0 Except when the contrary is stated in this Agreement, a party may give
or withhold an approval or consent to be given under this Agreement in
that party's absolute discretion and subject to those conditions
determined by the respective party.
47.0 A party is not obliged to give its reasons for giving or withholding a
consent or for giving a consent subject to conditions.
COUNTERPARTS
48.0 This Agreement may be executed in a number of counterparts and if so
executed, the counterparts taken together constitute one Agreement.
NO WAIVER
49.0 No failure by a party to exercise any power given to it or to insist
upon the strict compliance by the other or others with any obligations
or conditions and no customary practice of the parties or variances
with the terms of this Agreement shall constitute a waiver of that
party's right to demand exact compliance with the terms of this
Agreement other than in relation to breaches which have been waived nor
shall a waiver by it of any particular default affect or impair its
right in respect of any subsequent default of the same or different
nature, nor any delay or omission by that party to exercise any right
arising from default shall affect or impair its rights as to the said
default or any subsequent default.
Option and Licence Agreement 14
<PAGE> 17
FURTHER ASSURANCE
50.0 Each party shall promptly execute all documents and do all things that
another party from time to time reasonably requests to effect, perfect
or complete this Agreement and all transactions incidental to it.
LEGAL COSTS
51.0 The Parties shall each pay all their own legal and other expenses
relating directly or indirectly to the negotiation, preparation and
execution of this Agreement and all documents incidental to it.
SEVERANCE
52.0 In the event of illegality, each of the terms of this Agreement is
severable from the other terms of this Agreement and the severance of
one term does not affect the other terms.
DISPUTE RESOLUTION
53.0 The parties agree that any dispute arising out of or relating to this
Agreement shall be resolved solely by:
53.1 Negotiation between the chief executive officers of the
parties in good faith discussions, such discussions to be held
within 5 working days of one party notifying the other of a
dispute and the nature of such dispute;
53.2 If the parties fail to resolve the dispute through mediation
within 120 working days, either party shall have the right to
pursue any other remedies available to it.
54.0 This Agreement shall be governed by the laws of New Zealand, except
that any questions affecting the construction or effect of any of the
Patents shall be determined by the law of the country in which the
Patent shall have been granted.
Option and Licence Agreement 15
<PAGE> 18
SCHEDULE A
PATENTS
Australia
Lithium Conducting Electrolyte Application No. PQ3895
Option and Licence Agreement 16
<PAGE> 19
SCHEDULE B
ROYALTY FEES
ROYALTY FEES TO BE CALCULATED AS:
a. 2.5% of the Licence fees earned by PLL or a related party from the
sub-licensing to a third party of the rights to the Products whether
such fees are paid by the sub-licensee in one sum or by instalments,
and
b. 2.5% of Net Sales where Licensed Products are manufactured by PLL or a
related party of PLL.
PROVIDED THAT "Net Sales" shall be calculated according to the following
formula:
NS = S x CF
Where:
NS means Net Sales
S means the FOB sales value of finished cells containing the Products
before taxes
CF means the proportion that the cost of the Products bear to the total
cost of the materials used in the manufacture of the finished cells.
This is the final page of the Agreement.
Option and Licence Agreement 17
<PAGE> 1
EXHIBIT NUMBER 10.15
<PAGE> 2
-----------------------------------------------
PACIFIC LITHIUM LIMITED
DIRECTORS SHARE OPTION ALLOCATION DEED
FOR
KEITH YOUNG
-----------------------------------------------
Jones Young
Lawyers Corporate Advisers Strategists
Auckland
<PAGE> 3
SHARE OPTION ALLOCATION DEED
DATED THE 12TH DAY OF OCTOBER 1999
PARTIES
1. PACIFIC LITHIUM LIMITED a duly incorporated company having its registered
office at Auckland New Zealand ("PLL")
2. KEITH YOUNG of Auckland New Zealand, solicitor ("Young")
BACKGROUND
1. Young provides valuable services to PLL as a director of PLL.
2. PLL has agreed to issue and Young has agreed to subscribe for the Options
on the terms and conditions set out under this Deed.
INTERPRETATION
1. In this Deed:
THE BOARD means the board of directors of PLL.
PLL means Pacific Lithium Limited and shall also include, where
appropriate, companies which comprise the Group.
EXCHANGE means a stock exchange or "over the counter" market on which the
Shares are quoted.
THE GROUP means PLL and its subsidiary companies and "subsidiary" shall
bear the meaning as in the Companies Act 1993 (New Zealand) and all shall
severally be "members of the Group".
MARKET VALUE shall mean, as or any date of determination:
- if the Shares are not quoted on an Exchange, a valuation of the fair
market value for the Shares as of the close of business on the
business day immediately preceding the date of such determination,
determined in good faith by the Board in such manner as they shall
in their reasonable discretion determine using normal share
valuation procedures; and
2
<PAGE> 4
Pacific Lithium Limited Share Option Allocation Deed
- if the Shares are quoted on an Exchange, the weighted average
closing sale price per share on the Exchange on which the Shares are
principally traded, for the last five days on which there was a sale
of such Shares on the Exchange immediately preceding the date of
determination.
MATERIAL BREACH means the gross breach by Young in the performance of his
duties.
OPTION means an option issued by PLL entitling the holder to acquire one
Share in PLL pursuant to this Deed and OPTIONS means 50,000 of such
Options.
OPTION EXERCISE DATE means 11th October 2002.
OPTION ISSUE DATE means 12th October 1999.
SHARE ISSUE PRICE means NZ$4.80.
SHARES means fully paid ordinary shares in PLL.
ISSUE OF OPTIONS
2. PLL issues the Options to Young free of charge and Young agrees to
subscribe for the Options on the terms and conditions set out in this
Deed.
ISSUE OF CERTIFICATES
3. PLL shall not be required to issue a certificate in respect to the Options
but it shall register Young or his nominee as a holder of the Options.
4. PLL shall issue a certificate for the Shares following their issue
pursuant to the Options.
EXERCISE OF THE OPTIONS
5. Young may exercise the Options on or before the Option Exercise Date in
such number as he shall determine from time to time. Any Option, to the
extent not exercised on or prior to the Option Exercise Date shall
terminate (time being of the essence).
6. Young shall give to PLL:
6.1 two working days written notice to PLL stating the whole number of
Shares in respect to which the Exercisable Options are being
exercised; and
<PAGE> 5
Pacific Lithium Limited Share Option Allocation Deed
6.2 payment in full of the Share Issue Price in respect to each of the
Options being exercised.
7. If Young fails to pay for all or any of the Shares in respect to which the
Options have been exercised, PLL may terminate Young's entitlement to such
Shares even though the date by which the exercised Options terminate may
not have passed.
8. Any duty or tax payable upon the issue of Options under these Rules or on
the issue of Shares as a result of the exercise of Options shall be paid
by Young.
9. PLL shall have the right to either require Young to pay to it the amount
of any withholding taxes in respect to the issue of the Shares as may be
required by law or to withhold and sell an appropriate number of Shares
(based on the Shares' fair market value 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 PLL to satisfy all its tax withholding
obligations in respect to Young.
OTHER TERMS OF ISSUE OF OPTIONS
10. The Options may not be charged, transferred (other than to Young's
nominee), pledged or otherwise assigned or encumbered without the prior
approval of the Board.
11. Except as provided in clauses 12 and 13, the Options shall not entitle
Young to participate in any distribution nor any issue of Shares, bonus
Shares (being Shares issued for no consideration) or other securities in
or in respect to PLL other than the Shares to be issued upon exercise of
the Options in accordance with this Deed.
PARTICIPATION IN RIGHTS ISSUES
12. If, at any time after the issue of the Options to Young, there is a
pro rata issue of Shares to all holders of Shares for which
consideration is payable to PLL except where the issue is in lieu or
in satisfaction of dividends or by way of dividend reinvestment
("rights issue"), the Share Issue Price shall be reduced or the
number of Options shall be increased so that the financial benefit
to Young in respect to an exercise of the Options after the rights
issue is the same as the financial benefit to Young immediately
prior to the rights issue.
REORGANISATION OF CAPITAL
13. If, at any time after the issue of Options:
13.1 Consolidation of capital - If Shares are consolidated, the number of
Options immediately prior to such consolidation shall be
consolidated in the same ratio as the ordinary capital of PLL and
the Share Issue Price shall be amended in inverse proportion to that
ratio;
<PAGE> 6
Pacific Lithium Limited Share Option Allocation Deed
13.2 Subdivision of capital - If Shares are subdivided, the number of
Options must be sub-divided in the same ratio as the ordinary
capital of PLL and the Share Issue Price shall be amended in inverse
proportion to that ratio;
13.3 Return of capital - If PLL reduces its share capital by a pro rata
return to holders of part of the share capital in respect to each
Share, the number of Options shall remain the same but the Share
Issue Price shall be reduced by the same amount of share capital
returned in respect to each Share;
13.4 Cancellation of capital - Where PLL reduces its paid up share
capital by a cancellation of capital that is either lost or not
represented by available assets where no securities are cancelled,
the number of Options and the Share Issue Price in respect to such
Options shall remain unchanged;
13.5 Pro rata cancellation of capital - Where PLL cancels its capital
proportionately, the number of Options must be reduced in the same
ratio as the ordinary capital and the Share Issue Price for such
Options must be amended in inverse proportion to that ratio;
13.6 Any other change - Where there is any other reorganisation or change
to the capital of PLL, the number of Options or the Share Issue
Price in respect to such Options, or both, must be reorganised so
the holder of the Option will not receive a benefit that holders of
Shares do not receive.
PROVIDED THAT nothing in this clause shall prevent a rounding up of the
number of Shares to be received on exercise of the Options.
TERMS OF ISSUE OF SHARES
14. Shares issued pursuant to the exercise of Options shall rank for dividend
from the date they are issued and shall otherwise rank pari passu with the
other Shares then on issue.
15. If Shares are quoted on an Exchange, PLL shall apply for the Shares issued
pursuant to the Options to be quoted on such Exchange as soon as
practicable after their issue, but in any event within the time limit (if
any) prescribed by the Exchange's listing rules, subject to any
restriction agreement that might be in place between PLL and the Exchange
or any underwriter or market maker in respect to the Shares.
MATERIAL BREACH BY DIRECTOR
16. Where Young has been barred from holding the office of director by any
regulatory body or Exchange, PLL may terminate all Options granted and not
exercised (whether or not then vested) and/or cancel all other benefits
Young may be entitled to receive under this Deed.
<PAGE> 7
Pacific Lithium Limited Share Option Allocation Deed
APPLICABLE LAW
17. This Deed shall be governed and interpreted in all respects according to
the laws of the country in which PLL is incorporated, the Courts of which
country shall have exclusive jurisdiction in all matters and disputes
arising out of this Deed.
18. No fractional portion of Shares shall be issued or delivered pursuant to
any Option. The Board shall determine whether cash, other Options, or
other property shall be issued or paid in lieu of such fractional portion
or whether such fractional portion or any rights thereto shall be
forfeited or otherwise eliminated.
19. PLL shall not be liable to pay any person any amount, claim or expense
arising from the lapsing or termination of Options pursuant to this Deed.
20. This Deed, the granting and exercising of Options hereunder, and the
other obligations of PLL under this Deed shall be subject to all
applicable laws, rules and regulations, and to such approvals by any
regulatory or governmental agency as may be required. PLL in its
discretion, may postpone the issuance or delivery of Options or
Shares under any Option until completion of such Exchange listing or
registration or qualification of such Shares or other required
action under any law, rule or regulation as PLL may consider
appropriate.
EXECUTION
This Deed was executed this 12th day of October 1999.
SIGNED by PACIFIC LITHIUM ) /s/ Robin T. Johannink
LIMITED )
In the presence of )
/s/ Mennolt Regtien
General Manager
SIGNED by KEITH YOUNG ) /s/ Keith Young
in the presence of
/s/ Mennolt Regtien
General Manager
<PAGE> 1
EXHIBIT NUMBER 10.16
<PAGE> 2
MANAGEMENT AGREEMENT
DATED 3rd APRIL 2000
PARTIES
PHOENIX MANAGEMENT LIMITED
(PHOENIX)
AND
PACIFIC LITHIUM LIMITED
(PLL)
JONES YOUNG
LAWYERS CORPORATE ADVISERS STRATEGISTS
AUCKLAND
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MANAGEMENT AGREEMENT
AGREEMENT dated the 3rd day of April 2000
PARTIES
1. PHOENIX MANAGEMENT LIMITED a duly incorporated company having its
registered office at Auckland ("PHOENIX")
2. PACIFIC LITHIUM LIMITED a duly incorporated company having its registered
office at Auckland ("PLL")
INTRODUCTION
A. PLL has requested PHOENIX and PHOENIX has agreed, to provide the Services
to PLL and companies in the PLL group.
AGREEMENT
DEFINITIONS AND INTERPRETATION
1.0 In this agreement, unless the context otherwise requires:
COMMENCEMENT DATE means 3rd April 2000.
CONFIDENTIAL INFORMATION means any Information:
(a) Relating directly or indirectly to the business of PLL or its
suppliers or customers; or
(c) Disclosed by either party to the other on the express basis that
such information is confidential; or
(d) Which might reasonably be expected by either party to be
confidential in nature;
provided that where information relates exclusively to one party, nothing
in this agreement shall require that party to maintain confidentiality in
respect of that information.
CONSULTANCY FEE means the fee payable by PLL to PHOENIX for the provision
by PHOENIX of the Services calculated pursuant to SCHEDULE 2.
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GST means goods and services tax in terms of the Goods and Services Tax
Act 1985, at the rate prevailing from time to time.
MANAGER means Robin Theodorus Johannink
REIMBURSABLE EXPENSES means expenses of the type specified in SCHEDULE 2
and includes any other expense necessarily incurred by PHOENIX as a direct
result of any failure by PLL to perform any obligation of PLL under this
agreement in the manner and at the time required by this agreement.
SERVICES means the services to be provided by PHOENIX and outlined in
SCHEDULE 1.
TERM means the period commencing on the Commencement Date and terminating
on six months notice given by PLL or PHOENIX at any time.
2.0 In this agreement:
(a) Where the context permits, the singular includes the plural and vice
versa.
(b) References to any "party" mean a party to this agreement and include
the successors, executors, administrators and permitted assignees
(as the case may be) of that party.
(c) References to clauses and schedule are to clauses in, and the
schedule to, this agreement (unless stated otherwise). Each such
schedule forms part of this agreement.
(d) Where the context permits, references to a "person" include an
individual, firm, company, corporation or unincorporated body of
persons, any public, territorial or regional authority, any
government, and any agency of any government or of any such
authority.
(e) References to a month or a year are references to a calendar month
or calendar year.
APPOINTMENT OF PHOENIX
3.0 PLL appoints PHOENIX, and PHOENIX accepts such appointment, to provide the
Services to PLL during the Term and upon the terms and conditions
appearing in this agreement.
PHOENIX'S RESPONSIBILITIES
4.0 PHOENIX shall:
4.1 Provide the Services for the Term including the services of the
Manager.
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4.2 Comply with industry best practice and all relevant codes of
practice in providing the Services.
PLL'S RESPONSIBILITIES
5.0 PLL shall, throughout the Term:
5.1 Promptly provide all information, directions, assistance and
co-operation reasonably required by PHOENIX for the provision of the
Services.
5.2 Provide such facilities as shall reasonably be required by PHOENIX
and the Manager to enable them to perform their obligations under
this agreement.
6.0 PLL shall be responsible for all costs, loss or damaged suffered by the
Manager or PHOENIX and arising from the failure by PLL to provide the
Manager with working conditions that meet all health and safety standards
imposed under all applicable regulations or laws.
7.0 PLL shall confirm acceptance of the completion of the Services and shall
be responsible for the implementation of any recommendations made by
PHOENIX and for compliance with procedures stipulated by PHOENIX.
INTELLECTUAL PROPERTY
8.0 PLL and PHOENIX each acknowledge the other's ownership of its patents,
proprietary processes, copyright and other intellectual property and that
it will not infringe or dispute the same.
9.0 All business records, developed or maintained by PHOENIX or the Manager in
the course of providing the Services under this agreement shall at all
times be the absolute property of PLL and, to the extent reasonably
practicable, shall be kept at PLL's premises.
CONFIDENTIALITY
10.0 Each party shall maintain as confidential at all times, and shall not at
any time, directly or indirectly:
10.1 Disclose or permit to be disclosed to any person; or
10.2 Use for itself; or
10.3 Use to the detriment of the other party,
any Confidential Information except:
10.4 As required by law; or
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10.5 As is already or becomes public knowledge, otherwise than as a
result of a breach by the party disclosing or using that
Confidential Information of any provision of this agreement; or
10.6 As authorised in writing by the other party; or
10.7 To the extent reasonably required by this agreement (and, without
limiting the effect of this clause, a party may disclose
Confidential Information only to such of its officers, employees or
professional advisers, on a "need to know" basis, as is reasonably
required in order for the implementation of this agreement).
CONSULTANCY FEES AND REIMBURSABLE EXPENSES
11.0 The Consultancy Fee shall be paid by PLL within seven days of invoice from
PHOENIX.
12.0 PHOENIX shall provide to PLL, no more frequently than monthly, a valid tax
invoice for GST purposes in respect of all Reimbursable Expenses which
PHOENIX has incurred and for which PHOENIX has paid and is entitled to be
reimbursed by PLL. Each such invoice shall be accompanied by such evidence
as PLL may reasonably consider appropriate that the expenses covered by
the invoice are Reimbursable Expenses.
TERM AND TERMINATION
13.0 This agreement shall have effect during the Term or until the date on
which it is terminated in accordance with clause 15.0.
14.0 In addition to any other right of termination or remedy conferred on the
parties under this agreement or by law, this agreement may be terminated
at any time and with immediate effect by written notice given by either
PLL or PHOENIX (referred to in this clause as "the First Party") to
PHOENIX or PLL respectively (referred to in this clause as "the Second
Party") if:
14.1 The Second Party has failed to comply with an earlier written notice
given by the First Party specifying a material breach of this
agreement by the Second Party and, in the case of a breach which is
capable of remedy, requiring that the Second Party remedy that
breach within 5 Business Days after receipt of that earlier notice,
provided that the First Party may not at any time give such a notice
if, at that time, the First Party is in default under this
agreement.
14.2 The Second Party goes into liquidation (otherwise than for a solvent
restructuring which has been previously approved in writing by the
First Party (which approval may not be unreasonably withheld) or a
receiver or statutory manager has been appointed in respect of the
Second Party or any material part of its assets or if any event
analogous in nature has occurred in respect of the Second Party
under the laws of any relevant jurisdiction.
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14.3 The Second Party suspends, for 10 Business Days or longer, or
ceases, its principal business activities.
14.4 The Second Party makes any assignment to, or enters into an
arrangement for the benefit of, its creditors (other than for the
purposes of a solvent restructuring).
14.5 There occurs any change in the composition of the shareholding in,
or the board of directors of, the Second Party (being PHOENIX) or if
the Second Party (being PHOENIX) ceases to be controlled by the same
persons as at the date of this agreement.
14.6 The Second Party has committed any material breach of this
agreement, which breach is not reasonably capable of being remedied
by the Second Party within 20 Business Days, provided that the First
Party may not at any time give such a notice if, at that time, the
First Party is in default under this agreement.
15.0 Upon termination of this agreement for whatever reason:
15.1 Such termination shall be without prejudice to the rights and
remedies of either party in respect of any antecedent breach of this
agreement by the other party.
15.2 PLL shall, notwithstanding such termination, pay (in the manner and
at the times provided in this agreement) to PHOENIX the Consultancy
Fee and all Reimbursable Expenses as relate to the period up to and
including the date of termination.
DISPUTES
16.0 Unless a party has first complied with clauses 17 - 19 (inclusive) that
party may not commence court proceedings or arbitration relating to any
dispute arising from this agreement (except where the party seeks urgent
interlocutory relief, in which case that party need not comply with this
clause before seeking such relief) and where that party fails to so comply
with those clauses, the other parties need not comply with those clauses
before referring the dispute to arbitration or commencing court
proceedings relating to that dispute.
17.0 Any party (referred to in this clause as "the First Party") claiming that
a dispute has arisen under this agreement between itself and any other
party shall give written notice to the other party to the dispute
(referred to in this clause as "the Second Party") specifying the matter
in dispute and designating as its representative in negotiations relating
to the dispute a person with authority to settle the dispute. The Second
Party shall, within 5 Business Days after receiving the First Party's
notice, give written notice to the First Party, designating as its
representative in negotiations relating to the dispute, a person with
similar authority.
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18.0 The parties to the dispute shall use their reasonable endeavours to
procure that the persons designated under clause 17 shall, within 10
Business Days of the last designation required by clause 17, following
whatever investigations each such person deems appropriate, seek to
resolve the dispute.
19.0 If the dispute is not resolved within the period referred to in clause 18
(or within such longer period as their respective representatives may
agree is appropriate) the parties to the dispute shall within a further
period of 10 Business Days (or such longer period as the representatives
may agree is appropriate) use their reasonable endeavours to agree, in
good faith, on a process for resolving the whole or part of the dispute
through means other than litigation or arbitration (including, without
limitation, further negotiations, mediation, conciliation, or independent
expert determination) and on:
19.1 The procedure and timetable for any exchange of documents and other
information relating to the dispute.
19.1 Procedural rules and a timetable for the conduct of the selected
mode of proceedings.
19.3 A procedure for selection and compensation of any neutral person who
may be employed by the parties in dispute.
19.4 Whether the parties should seek the assistance of a dispute
resolution organisation.
20.0 After the expiry of the time established by or agreed under clause 19 for
agreement on a dispute resolution process, a party which has complied with
the provisions of clauses 16 - 19 (inclusive) may, by written notice to
the other party to the dispute, terminate the dispute resolution process
provided for in those clauses and may then refer the dispute to
arbitration or commence court proceedings relating to the dispute.
21.0 Subject to clauses 16 - 19 (inclusive), any party may, by written notice
to any other party, require that, if a dispute between those parties
arising out of this agreement is not resolved within 10 Business Days of
receipt of such notice by the other party, the dispute shall be
immediately submitted for determination by a single arbitrator nominated
by the President, for the time being, of the Auckland District Law Society
after consultation with those parties.
22.0 In the event of a submission to arbitration pursuant to clause 21:
22.1 The arbitration shall be conducted pursuant to Arbitration Act 1996.
22.2 The parties' respective responsibilities for the costs of the
arbitration shall be determined by the arbitrator.
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NOTICES
23.0 Any written notice required to be given pursuant to this agreement shall
(without limitation) be deemed validly given if:
23.1 Delivered by hand or sent by facsimile transmission (provided that
the sender's facsimile machine confirms transmission to the intended
recipient) to the intended recipient's last known physical address
or facsimile number; and
23.2 Signed, in the case of a notice by PHOENIX or PLL, by a director of
the party giving that notice.
24.0 For the purposes of this agreement, any notice transmitted by facsimile or
delivered after 5.00pm on a Business Day, or at any time on a non Business
Day, shall be deemed received at 9.00am on the next Business Day.
25.0 Any notice required to be given to PHOENIX or the Manager shall be deemed
given to both of them if given to either of them in accordance with
clauses 23 and 24.
LIABILITY
26.0 Neither PHOENIX nor the Manager shall be liable for any cost, loss or
liability incurred by PLL except where it arises from PHOENIX's or the
Manager's gross neglect. The maximum combined liability of PHOENIX and the
Manager shall be limited to the value of the Services paid by PLL to
PHOENIX.
GENERAL
27.0 NON WAIVER - No waiver of any breach, or failure to enforce any provision,
of this agreement at any time by either party shall in any way limit or
waive the right of that party to subsequently enforce and compel strict
compliance with this agreement.
28.0 NO ASSIGNMENT - Neither party may transfer or assign any of its
liabilities or rights under this agreement to any other person without the
prior written consent of the other party, which consent may be withheld at
the other party's absolute discretion.
29.0 GOVERNING LAW AND JURISDICTION - This agreement is governed by the laws of
New Zealand and the parties submit to the exclusive jurisdiction of the
New Zealand courts in respect of all matters relating to this agreement.
30.0 PARTIAL INVALIDITY - If any provision of this agreement is or becomes
invalid or unenforceable, that provision shall be deemed deleted from this
agreement and such invalidity or unenforceability shall not affect the
other provisions of this agreement, all of which shall remain in full
force and effect to the extent permitted by law, subject to any
modifications made necessary by the deletion of the invalid or
unenforceable provisions.
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31.0 ENTIRE AGREEMENT - This agreement records the entire arrangement between
the parties relating to the matters dealt with in this agreement and
supercedes all previous arrangements, whether written, oral or both,
relating to such matters.
32.0 RELATIONSHIP BETWEEN THE PARTIES - Nothing expressed or implied in this
agreement shall constitute either party as the partner, agent, employee or
officer of, or as a joint venturer with, the other party, and neither
party shall make any contrary representation to any other person.
33.0 UNFORESEEN CIRCUMSTANCES - Neither party shall be liable for any act,
omission or failure under this agreement if that act, omission or failure
arises directly from a cause beyond the reasonable control of the party
concerned, including (without limitation) extreme weather conditions,
civil disruption or industrial action, provided that:
33.1 The party claiming the protection of this clause shall, as soon as
possible after becoming aware of such cause or the likelihood of
such cause, give the other party written notice accordingly.
33.2 Notwithstanding the intervention of such cause, each party shall
continue to use its best endeavours to perform its obligations as
required under this agreement (excluding any obligations which have
already been duly performed as at the date of the relevant cause)
despite that cause.
33.3 In any such event, neither party shall be deemed to have accepted
any extra costs which may be incurred or sustained by the other
party through a delay resulting from the cause.
34.0 SUBCONTRACTORS - PHOENIX shall not appoint subcontractors to perform any
Services on behalf of PHOENIX except with the express written consent of
PLL, such consent not to be unreasonably withheld. Notwithstanding any
such consent given by PLL in respect of a subcontractor, PHOENIX shall at
all times remain primarily liable to PLL for all acts and omissions of
that subcontractor, and PLL shall not be deemed to have accepted any
liability to that subcontractor by reason only of such consent.
35.0 GST - PLL shall pay to PHOENIX all GST (if any) payable in respect to the
Consultancy Fees and the Reimbursable Expenses.
EXECUTION
SIGNED on behalf of PHOENIX ) /s/ Robin T. Johannink
MANAGEMENT LIMITED by )
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SIGNED on behalf of PACIFIC ) /s/ R. F. Locke
LITHIUM LIMITED by: ) R. F. Locke
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SCHEDULE 1
THE SERVICES
- - Strategic Management
- - Administration and management
- - Accounting and liaison with Auditors
- - Marketing
- - Business development
- - Corporate Governance
- - Capital raising
- - Shareholders relations
- - Directors and shareholders meetings and minutes
- - Share register
- - Shareholders updates
- - Instructing lawyers
- - Provision of offices and equipment
- - Staffing for the above functions
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EXHIBIT NUMBER 10.17
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QINGHAI LITHIUM LIMITED
CONTRACT
QINGHAI INSTITUTE OF SALT LAKES,
CHINESE ACADEMY OF SCIENCES
PACIFIC LITHIUM LIMITED
30 September, 1998
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JOINT VENTURE CONTRACT FOR QINGHAI LITHIUM LIMITED
- --------------------------------------------------------------------------------
CHAPTER 1: GENERAL PROVISIONS
In accordance with the "Law of the People's Republic of China on
Chinese-Foreign Equity on Joint Ventures" and other relevant Chinese laws,
decrees and regulations, Qinghai Institute of Salt Lakes, Chinese Academy of
Sciences, and Pacific Lithium Limited of New Zealand, adhering to the principle
of equality and mutual benefit and through friendly consultations, agree to
establish a joint venture company Qinghai Lithium Ltd. Qinghai Lithium
Limited is to be established according to the following contract.
CHAPTER 2: PARTIES OF THE JOINT VENTURE COMPANY
ARTICLE 1
The Parties to this contract are as follows:
- - Qinghai Institute of Salt Lakes, (hereinafter referred to as Party A),
research unit established in accordance with the laws of People's Republic of
China, registered in China, and its legal address is at 18 # Xining Road,
Xining City, Qinghai Province, China. The postal code is 810008.
LEGAL REPRESENTATIVE: Peihua Ma
POSITION: Executive Deputy Director
NATIONALITY: The People's Republic of China
Tel: +86 971 6144306 Fax: +86 971 6146002
- - Pacific Lithium Limited. (hereinafter referred to as Party B), a corporation
established in accordance with the law of New Zealand, registered in New
Zealand, and its legal address is at 5th Floor, 63 Albert St, Auckland, New
Zealand.
LEGAL REPRESENTATIVE: R.T. Johannink
POSITION: Managing Director
NATIONALITY: New Zealand
Tel: +64 9 309 5221 Fax: +64 9 307 1749
CHAPTER 3: ESTABLISHMENT OF JOINT VENTURE COMPANY
ARTICLE 2
In accordance with the "Law of the People's Republic of China on
Chinese-Foreign Equity Joint Ventures" and other relevant Chinese law, decrees
and regulations, both parties agree to establish the joint venture limited
liability company (hereinafter referred to as Qinghai Lithium Limited or QLL) in
the People's Republic of China.
ARTICLE 3
Upon registration with the appropriate agency, QLL shall be a legal entity
within the People's Republic of China. All activities of the joint venture
company shall be governed and protected by the laws, decrees, and pertinent
rules and regulations of the People's Republic of China.
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ARTICLE 4
QLL shall be a limited liability company, with the liability of each party
limited to its contributed capital, which is stipulated in the contract or any
revised version thereof. The profits, risks and losses of the joint venture
company shall be shared by the parties in accordance with their respective
share-holding.
CHAPTER 4: THE PURPOSE, SCOPE AND SCALE OF THE BUSINESS
ARTICLE 5
The objective of the parties is for QLL to fully implement the new
technologies of Party A, for the development and utilization of the salt lakes
resources, in conjunction with the advanced technologies owned by Party B in
processing fine lithium salts and its experience in the world market, so as to
exploit the resources of East Taijinaier Salt Lake located in Qinghai Province.
The principal aim is to produce and sell lithium, potassium, borate, magnesium
and other salts and all other commercially viable chemicals and to gain a
significant share of the world market.
ARTICLE 6
The business scope of the joint venture company is the production and
marketing of:
a. lithium
b. potassium
c. borate
d. magnesium
e. other fine chemicals
f. assuming research and development of salt lake products
ARTICLE 7
The site of the joint venture company's (QLL) production activities is
located near East Taijinaier Salt Lake and will be established over three
distinct phases. The scope of each phase is as follows:
PHASE I (BEGINNING 1998-BEGINNING 2000):
i. construct 100,000 m(2) of solar pond;
ii. optimize their operation and
iii. establish pilot plants for the production of technical grade lithium
carbonate (99.5% - 50-100 tonnes) and boric acid (50-100 tonnes)
PHASE II (BEGINNING 2000 - END 2001):
i. construct 700,000 - 1,400,000m(2) of new solar ponds;
ii. upscale Phase I plant operation to produce 1000-2000 tonnes of lithium
carbonate (technical grade) and 1200-2400 tonnes of boric acid.
iii. construct a facility to produce 20,000 tonnes of potassium sulphate;
iv. produce lithium carbonate of a minimum of 99.9% quality, as well as
lithium hexaflorophosphate, lithium metal and lithium bromide. Volumes
to be specified at a later date.
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PHASE III (AFTER 2002 -):
i. upscale Phase II operation to produce 10,000 - 15,000 tonnes of lithium
carbonate (technical grade) and 12,000-14,000 tonnes of boric acid;
ii. produce 100,000 - 200,000 tonnes of potassium sulphate;
iii. produce lithium carbonate of a minimum of 99.9% quality; as well as
lithium hexaflorophosphate, lithium metal and lithium bromide. Volumes
to be specified at a later date.
CHAPTER 5: TOTAL AMOUNT OF INVESTMENT AND THE REGISTERED CAPITAL
ARTICLE 8
The total amount of investment of QLL for Phase I is 1.50 million USD.
ARTICLE 9
The registered capital of the joint venture company is 1.50 million USD, of
which Party A shall pay 0.75 million USD, accounting for 50% shareholding. The
payment of Party A includes USD in cash, USD of production equipment and USD of
intellectual property. Party B shall pay 0.75 million USD, accounting for 50%
shareholding, which includes USD in cash and USD of intellectual property. The
value of intangible assets shall be determined in accordance with Article 10.
Where Renminbi are used, the exchange price to be applied shall be the
medium price indicated by State Administration of Foreign Exchange Control of
China on the due date of payment. Accordingly changes of foreign exchange rate,
both parties shall increase or decrease the contributed equipment to maintain
the proportion of the contributed capital. All the assets contributed by both
parties are to be evaluated by the Qinghai Administrative Bureau of State Owned
Property and banks at provincial level to verify the amount and date of payment.
ARTICLE 10
Party A shall contribute its assets and first payment to the joint venture
company as per a Cashflow and Investment Schedule that is to be determined
during September 1998. Party B shall contribute its assets and first payment to
the joint venture company as per a Cashflow and Investment Schedule that is to
be determined during September 1998. The date of payments shall conform to the
date of the money order received by the Bank of China.
A Cash flow and Investment Schedule for the joint venture company shall be
determined at the time of signing this joint venture contract (Appendix 1) and
shall dictate the deposit of funds by Party A and Party B to the Joint Venture
Company. The Schedule shall also outline the value of both parties production
equipment and intellectual property which may form part of QLL. Should either
party fail to meet its obligations to the Cashflow and Investment Schedule, that
Party shall give up its share-holding in the registered capital of the joint
venture company.
ARTICLE 11
Both parties shall re-invest to the joint venture company in proportion to
their share-
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holding at Phase II and Phase III with the expansion in production scale and
development. At Phase II, other Chinese or foreign companies may be invited to
take up to 50% of the company.
ARTICLE 12
Upon payment of investment in either cash or the materials stipulated in
Article 9, an accountant registered in China will be invited by QLL to verify
the payments and provide a verification report to QLL. On receiving the report,
QLL shall issue a Share Certificate to each party which shall include the date
and amount of their respective share-holding.
ARTICLE 13
During the term of the joint venture company, no party shall be allowed to
reduce the capital which has been contributed to the joint venture company.
Should any party of the joint venture company intend to assign all or part of
its contributed investment to a third party, consent shall be obtained from the
other parties as well as the examining and approving authority.
ARTICLE 14
During the term of the joint venture company, no party shall be allowed to
mortgage any part of the investment to a third party without unanimous approval
of the board of directors.
CHAPTER 6: RESPONSIBILITIES OF EACH PARTY TO QLL
ARTICLE 15
Party A shall be responsible for the following matters:
1) Applications for approval, registration, business license and other matters,
relating to the establishment of the joint venture company, from relevant
departments in China;
2) The construction of large-scale solar ponds, design and construction of the
workshops and production facilities at East Taijinaier Salt Lake;
3) Assisting the joint venture company in purchasing or leasing equipment,
materials, raw materials, items for office use, means of transportation and
communication facilities;
4) Assisting the joint venture company in recruiting Chinese employees;
5) Assisting foreign employees with applications for entry visas, work licenses
and processing their traveling requirements;
6) Responsible for handling any other matters entrusted by the joint venture
company.
Party B shall be responsible for the following matters:
1) Assisting the joint venture company in purchasing machinery, equipment
and materials outside China;
2) Assisting the joint venture company in the development of its products for
the world market and their marketing;
3) Assisting the joint venture company in recruiting foreign employees;
4) Ensuring the integration of advanced processing technologies into the
facilities of the QLL for the production of the lithium carbonate
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5) Responsible for any other matters entrusted by the joint venture
company.
ARTICLE 16
During the term of the joint venture company and 10 years after, both
parties shall keep confidential all commercial and technical information and
technologies, either independently developed or purchased by the JV. No party
shall disclose any information or data relating techniques to a third party
without the consent of the original party.
Party A shall have the right of first refusal to repurchase intellectual
property sold by it to QLL, pursuant to Article 9, and Party B shall have the
right of first refusal to repurchase all intellectual property sold by it to
QLL, pursuant to Article 9, and Party B shall have the right of first refusal to
repurchase all intellectual property. The rights of first refusal shall be
exerciseable if the joint venture is terminated for any reason.
ARTICLE 17
Both parties acknowledge the individual ownership of any patents, proprietary
processes, copyright, licenses, trade secrets, intellectual property, customer
or market information and it shall not infringe, copy, use or dispute the
ownership of the same.
ARTICLE 18
Both parties shall exchange any such information as is necessary for the
other to develop the processes set out above or specific markets within and
outside of the People's Republic of China.
CHAPTER 7: THE TERM OF THE JOINT VENTURE COMPANY
ARTICLE 19
The term of the joint venture company will be 30 years, and the date of the
business license is the date of the establishment of the joint venture company.
An extension of the term for up to 5 years can be applied if both parties agree
and the board of directors approves unanimously 6 months before the expiration
of the term.
CHAPTER 8: SELLING OF THE PRODUCTS
ARTICLE 20
In order to ensure the success of the joint venture company, the joint
venture company shall give the top priority to exporting and earning foreign
currency. The products may be exported directly or through agents designated by
the joint venture company. Party B has the first right to act as a sales agent
for QLL.
CHAPTER 9: THE BOARD OF DIRECTORS
ARTICLE 21
QLL shall establish a Board of Directors. The board of directors shall
consist of 6 directors, of whom 3 directors shall be appointed by Party A, and 3
by Party B. The date of registration of the joint venture company shall be the
date of the establishment of the Board of Directors of QLL.
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ARTICLE 22
The Board of Directors shall have a chairman and a vice-chairman to be
appointed by the Board of Directors respectively. The first term of office for
the chairman, vice-chairman and directors is 2 years, and thereafter, 1 year.
The term of office for the chairman, vice-chairman and directors may be renewed
if agreed to unanimously by the appointors of the Directors. In case of a
vacancy of any Director, the original appointor of that director, shall appoint
a replacement.
ARTICLE 23
The highest authority within QLL shall be its Board of Directors whom shall
determine or decide all major issues relating to the company's activities. As
for the following issues, unanimous approval amongst the directors shall be
required for the following issues;
i. amendment of the association of the joint venture company; termination and
dissolution of the joint venture company; merger, affiliation and
consolidation of the joint venture company with another company (either
foreign or domestic);
ii. increase or assignment of the registered capital of QLL; establishment of
branches or subsidiaries;
iii. determination of annual management strategy; approval of medium and long
period development;
iv. ratification of financial budgets, reports and accounting statements; and
determination of the method of annual profit sharing;
v. nomination, employment and/or dismissal of the general manager and deputy
general managers.
APPROVAL BY MAJORITY OF DIRECTORS SHALL BE REQUIRED FOR THE FOLLOWING
MATTERS:
i. the amount of expenditure funds to be raised annually for the joint venture
company;
ii. amending and defining the legal structure of the joint venture company;
iii. drawing up the rules on remuneration and health and safety of employees in
accordance with the relevant regulations of the People's Republic of China;
iv. nomination and dismissal of senior administrative personnel who shall be
recommended by general manager and approved by the board of directors in
addition to determining their salary and welfare;
v. inspection and ratification of annual operation report submitted by the
general manager;
vi. determination of funding for contingencies, expansion funds and bonuses from
net profit of the joint venture company for employees;
vii. appointment and removal of sales agents for QLL.
ARTICLE 24
The chairman of the board is the principal legal representative of the joint
venture company. Should the chairman be unable to exercise his/her
responsibilities for some reasons, s/he shall authorize the vice-chairman or any
other directors (when the vice-chairman is absent) to represent the joint
venture company.
5
<PAGE> 9
ARTICLE 25
The Board of Directors shall meet at least once every year. The meeting
shall be convened and presided over by the chairman of the board. The chairman
may convene an interim meeting based on a proposal made by 4 or more directors.
The meeting shall be held at the location of the joint venture company, or an
appropriate location as determined from time to time. Other methods such as
teleconference, and fax can be adopted. The quorum of the meeting is 5
directors. The minutes of the meeting is invalid when the quorum is less than 5
directors. Minutes of the meetings shall be placed on file. The minutes shall be
written in English and Chinese and shall be signed by every director attending
the meeting.
CHAPTER 10: BUSINESS MANAGEMENT OFFICE
ARTICLE 26
QLL shall establish a business management office which shall be responsible
for its daily management. The management office shall have one general manager
and two deputy general managers, whose term of office shall be two years. The
vice-chairman and other members of the board can be the general manager and
deputy general manager at the same time if they are appointed by the Board.
ARTICLE 27
The responsibility and function of the general manager is to implement the
decisions of the board and organize and conduct daily management of the joint
venture company. Within the limits authorized by the board of directors, the
general manager shall represent the joint venture company in order to exercise
his responsibilities. The deputy general managers shall assist the general
manager in his work.
ARTICLE 28
Within the power authorized by the board of directors, the management office
has the right to determine the following matters:
i. Planning of quarterly and annual production, budget, sales and other matters
relating to the company's day-to-day operation;
ii. Signing, amending and canceling any contracts for sales and purchases;
signing the contracts of loan or credit for the joint venture;
iii. Developing and implementing all administrative rules and regulations;
iv. Management of all staff according to relevant employment regulations.
CHAPTER 11: LABOR MANAGEMENT
ARTICLE 29
Labor contract covering the recruitment, dismissal, salaries, labor
insurance, welfare, rewards, penalty and other matters concerning the staff and
workers of the joint venture company shall be drawn up by the general manager
and approved by the board of directors in accordance with the "regulations of
the People's Republic of China on Labor Management in Chinese-Foreign Equity
Joint Ventures and their Implementation".
7
<PAGE> 10
ARTICLE 30
The labor contracts shall be drawn up between the joint venture company and
individual employees. QLL has the autonomy to recruit and dismiss employees
directly subject to Article 23.
CHAPTER 12: TAXES, FINANCE AND AUDIT
ARTICLE 31
The joint venture company shall pay taxes in accordance with Chinese law and
other relevant regulations. Employees of QLL shall pay individual income tax
according to the "Individual Income Tax Law of the People's Republic of China."
ARTICLE 32
The finance and accounting of the joint venture shall be in accordance with
the "Accounting Regulations on Finance and Accounting of the People's Republic
of China for Chinese-Foreign Equity Joint Venture" issued by the Ministry of
Finance of China and any other relevant Chinese laws or regulation.
ARTICLE 33
The fiscal year of the joint venture company shall begin from January 1 and
end on December 31 (a calendar year). All vouchers, receipts, accounting
statements and reports, account books shall be written in Chinese, and Renminbi
shall be the accounting unit. A monthly report summarizing the above shall be
prepared in English and provided to Party B. For the foreign currency accounts,
actual and projected revenue and expenditure indicated by cash, bank deposit,
assets and liabilities, detailed minutes and reports shall be required in both
English and Chinese.
ARTICLE 34
The business management office shall prepare a quarterly accounting
statement and prepare all fiscal accounting statements and reports at the end of
each calendar year. The annual fiscal accounting statement shall be written in
Chinese and English and submitted to the board of directors for approval.
ARTICLE 35
Internal financial audited accounts shall be carried out each quarter by the
venture company. External financial auditing shall be conducted by a registered
auditor in China. Party B may engage a registered auditor outside of China to
undertake a financial audit. All the expenses associated with an external audit
shall be borne by Party B.
ARTICLE 36
The profits shall be distributed to the respective parties once a year. The
proposal for the distribution and amount of profit of each party shall be
published within the first three months of the following fiscal year. Profit
shall not be distributed before the losses of the previous financial year have
been recovered. Remaining profits from previous year may be distributed together
with those of the current financial year.
8
<PAGE> 11
ARTICLE 37
After payment of taxes, the net profit shall be distributed in USD, in
accordance with the parties' respective share-holding in QLL. The Products of
the joint venture company may be distributed as profit.
CHAPTER 13: FOREIGN EXCHANGE CONTROL
ARTICLE 38
All matters concerning foreign exchange for QLL shall be handled according
to the Interim Regulations on Foreign Exchange control of the People's Republic
of China.
ARTICLE 39
All foreign currency (USD) income generated by QLL must be deposited in Bank
of China. All payments by QLL in foreign currency are to be effected from its
USD account. The Foreign Exchange Account of QLL must guarantee the following:
i. importation of required machinery, transportation vehicles, equipment
capital and operating expenses and materials;
ii. salaries of the foreign administrative personnel and overseas traveling cost
of QLL employees;
iii. repayment of foreign exchange loans and associated interests of the joint
venture company;
ARTICLE 40
The joint venture company shall give priority to repatriation of profits of
Party B with foreign exchange income earned from export sales.
CHAPTER 14: TERMINATION AND LIQUIDATION
ARTICLE 41
If unanimously approved by the board of directors, the joint venture company
can be terminated before the date of expiration. The termination shall be
decided by the board 90 days prior to the termination and submitted to the
relevant Government authority for approval.
ARTICLE 42
Each party has the right to terminate the joint venture company in one of
the following situations:
i. expiration of duration of the joint venture company;
ii. inability to continue operations due to heavy losses;
iii. inability to continue operations due to the fact that one of the
contracting parties fails to fulfill the obligations prescribed by the
contract and its articles;
iv. inability to continue operations due to force majeure.
ARTICLE 43
Upon receiving approval of the joint venture company's termination, the
joint venture
9
<PAGE> 12
company shall liquidate its assets immediately. Subject to the rights of refusal
in Article 16, the board of directors shall establish procedures and principles
governing the liquidation and nominate candidates for the committee overseeing
the liquidation process. It shall report to the Government department in charge
of the joint venture company for supervision of its liquidation. The liquidation
committee shall be responsible for all activity relating to the company
liquidation.
ARTICLE 44
After liquidation, the liquidation committee shall submit a report to the
relevant Government authorities and implement procedures for canceling QLL's
registration. Two sets of account books and documents shall be made available to
Party A and B.
CHAPTER 15: LIABILITIES FOR BREACH OF THE CONTRACT
ARTICLE 45
Should all or part of the contract and its appendices be unable to be
fulfilled, owing to the lack of performance by one party, the breaching party
shall bear the costs incurred to that date. Should both parties bear equal
responsibility of the failure of QLL, the costs incurred to that date shall be
borne equally.
CHAPTER 16: FORCE MAJEURE
ARTICLE 46
Should any of the parties to the contract be prevented from executing
contract by force majeure, such as earthquake, typhoon, flood, fire, war or
other unforeseen events, and their occurrence and consequences are unavoidable,
the said party shall immediately notify the other party by cable or fax and
within 15 days thereafter provide the detailed information of the event.
Documentation or evidence issued by a relevant public notary organization for
detailing the reasons for the parties' inability to execute all or part of the
contract, or the necessity to delay the execution of the contract. Both parties
shall consult with each other to determine the effect of the non performance of
QLL.
CHAPTER 17: APPLICABLE LAW
ARTICLE 47
The formation of this contract, its interpretation, execution and settlement
of any disputes shall be governed by the relevant law of the People's Republic
of China.
CHAPTER 18: SETTLEMENT OF DISPUTES
ARTICLE 48
Any disputes arising from execution of, or in connection with the contract,
shall be settled through consultations between both parties. In case a
settlement can not be reached through consultation, the disputes shall be
submitted to the China International Economic and Trade Arbitration Commission
under China International Trade promotion in accordance with its rules. The
arbitration award is final and binding upon both parties.
ARTICLE 49
During the arbitration, the joint venture contract shall be executed
continuously by
10
<PAGE> 13
both parties except for matters in disputes.
CHAPTER 19: LANGUAGE
ARTICLE 50
The contract shall be prepared in ten original copies in Chinese and
English respectively. Both language versions are to be identical. In the event
of any discrepancy between the two above-mentioned versions, the Chinese version
shall take precendence.
CHAPTER 20: EFFECTIVENESS OF THE CONTRACT AND MISCELLANEOUS
ARTICLE 51
The contract and its appendices shall come into force on the date of
approval by Department of Foreign Economic Trade Co-operation of Qinghai
Province, the People's Republic of China.
ARTICLE 52
The appendixes are to be read as part of the joint venture contract;
i. Cashflow and Investment Schedule
ii. Articles of Association for Qinghai Lithium Limited
ARTICLE 53
The contract is signed in Xining City, Qinghai Province, of the People's
Republic of China, by authorized representatives of both parties:
EXECUTED AS A DEED
DATED SEPTEMBER 1998
Signed for and on behalf of
QINGHAI INSTITUTE OF SALT LAKES
By: Peihua Ma
/s/ Peihua Ma
Title: Executive Director
Signed for and on behalf of
PACIFIC LITHIUM LIMITED
By : Phillip RJ Borghuis Mennolt H Regtien
/s/ Phillip R J Borghuis /s/ Mennolt H Regtien
Title : Chief Executive Officer General Manager-Business Development
11
<PAGE> 14
- --------------------------------------------------------------------------------
APPENDIX I: CASHFLOW AND INVESTMENT SCHEDULE
- --------------------------------------------------------------------------------
The cashflow schedule will set out the expenditure over each quarter until the
completion of Phase I of the JV project. A preliminary version of this was set
out in the Memorandum and Co-operation Agreement between QSIL and PLL signed in
April 1998.
Investment by QISL and PLL shall be made in accordance with the scheduled
expenditure.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Date Item (Capital/Working) Expenditure Party A Party B
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Q3,1998 Geological Survey, Solar pond 150,000 150,000
design and construction
- --------------------------------------------------------------------------------
Solar pond and brine-collecting
Facilities construction, 500,000 200,000 300,000
Q4 1998 Purchase of solar pond
And experiment equipment,
Public facilities and setup of
Qinghai Lithium Limited.
- --------------------------------------------------------------------------------
Operation of solar pond, 400,000 200,000 200,000
Q1 1999 Construction of boron and
lithium workshop and living
and public facilities
- --------------------------------------------------------------------------------
Operation of solar pond, 300,000 150,000 150,000
Q2 1999 Construction of boron and
Lithium workshop
- --------------------------------------------------------------------------------
Q3 1999 Operation of solar pond
And workshop 150,000 50,000 100,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENT US$1,500,000 750,000 750,000
- --------------------------------------------------------------------------------
</TABLE>
Marks: The investment includes cash, fixed assets such as production equipment
and intellectual property, whose value shall be evaluated and determined by
relative authorities.
Dated: 30 September, 1998
Signed for and on behalf of
QINGHAI INSTITUTE OF SALT LAKES
BY: Peihua Ma
/s/ Peihua Ma
Title: Executive Director of QISL
Signed for and on behalf of
PACIFIC LITHIUM LIMITED
By: Phillip RJ Borghuis Mennolt H Regtien
/s/ Phillip RJ Borghuis /s/ Mennolt H Regtien
Title: Chief Executive Officer General Manager-Business Development
<PAGE> 1
EXHIBIT NUMBER 10.18
<PAGE> 2
PACIFIC LITHIUM LIMITED
(THE SUPPLIER)
A N D
BEIJING C&K DEVELOPMENT CO. LIMITED.
(THE DISTRIBUTOR)
---------------------------------------------
DISTRIBUTION AGREEMENT
---------------------------------------------
<PAGE> 3
AGREEMENT dated the 10th February 2000
PARTIES
1. PACIFIC LITHIUM LIMITED at Auckland, New Zealand ("PLL")
2. BEIJING C&K DEVELOPMENT CO. LTD. of Beijing, People's Republic of
China. ("The Distributor")
BACKGROUND
A. PLL wishes to appoint a distributor to sell certain products in the
Territory.
B. PLL has agreed to appoint the Distributor the rights to distribute the
Products to customers within the Territory upon the following terms and
conditions.
AGREEMENT
1.0 INTERPRETATION
In this agreement unless the context otherwise requires:
CUSTOMER means a client purchasing the Products from the Distributor.
INTELLECTUAL PROPERTY RIGHTS means PLL's own or licensed business
names, trade marks, trade names, copyright, patents, registered
designs, industrial processes, trade secrets, know-how and other
intellectual property rights used in relation to the processing,
manufacture, sale and supply of the Products from time to time.
PRODUCTS means the products listed in Schedule 1 and such other
products which the parties may from time to time agree upon.
TERRITORY means China.
1.1 The plural shall include the singular and vice versa.
1.2 References in this agreement to parties, sections, clauses and
schedules are references to parties, sections, clauses and schedules
respectively of this agreement.
1.3 Expressions cognate with defined expressions have meanings
corresponding to those defined expressions.
<PAGE> 4
1.4 Headings are used as a matter of convenience only and shall not affect
the interpretation of this agreement.
2.0 APPOINTMENT AND TERRITORY
2.1 PLL appoints the Distributor its non-exclusive distributor to make
sales of the Products in Part A of SCHEDULE 1, and exclusive
distributor to make sales of the Products set out in Part B of SCHEDULE
1, to Customers in the Territory for a period of 6 months subject to
the following provisions of this agreement.
2.2 PLL shall not compete with the Distributor for the sale of the Products
in the Territory and shall refer all purchase enquires from Customers
in the Territory to the Distributor.
3.0 DISTRIBUTION
3.1 The Distributor shall at all times during the term of this agreement,
use its best endeavours to carry out the activities in Schedule 2 and
to maximise sales of the Products in the Territory.
3.2 The Distributor shall act in the best interests of PLL and protect the
interests of PLL so far as the Distributor is reasonably able to do so.
3.3 The Distributor shall conduct its activities in accordance with
accepted best international industry practice and comply with all laws,
regulations and rules of any competent legal authority in the Territory
relating to the subject matter of this agreement.
3.4 Except in so far as such representations or warranties arise or are
implied by law the Distributor shall not make any representation or
give any warranty in respect of the Products other than those set out
in the specifications provided by PLL from time to time.
3.5 The Distributor undertakes to apply for and to use its best endeavours
to obtain as promptly as possible, and maintain, all approvals that may
be necessary, from the competent Health or other Governmental
Authorities in the Territory, in order to permit the importation and
distribution of the Products in the Territory.
<PAGE> 5
4.0 PAYMENT OF PURCHASE PRICE AND COMMISSION
4.1 The Distributor shall pay the purchase price for the Products to PLL
within 30 days of invoice by PLL by telegraphic bank transfer to PLL's
nominated bank account.
4.2 PLL reserves the right to charge interest on overdue accounts at rates
determined from time to time.
5.0 DELIVERY, RISK AND INSURANCE
5.1 PLL shall use its best endeavours to promptly supply the Distributor
with all the Distributor's requirements of the Products. PLL shall not
be liable to the Distributor or Customer unless caused by PLL's gross
negligence or deliberate default.
5.2 PLL shall deliver the Products to the Port of Auckland at the cost of
PLL.
5.3 Risk of any loss or damage of or to the Products supplied by PLL shall
pass to the Distributor at the time of delivery of the Products by PLL
or by PLL's agent or courier.
6.0 MARKET INFORMATION
6.1 The Distributor shall provide PLL with monthly sales reports, marketing
reports along with such other information (if any) which PLL may
reasonably require relating to the marketing and sales of the Products.
6.2 The Distributor shall notify PLL, and PLL shall notify the Distributor
(to the extent that is relevant to the Distributor), of any information
or announcements coming to the Distributor's or PLL's attention (as the
case may be), as well as the origin of such information or
announcement, which relate to the:
(a) Effects which are or could be attributed to the Products or any
components of the Products;
(b) Characteristics which could impair the safety or efficiency of
the Products or any component of the Products;
(c) Complaints concerning the quality or packaging of any Products.
6.3 PLL may during normal office hours and on reasonable notice inspect
such of the Distributor's records as may be necessary to verify the
accuracy of the Distributor's sales reports provided to it.
<PAGE> 6
7.0 TERRITORY
7.1 Subject to clause 7.3, the Distributor shall not export or distribute
the Products outside the Territory nor shall it supply any Customer who
may in turn be supplying the Products outside the territory.
7.2 The Distributor shall refer to PLL all inquiries which it receives from
persons outside the Territory regarding the supply of Products.
7.3 Nothing in this agreement shall prevent:
(a) the Distributor delivering the Products to persons outside the
Territory where the order was placed by a Customer in the
Territory; nor
(b) an exclusive distributor of PLL from delivering the Products
to persons in the Territory where the order was placed by a
Customer in the territory granted by PLL to the exclusive
distributor.
8.0 SUB-DISTRIBUTORS
8.1 The Distributor shall not without the prior written consent of PLL
(which consent shall not be unreasonably withheld) appoint any
sub-distributors of any of the Products or agents to sell any of the
Products.
8.2 Sub-distributors or agents (if any) approved by PLL for the
distribution of the Products shall be bound by the same obligations
assumed by the Distributor under this agreement and the Distributor
shall procure that such sub-distributors or agents adhere to the terms
and conditions of this agreement.
9.0 CONFIDENTIALITY
9.1 The Distributor shall not during the term of this agreement or at any
time after its termination, use, exploit or disclose to any person
apart from its employees, sub-distributors or agents (if any) any
confidential information supplied by PLL or otherwise acquired by the
Distributor relating to the Products or any modification or improvement
to the Products except to the extent that such information is in the
public domain otherwise than as a result of a breach by the Distributor
of the provisions of this section.
9.2 PLL shall not during the term of this agreement or at any time after
its termination, use, exploit or disclose to any person apart from its
employees any confidential information supplied by the Distributor or
otherwise acquired by PLL relating to the terms of this contract and
the operating procedures of the Distributor except to the extent that
such information is in the public domain otherwise than as a result of
a breach by the Distributor of the provisions of this section.
<PAGE> 7
9.3 Either party shall only disclose such confidential information to its
employees, sub-distributors and agents (if any) to the extent it may be
necessary for the performance of this agreement. Either party shall
take all necessary steps to ensure that the confidentiality of the
information so disclosed is safeguarded.
10.0 TERMINATION
10.1 Either party may terminate this agreement during or at the conclusion
of the 6-month trial period by written notice to the other party
advising of its intention to so terminate and specifying the date of
termination.
10.2 Either party may immediately terminate this agreement at any time by
written notice to the other:
(a) If the other party shall default in the performance of any of
its obligations under this agreement and (if capable of
remedy) shall fail to remedy such default within 30 days of
receiving written notice specifying such default and requiring
such default to be remedied except in the case of a failure by
the Distributor to meet its obligations in Schedule 2;
(b) If the business activities of the other party cease or are
suspended;
(c) In the event of the liquidation or insolvency of the other
party;
(d) In the event of the appointment of a receiver or trustee of
the property or any part thereof of the other party;
(e) In the event of the other party making any assignment for the
benefit of its creditors; or
(f) If the other party makes any arrangement with its creditors;
(g) In the event that any license required to be held by the
Distributor for the proper conduct of its business is
canceled, suspended or otherwise lost.
10.3 In the event that the Distributor's tasks in the attached Schedule 2
are not met to PLL's expected level, PLL may terminate this agreement
on 10 working day's notice.
<PAGE> 8
11.0 EFFECT OF TERMINATION
11.1 Following termination of this agreement under clause 10.1 above, all
obligations and liabilities of the Distributor and PLL under this
agreement shall henceforth cease and determine but any accrued rights
and entitlements shall remain.
11.2 Termination of this agreement shall not affect any provision of this
agreement which is intended to continue after termination.
11.3 Upon termination of this agreement for any reason, the Distributor
shall:
(a) Cease acting or purporting to act as the Distributor of PLL;
(b) Upon request of PLL provide PLL with full particulars of all
unfulfilled orders and inquiries by the Distributor in respect
of the Products;
(c) Deliver up to PLL, without retaining copies of the same, all
information and other written materials of a confidential or
proprietary nature relating to the Products in the possession or
power of the Distributor;
(d) Deliver up to PLL or destroy, as required by PLL, any advertising
or display materials featuring or referring to the Products.
12.0 LIABILITY
12.1 PLL warrants only that the Products meet the specifications set by it
at the time that the Products leave PLL's gate.
12.2 The Distributor shall hold PLL harmless and full indemnified for and
against all costs, damages, injury, expenses, liabilities and claims
(whether in tort, contract or otherwise) brought against or suffered by
PLL indirectly or directly or directly in connection with this
agreement or the Products (including, without limitation, those arising
out of the quality, marketing or use of the Products) except where such
costs, damages, injury, expense, liability and claims arise from the
acts of PLL.
12.3 The liability of PLL to the Distributor (whether in tort, contract or
otherwise) in respect of any matter touching or concerning the
Products or this agreement is hereby limited to the price of the
Products to which such claim relates.
13.0 FORCE MAJEURE
13.1 Neither party shall be liable for any failure to perform or for any
delay in performing any of its obligations under this agreement where
such failure or delay is occasioned or caused by any event beyond such
party's reasonable control.
<PAGE> 9
14.0 INTELLECTUAL PROPERTY RIGHTS
14.1 The Distributor shall not at any time assert any rights of any nature
in respect of the Intellectual Property Rights.
15.0 WAIVER
15.1 All the original rights, powers, exemptions and remedies (together
called "Rights" in the remainder of this section) of both parties under
this agreement and otherwise shall remain in full force and effect
notwithstanding any neglect, forbearance or delay in the enforcement of
the Rights by either party.
15.2 Neither party shall be deemed to have waived any of its Rights, unless
such waiver shall have been made in writing by an authorised officer
and any such waiver, unless the contrary shall be expressly stated,
shall apply to and operate only in a particular transaction, dealing or
matter.
16.0 NO ASSIGNMENT
16.1 Neither party may assign any of their rights or obligations under this
agreement without the prior written consent of the other party. Any
change in the effective control or management of a party shall be an
assignment which requires the prior consent of the other party.
17.0 DISPUTE RESOLUTION
17.1 In the event of any dispute or difference arising from or in connection
with this agreement, both parties shall use their best endeavours to
settle such a dispute or difference in an amicable manner. If the
parties are unable to resolve the dispute in such a manner, the dispute
may be referred to an independent person agreed upon by the parties,
which person shall be acting as an expert and not as an Arbitrator, and
accordingly the provisions of the New Zealand Arbitration Act 1996
shall not apply.
17.2 This agreement shall be governed by and construed in accordance with
the laws of New Zealand. The parties agree to submit to the exclusive
jurisdiction of the Courts of New Zealand in the interpretation and
enforcement of the provisions of this agreement.
18.0 NOTICES
18.1 Any notice to be served by either party on the other party shall be
served at the address beside the name of PLL and the Distributor or at
such other address as may be specified by the relevant party from time
to time.
<PAGE> 10
19.0 RIGHT TO RENEW
19.1 Provided PLL (acting reasonably and fairly) considers that the
Distributor has performed all its obligations under this agreement in
full, the market for the Products in the Territory is sufficiently
worthwhile, PLL shall grant a renewal of this agreement for a longer
term agreement on PLL's usual terms (which shall include minimum sales
levels to be met by the Distributor).
19.2 The Distributor acknowledges that PLL may require the Distributor to
reasonably establish that it is able to service the Territory with
regards to the exclusive Products, to maintain that exclusivity on
renewal. If PLL is not reasonably satisfied, it may, at its option,
grant the Distributor non-exclusive distribution rights to those
Products.
EXECUTION BY THE PARTIES
SIGNED FOR AND ON BEHALF OF )
PACIFIC LITHIUM LIMITED by )
/s/ Dean Cooper 10.2.2000
Dean Cooper
ASIAN BUSINESS MANAGER
SIGNED FOR AND ON BEHALF OF )
BEIJING C AND K DEVELOPMENT )
CO. LIMITED by )
/s/ Jianzhan Kuang 10.2.2000
Jianzhan Kuang
GENERAL MANAGER
<PAGE> 11
SCHEDULE 1
PRODUCT LIST
PART A
- - Lithium Carbonate
- - Other lithium based compounds as developed from time to time.
PART B
- - Lithium Manganese Cathode Materials
- - Electrodes for lithium polymer battery cells
<PAGE> 12
SCHEDULE 2
C&K 6-MONTH SCHEDULE OF RESPONSIBILITIES - (ENDING AUGUST 2000)
<TABLE>
<CAPTION>
MONTHS ACTIVITIES
<S> <C> <C>
Feb-March 1 Visit Chinese lithium battery manufacturers
2 Prepare cathode sample for testing at China Battery Institute
3 China market research - managed by Xuan Lin
1 Receive and analyze Institute report
April-May 2 Deliver cathode sample materials
3 PLL cathode material presentation
June-July 1 Visit Chinese lithium battery manufacturers
2 China market research - managed by Xuan Lin
</TABLE>
<PAGE> 1
EXHIBIT NUMBER 10.19
<PAGE> 2
DATED 16 JANUARY, 1998
MFL MUTUAL FUND LIMITED
the Lessor
- and -
PACIFIC LITHIUM LIMITED
the Lessee
DEED OF LEASE
- relating to -
CORNER WIRI STATION ROAD AND MANNER PLACE, WIRI, AUCKLAND
{BELL/GULLY LOGO}
<PAGE> 3
CONTENTS
<TABLE>
<S> <C>
1. INTERPRETATION ...................................................... 1
2. GRANT OF TENURE ..................................................... 2
3. MAIN TERMS .......................................................... 2
4. RENTAL .............................................................. 3
5. EXPENSES ............................................................ 5
6. INSURANCE AND INDEMNITY ............................................. 7
7. MAINTENANCE ......................................................... 9
8. USE ................................................................. 10
9. ALTERATIONS, ADDITIONS AND SIGNS .................................... 12
10. ASSIGNMENT AND SUB-LETTING ......................................... 13
11. LESSORS RIGHTS OF ENTRY ............................................ 14
12. INTEREST ON ARREARS OF RENT ........................................ 15
13. COSTS .............................................................. 15
14. RISKS OF OCCUPANCY ................................................. 16
15. QUIET ENJOYMENT .................................................... 16
16. DAMAGE OR DESTRUCTION .............................................. 16
17. GENERAL RULES ...................................................... 17
18. DEFAULT ............................................................ 18
19. LAND TRANSFER TITLE ................................................ 18
20. RENEWAL ............................................................ 18
21. GUARANTEE .......................................................... 18
</TABLE>
<PAGE> 4
THIS DEED is made on 16 January 1998
BETWEEN:
(1) MFL MUTUAL FUND LIMITED at Auckland (the "Lessor"); and
(2) PACIFIC LITHIUM LIMITED at Auckland (the "Lessee").
IT IS AGREED:
1. INTERPRETATION
DEFINITIONS:
In this Deed, unless the context otherwise requires:
(a) The "BUILDING" means the Lessor's building or buildings which
are comprised in the Premises.
(b) The definitions adopted in clause 3 of this Deed shall apply
throughout this Deed.
CONSTRUCTION OF CERTAIN REFERENCES:
In this Deed unless the context otherwise requires:
(c) "AGENTS" includes servants, employees, contractors and
invitees;
(d) "LESSEE" includes the Lessee's executors, administrators,
successors and permitted assigns as the case may be;
(e) "LESSOR" includes the Lessor's executors, administrators,
successors and assigns as the case may be;
(f) The "PREMISES" include all Lessor's fittings, fixtures,
furnishings, plant, machinery, equipment, services, utilities,
water, gas, electrical, sanitary and drainage installations,
fire prevention or detection systems, sprinkler systems and
outlets, heating and airconditioning systems, light fittings,
emergency lighting, floor coverings, partitioning, doors,
windows and other amenities of the Premises;
(g) Paragraph headings are deemed not to form part of this Lease
and shall not be used to interpret this Lease;
(h) The covenants and powers implied in leases by virtue of the
Land Transfer Act 1952 and its amendments and the Property Law
Act 1952 and its amendments do not apply to this Lease to the
extent that they are inconsistent with this Lease;
- ----------------------------------
LEASE STAMPED WITH DUTY OF:
$583.20 on 2/2/98
-------------------------------
$ on / /
-------------------------------
Date: Initial: ??
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FOR BRANCH MANAGER INLAND REVENUE
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(i) Where more than one Lessee is named the expression the
"LESSEE" includes all those named and their respective
executors, administrators and successors, as the case may be
and each of them shall be jointly and severally liable for all
obligations of the Lessee under this Lease;
(j) Where appropriate, words importing the singular number include
the plural number and words importing the plural number
include the singular number and words importing the masculine
gender include females and bodies corporate and the words
"PERSON" or "PERSONS" include bodies corporate;
(k) Where more than one Guarantor is named the expression the
"GUARANTOR" includes all those named and their respective
executors, administrators and successors, as the case may be,
and each shall be jointly and severally liable for all
obligations of the Guarantor under this Lease.
2. GRANT OF TENURE
The Lessor hereby leases the Premises to the Lessee and the Lessee accepts the
lease of the Premises, for the Term, from the Commencement Date, at the Annual
Rent and on the terms hereinafter set out.
3. MAIN TERMS
<TABLE>
<S> <C> <C>
(a) PREMISES: All the Lessor's land and buildings
at the corner of Wiri Station Road
and Mana Street, Wiri, Auckland as
the same is comprised in
certificate of title 39A/965 (North
Auckland Land Registry)
(b) TERM: Six (6) years from the Commencement
Date.
(c) COMMENCEMENT DATE: 21 February 1998
(d) TERMINATION DATE: 20 February 2004
(e) ANNUAL RENT: $129,591.00 per annum, plus GST
(subject to review as provided in
this Lease). (Refer clause 4)
(f) INITIAL MONTHLY RENT PAYMENTS: $10,799.25, plus GST.
(g) MONTHLY RENT PAYMENT DATES: 1st day of each and every month
(h) RENT REVIEW DATES: Every second anniversary of the
Commencement Date
</TABLE>
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<TABLE>
<S> <C> <C>
(i) PERMITTED AND REQUIRED USE: General Office and warehousing and
the operation of a chemical
research, development, processing
and production facility and
otherwise as permitted under the
relevant District Plan. (Refer
clause 8)
(j) REDECORATION DATES: Within six (6) months before the
Termination Date. (Refer clause
7(a)(viii))
(k) DEFAULT INTEREST RATE: 3% per annum above the commercial
overdraft rate charged by the
Lessor's bankers. (Refer clause 12)
(l) AMOUNT OF PUBLIC RISK INSURANCE: $10,000,000.00
(m) IMPROVEMENTS RENT PERCENTAGE: 12.5%
(n) RIGHT OF RENEWAL: Nil
</TABLE>
4. RENTAL
(a) The Lessee shall pay to the Lessor the Annual Rent by monthly payments
in advance to the Lessor at Auckland and if so required shall do so by
means of an automatic payment order on the Lessee's bank.
(b) If the Commencement Date is not the first day of a calendar month and
if the Lessor so requires, the Lessee shall pay to the Lessor
additional advance rental equivalent to the Annual Rent calculated on a
daily basis from the Commencement Date up to the first day of the
calendar month next succeeding the Commencement Date and thereafter
shall pay the monthly rental payments in advance on the first day of
each calendar month.
(c) The Annual Rent may be reviewed by the Lessor upon each of the Rent
Review Dates and upon each such review the Annual Rent payable for the
next succeeding rental period of the Term shall be the current market
rent of the Premises as determined pursuant to clause 4(d) hereof.
(d) (i) Not earlier than ninety (90) days before the relevant Rent
Review Date or at any time thereafter the Lessor may by notice
in writing to the Lessee ("the Lessor's Notice") specify the
rent which the Lessor considers to be the current market rent
of the Premises as at the relevant Rent Review Date.
(ii) The Lessee may object by notice in writing to the Lessor ("the
Lessee's Notice") within twenty-eight (28) days after receipt
of the Lessor's Notice (time being of the essence). The
Lessee's Notice shall state the rent which the Lessee proposes
as the current market rent of the Premises and shall not be
valid unless it has attached a certificate by a registered
valuer which supports the Lessee's proposed current market
rent.
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(iii) If the parties do not agree as to the current market rent
within fourteen (14) days of the date of delivery to the
Lessor of the Lessee's Notice then the current market rent
shall be determined in the manner provided in sub-paragraph
(v) hereof.
(iv) If the Lessee does not give a notice of objection conforming
with the requirements specified in sub-clause (ii) hereof then
the current market rent specified in the Lessor's Notice shall
be deemed to have been accepted by the Lessee and shall be the
Annual Rent payable by the Lessee from the relevant Rent
Review Date.
(v) (aa) If the current market rent is not agreed or not
deemed to have been accepted by the Lessee as above
then the Lessor and the Lessee shall each within
twenty-one days of the date of delivery to the Lessor
of the Lessee's Notice (the expiration of such period
being hereinafter called "the Date of Appointment"),
appoint a valuer (being a member of the New Zealand
Institute of Valuers) to jointly determine the
current market rent of the Premises and shall notify
each other of such appointment. Time for appointment
of valuers shall be of the essence.
(bb) If either the Lessor or the Lessee fails to appoint a
valuer as aforesaid the determination of such rent
shall be made solely by the valuer appointed by the
other of them.
(cc) Except where sub-paragraph (bb) applies, before
proceeding with their determination the said valuers
shall be required, within fourteen (14) days of the
Date of Appointment, to appoint an umpire and obtain
the umpire's acceptance in writing of his appointment
and if they either fail to do so or are unable to
agree upon an umpire then either the Lessor or the
Lessee may request the President for the time being
of the said Institute to appoint an umpire and obtain
the umpire's acceptance in writing of his
appointment.
(dd) The valuers so appointed shall be required to jointly
determine the current market rent as at the relevant
Rent Review Date within one month of the Date of
Appointment.
(ee) If the said valuers are unable to agree upon a
determination within one (1) month of the Date of
Appointment or within such extended time as the
parties may agree then the current market rent shall
be determined by the umpire.
(ff) All costs of the determination by the valuers or the
umpire of the reviewed Annual Rent shall be borne
equally by the Lessor and the Lessee unless the
current market rent as finally determined under this
clause is either equal to or greater than the rent
specified in the Lessor's Notice (in which event all
such costs shall be borne by the Lessee) or equal to
or less than the rent specified in the Lessee's
Notice (in which event all such costs shall be borne
by the Lessor).
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(vi) (aa) Notwithstanding the foregoing provisions of this
clause the Annual Rent payable by the Lessee
following the relevant Rent Review Date shall not
in any circumstances be less than the Annual Rent
payable immediately prior to that date.
(bb) Any variation in the Annual Rent resulting from
such determination shall take effect on and from
the relevant Rent Review Date.
(vii) Upon determination of the rent following review as aforesaid
the Lessor and the Lessee shall enter into a formal deed of
variation of lease to record the revised rent. Such deed
shall be prepared and completed by the solicitors for the
Lessor and the Lessee shall pay the Lessor's reasonable
legal costs and all stamp duty in respect of such deed of
variation of lease.
(viii) Pending determination of the current market rent as
aforesaid the Lessee shall pay the Annual Rent from the
relevant Rent Review Date at the rate specified in the
Lessor's Notice subject always to adjustment between the
parties once the current market rent is determined as
aforesaid.
(ix) Failure by the Lessor to give the Lessor's Notice prior to
the relevant Rent Review Date shall not deprive the Lessor
of its right to review the rent as at the relevant Rent
Review Date. If the Lessor gives the Lessor's Notice after
the relevant Rent Review Date then such notice shall be of
the same force and effect as if it were given prior to the
relevant Rent Review Date and the reviewed rent when
determined shall date back to and be payable from the
relevant Rent Review Date.
(x) If any moratorium or other law, act or regulation that
applies to this Lease has the effect of postponing any
review of rent as at a Rent Review Date then if and whenever
such moratorium is lifted or the law act or regulation is
repealed or amended so as to permit the Annual Rent to be
reviewed then the review that has been postponed shall take
place as at the date that such moratorium is lifted or such
law, act or regulation is repealed or amended to the intent
that the rent review shall establish the current market rent
of the Premises as at that date and the Lessee shall pay
Annual Rent at the reviewed rate from that date. No
postponement of any rent reviews shall have the effect of
postponing any subsequent Rent Review Date.
5. EXPENSES
(a) Upon demand by the Lessor or by the person to whom payment is due the
Lessee shall pay such of the following expenses as are charged, levied
or assessed against the Lessor or the Lessee in respect of the
Premises:
(i) Rates, charges, assessments, duties, impositions and fees of
any local or government authority in relation to the
Building or the Lessor's interest in the land on which the
building is constructed, or on the Lessor
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(including land tax) to the extent that such tax is
increased by reason of the Lessor's interest in the said
land or the Building as the case may be.
(ii) Insurance premiums, valuation fees and other moneys payable
by the Lessor to insure the Building and Lessor's fixtures
and fittings therein to full insurable reinstatement value
against damage by fire, flood, lightning, storm, tempest,
damage by aircraft and other accident and to insure against
loss of rent, breakage or damage to plate glass, public
liability and such other insurable risks as the Lessor may
deem necessary or desirable in relation to the Building.
(iii) Charges for water, gas, electricity, fuel, telephones,
sewerage, garbage removal, and other services supplied to
the Building.
(iv) Costs of cleaning, repairs, painting, maintenance,
renovations and replacements of and to the Building and its
appurtenances (including signs, carparks and other
amenities) and the Lessor's fittings and fixtures therein.
(v) Operating and repair and maintenance costs of all Building
plant and equipment including air-conditioning system,
lighting, lifts, escalators, fire detection, fire alarm,
fire prevention and fire fighting equipment, including the
cost of all service contracts and/or New Zealand Fire
Services charges in respect of the same.
(vi) Costs of any caretaking and security services to the
Building and its appurtenances (including car parks and
adjacent amenity areas).
(vii) Rubbish collection charges.
(viii) The costs incurred and payable by the Lessor in supplying to
the territorial authority, a building warrant of fitness and
obtaining reports as required by Section 45 of the Building
Act 1991.
(ix) All reasonable costs associated with the effective operation
management and administration of the Building.
(x) Such other costs and expenses including professional fees
appropriately and reasonably incurred by the Lessor relating
directly to its ownership management and maintenance of the
Building and its appurtenances including carparks surrounds
and services.
(b) In the event that any such expenses are not charged levied or assessed
solely in respect of the Premises, the Lessee will pay a fair
proportion of the same as assessed by the Lessor.
(c) In the event that any such expenses are not charged levied or assessed
in respect of a period coincident with a like period of the Term such
expenses shall be apportioned and the Lessee shall pay its share
thereof to the Lessor.
(d) (i) The Lessee shall pay to the Lessor an amount equivalent
to all goods and services tax ("GST") payable by the Lessor
where GST is payable by reason of either the Lessor or the
Lessee performing their respective obligations or exercising
their respective rights, powers or remedies under this
Lease, including payment of rental and any other payments
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<PAGE> 10
payable by the Lessee under this Lease or where there is
otherwise any supply of goods or services to the Lessee in
relation to this Lease or the Lessee's occupation or use of
the Premises.
(ii) The Lessee shall, when making payment for the supply charged
with GST, pay the GST to the Lessor where payment for the
supply is to be made to the Lessor and in other cases shall
pay the GST to the person to whom payment for such supply is
to be made.
(iii) For the purposes of this clause "supply" shall bear the
meaning ascribed to that word in the Goods and Services Tax
Act 1985.
6. INSURANCE AND INDEMNITY
(a) The Lessor will insure and keep insured to the full reinstatement value
thereof the Building and any other improvements on the Land against
destruction or damage by fire, earthquake and such other risks as the
Lessor may deem necessary or desirable and the Lessor may also insure
against consequential loss, public liability and loss of rents and
outgoings for such period of indemnity and on such terms as the Lessor
shall choose and will pay the premiums and other costs payable in
respect thereof provided that the premiums and other costs of any such
insurance cover, shall nevertheless form part of the expenses to be
paid by the Lessee to the Lessor pursuant to this Lease.
(b) The Lessee shall keep current at all times during the Term:
(i) A policy of public risk insurance applicable to the Premises
and the business carried on therein for an amount not less
than the amount stated in clause 3 hereof (being the amount
which may be paid out arising out of any one single accident
or event) or such higher amount as the Lessor may from time
to time require;
(ii) An insurance policy in the joint names of the Lessor and the
Lessee for the full insurable value on a reinstatement basis
against all insurable risks all glass (including plate glass
but excluding any glass located in exterior windows) in the
Premises; and
(iii) An insurance policy in the name of the Lessee for the full
insurable value on a reinstatement basis against all
insurable risks covering all additions to the Premises
carried out by the Lessee and all the Lessee's fixtures and
fittings.
Such insurance policies shall be effected with an insurance company
approved by the Lessor and the Lessee shall as and when so requested by
the Lessor provide the Lessor with copies of such policies and evidence
of currency of such policies.
(c) The Lessee shall ensure that neither the Lessee nor its agents shall do
or permit to be done anything upon the Premises whereby any insurance
effected by the Lessor or by the Lessee may be rendered void or
voidable or (except with the Lessor's prior written approval) whereby
the premium payable on any such insurance shall be liable to increase
AND the Lessee shall as and when required
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by the Lessor pay all extra premiums payable by the Lessor on account
of extra risk caused by the use to which the Premises are put by the
Lessee.
(d) The Lessee shall at all times and in all respects comply with the
requirements of all competent Authorities including but not by way of
limitation the Insurance Council of New Zealand Incorporated and the
New Zealand Fire Service and with the requirements of any relevant
statute, regulation, by-law or other notice issued by any similar
authority relating to fires PROVIDED THAT nothing in this clause shall
require the Lessee to carry out any structural alterations or additions
to the Premises unless the same are required by reason of the Lessee's
particular use of the Premises or the number or sex of the persons
located by the Lessee in the Premises.
(e) The Lessee shall occupy and use the Premises at the Lessee's risk and
release to the full extent permitted by law the Lessor and its agents
from all claims and demands of any kind and from all liability which
may arise in respect of any accident damage or injury occurring to any
person or property in or about the Premises or the Building, except as
provided in sub-clause (g) of this clause.
(f) The Lessee shall indemnify and hold harmless the Lessor (to the extent
that the Lessor is not insured and such insurance is not vitiated by
any act, neglect or omission of the Lessee or any Agent of the Lessee)
from and against all actions, claims, demands, losses, damages, costs
and expenses for which the Lessor shall or may be or become liable in
respect of and arising from:
(i) Negligent use waste or abuse by the Lessee or the Lessee's
agents of any water gas electricity, oil, lighting or other
services and facilities in the Premises or the Building;
(ii) Overflow or leakage of water in, into or from the Premises
caused or contribution to by any act or omission on the part
of the Lessee or the Lessee's agents;
(iii) Loss damage or injury from any cause whatsoever to property
or persons caused or contributed to by the use of the
Premises by the Lessee or the Lessee's agents or by the
condition of the Premises or any part of the Premises; and
(iv) Loss damage or injury from any cause whatsoever to property
or persons within or without the Premises and/or the
Building occasioned or contributed to by any act omission
neglect breach or default on the part of the Lessee or the
Lessee's agents.
(g) Subject as herein provided if any merchandise property or effects which
may be in the Premises during the Term shall be injured or destroyed by
fire water or otherwise howsoever no part of the loss or damage shall
be borne by or recoverable from the Lessor save in the case of the
negligence of, or breach of statutory duty by, the Lessor or its
agents, whether the same shall occur by reason of any fault in the
construction of the Building, or in any fittings or apparatus in the
Building or by reason of the state of repair thereof or howsoever
otherwise the same may be caused or arise.
(h) The Lessee shall be responsible for the payment of any excess provided
for in any insurance policy as a term thereof for the payment of any
sum insured or part thereof.
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7. MAINTENANCE
(a) The Lessee shall:
(i) subject to the Lessor's obligation in subclause (b) of this
clause keep and maintain and at the end or sooner
determination of the Term shall yield up the interior and
exterior of the Premises and any Lessor's chattels in the
Premises in the same good order repair and condition as the
Premises and any such chattels were in at the commencement
of the Term excepting fair wear and tear arising from
reasonable use, damage by fire, earthquake, flood, storm,
act of God and inevitable accident unless in any such event
insurance moneys are rendered irrecoverable in consequence
of any act or default of the Lessee or the Lessee's agents;
(ii) keep clean the Premises, the internal and external surfaces
of all windows and glazing in or bounding the Premises, the
internal surfaces of the walls ceiling and floor of the
Premises and all drains, sinks, pipes, lavatories
exclusively serving the Premises;
(iii) substantially maintain and repair and at the expiration of
the Term, yield up in good substantial and tenantable
repair, the entrances, driveways, grounds, yards and parking
areas (if any) forming part of the Premises and the
exception of fair wear and tear shall not apply to the
foregoing obligation. The Lessee shall, as and when required
by the Lessor during the Term (or any renewal), replace
and/or repair by resurfacing or resealing the entranceways,
yards and parking areas, or such parts of them, as may
require replacement or repair;
(iv) at the end or sooner determination of the Term or at any
time when the Lessor shall decide that it is warranted,
supply and replace carpet to all carpeted areas of a quality
no less than the original carpet and of a colour and style
selected by the Lessor;
(v) supply and install suitable replacements for all damaged
defective or missing windows and light fittings light bulbs
and tubes in the Premises;
(vi) not leave rubbish bins outside the Premises, except at the
times for collection of rubbish, and shall regularly cause
all rubbish to be removed from the Premises;
(vii) give to the Lessor prompt notice in writing of any accident
to or defect in the Premises whether or not the Lessee may
be responsible to make good the same pursuant to this Lease;
(viii) as and when reasonably required by the Lessor repaint and
re-decorate in a proper and tradesmanlike manner the
interior of the Premises to a specification to be approved
by the Lessor and shall in any event shall do so on the
Redecoration Dates. Should the Lessee fail to redecorate the
Premises as herein required the Lessor may undertake
redecoration
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at the Lessee's expense and the Lessee shall pay on demand
all amounts so expended to the Lessor;
(ix) upon demand pay to the Lessor the entire cost of making good
to the complete satisfaction of the Lessor any damage to any
part of the Building, or to the Premises or any part thereof
caused by the Lessee and the Lessee's agents and the entire
cost of the replacement of all glass broken by the Lessee
and the Lessee's agents; and
(x) follow, observe and comply with the requirements of any
compliance schedule issued under the Building Act 1991, in
respect of the Premises, Building or plant, equipment and
services therein.
(b) The Lessor shall, within a reasonable time after any want of repair to
the roof or exterior of the Building is brought to the attention of the
Lessor by notice in writing, effect such repairs as are necessary to
make good such want of repair PROVIDED that if any goods merchandise or
property of any kind in the Premises shall be damaged or destroyed by
inflow or leakage of water in any manner howsoever the Lessor shall be
under no liability in respect thereof and no part of the loss shall be
borne by the Lessor unless the same was solely and directly caused by a
want of repair to the roof or exterior of the Building and the Lessor
shall have received previous notice in writing from the Lessee of the
want of repair which shall have caused such damage and shall have
failed to remedy such want of repair within a reasonable time after
having received such notice from the Lessee but the Lessor shall not be
under any obligation to effect any repairs pursuant to the provisions
of this clause or incur any liability hereunder where want of repair
results from any negligent or wilful act, omission or default of the
Lessee or its agents PROVIDED FURTHER that all expenses incurred by the
Lessor under this provision shall form part of the Building Expenses.
8. USE
(a) The Lessee shall use the Premises for the Permitted and Required Use
and for no other purpose without the consent in writing of the Lessor
on each occasion first had and obtained. Where the Lessor does, in its
discretion, consent to a change in use, then the Lessor may require as
a precondition of its consent, that the Lessee indemnify the Lessor in
writing (in a form satisfactory to the Lessor, having regard to the
substance and solvency of the Lessee and the likely or anticipated
costs of compliance), from and against all costs, claims or liabilities
the Lessor may suffer or incur as a result of or arising from the
Lessor being required or obliged, as a consequence of the change in
use, to carry out alterations or additions to the Building or the
Premises, or any of the plant, equipment or services therein pursuant
to the Building Act 1991 or the building code appearing in the Building
Regulations.
(b) The Lessee shall not carry on the Permitted and Required Use in a way
which is noxious noisome or offensive to any person.
(c) The Lessee shall not bring upon the Premises anything of such weight as
may damage the Building or any part thereof.
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(d) The Lessee shall not allow on the Premises any birds or animals without
the Lessor's prior written consent.
(e) The Lessee shall comply in all respects with all Acts, By-laws,
Regulations and other laws in force in New Zealand and with all
requisitions made thereunder so far as they relate to the Premises and
the Lessee's use of the Premises PROVIDED THAT the Lessee shall not be
liable to effect any structural work to the Premises which may be
required pursuant to any such Act, Regulation or By-law unless
occasioned by the Lessee's use of the Premises or the number or sex of
persons located by the Lessee in the Premises.
(f) If, as a result of any requisition or requirement lawfully made under
any Act, Regulation or By-law the Lessor is obliged to expend moneys on
any improvement, addition, alteration or renewal of the Premises or any
part of the Premises the Lessee shall throughout the Term, in addition
to the Annual Rent payable under this Lease, pay to the Lessor an
annual sum calculated by applying to the Lessor's expenditure the
Improvements Rent Percentage and the calendar monthly payments of
rental hereinbefore mentioned shall increase accordingly as from the
day of the month in which such improvement addition alteration or
renewal is completed PROVIDED THAT if the cost to the Lessor of
compliance with any such requisition or requirement is such that it
would be uneconomic or otherwise unreasonable for the Lessor to be
bound to incur such cost and if the Lessor intends to demolish the
Building or the Premises then the Lessor may determine this Lease by
giving to the Lessee three month's notice in writing.
(g) Except during such periods as the Premises shall be in active use, the
Lessee shall keep all exterior doors and windows of the Premises
locked.
(h) The Lessee shall not interfere with or overload or use in an unlawful
or imprudent manner the electrical installations and wiring of the
Premises.
(i) The Lessee shall at all times comply with the fire safely directions of
the Lessor in respect of the Building. If the fire alarm system in the
Building is activated other than as a result of fire because of any act
or omission of the Lessee or its agents then the Lessee shall pay to
the Lessor any costs and expenses incurred by or levied upon the Lessor
in consequence of such activation.
(j) The Lessee shall not, without the prior approval in writing of the
Lessor, place on the exterior of the Premises any radio or television
aerial or any loudspeakers, display screens or similar devices and
shall not without such approval use or permit to be used any radio,
gramophone, television or similar device likely to be heard or seen
from outside the Premises PROVIDED HOWEVER that any approval so given
may at any time be withdrawn.
(k) The Lessee acknowledges that no representation or undertaking has been
given by or on behalf of the Lessor in respect to the suitability of
the Premises or the Building for the Permitted and Required Use or as
to the fittings, finish, facilities or amenities of the Premises or the
Building.
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9. ALTERATIONS, ADDITIONS AND SIGNS
(a) The Lessee shall not remove any fittings or fixtures or plant (other
than the Lessee's fittings, fixtures and plant) from the Premises and
shall not cut or damage the Premises or any part of the Premises, and
shall not make any additions or alterations to the Premises without the
prior written consent of the Lessor.
(b) The Lessee shall not erect affix or paint on the exterior of the
Building any sign or advertising without the written consent of the
Lessor. At the end or sooner determination of the Term the Lessee shall
remove all signs and make good all damage caused thereby and repaint to
the satisfaction of the Lessor.
(c) The Lessee shall make no alteration of or addition to the Premises or
any part of the Premises or to the Lessor's fixtures and fittings
contained in the Premises without in each case first obtaining the
written consent of the Lessor thereto for which purpose the Lessor may
require the Lessee to submit plans and specifications of the proposed
work and have the same carried out pursuant to the supervision or
directions of a registered architect. The consent of the Lessor shall
not be arbitrarily or unreasonably withheld to internal subdivision
work if the Lessee's proposed work complies with standards which the
Lessor may from time to time set as to the type quality material colour
and size for internal partitions to be used in the Building and if any
alteration to the services utilities or amenities in the Building does
not in the opinion of the Lessor's consultants overload, endanger or
prejudice the proper working of those services utilities or amenities.
In respect of work involving the aforesaid services utilities or
amenities the Lessor may require such work to be carried out by a
contractor and under the supervision or direction of a consultant each
being a person approved by the Lessor. The cost of any alteration or
addition to the Premises and to the services utilities or amenities
thereof together with all consultants' fees incurred either by the
Lessee or by the Lessor in connection therewith shall be payable to the
Lessor by the Lessee upon demand.
(d) The Lessee shall repair and make good any damage which may be caused to
existing structures, paving, plant, equipment, fixtures, fittings,
ceiling tiles, painted surfaces, floor coverings or other parts of the
Building or any chattels therein either directly or indirectly as a
result of the carrying out of any work referred to in this clause by or
at the request of the Lessee and shall indemnify the Lessor for any
loss or damage caused by or arising out of anything done or omitted by
the Lessee or its agents in or about the carrying out of the said work.
(e) Before commencing any such work the Lessee shall effect, and shall
procure that any contractor or sub-contractor employed by the Lessee in
the performance of any work in respect of the Premises shall effect,
(and provide proof of currency of) Contractor's All Risks and Public
Risk policies and any other insurance cover required by the Lessor in
respect of such work including all such provisions as may be required
by the Lessor.
(f) All partitions, fixtures, fittings and furnishings which may be placed
or installed in the Premises by the Lessee shall be and remain the
property of the Lessee, who shall unless otherwise provided in this
Lease be responsible for all maintenance and insurance thereof. The
Lessee (not being in breach) may at any time before, and will if
required by the Lessor at, the end or sooner determination of the Term
remove them and make good at the Lessee's own expense all resulting
damage.
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Should the Lessee not comply by the end or sooner determination of the
Term all of such items mentioned in that notice shall vest in the
ownership of the Lessor without any compensation being payable to the
Lessee. The Lessor may then at its option remove all or any of the same
from the Premises and recover from the Lessee the cost of so doing and
making good any damage occasioned by such removal.
(g) In exercising its rights in the foregoing sub-clause, the Lessee shall
not do or allow anything to occur which would constitute a breach of
the compliance schedule for the Building or which would in any way
prevent or inhibit the Lessor from obtaining a building warrant of
fitness when one is next due to be obtained following the expiry or
earlier determination of this Lease.
10. ASSIGNMENT AND SUB-LETTING
(a) The Lessee shall not assign, sublet, mortgage or part with possession
(which shall be deemed to include sharing or parting with possession)
or the right to possession of the Premises or any part thereof for the
whole or any part of the Term without the prior written consent of the
Lessor PROVIDED THAT such consent shall not be unreasonably or
arbitrarily withheld to the assignment of the whole of the Premises or
to the subletting of the whole or any part of the Premises to a
respectable assignee or sublessee of good financial standing (the onus
of proving same to be on the Lessee) to whom no objection shall be
taken by the insurer or insurers for the time being carrying the
insurance risks on the building and who will use the Premises for the
Permitted and Required Use PROVIDED FURTHER THAT it shall be a
condition precedent to any such consent that:
(i) the Lessee shall produce evidence to the Lessor to
demonstrate to the satisfaction of the Lessor that any
proposed assignee (and in the case of an assignment to which
sub-clause (c) below applies, the person or persons required
to give a guarantee in terms of that sub-clause) or
sublessee is responsible and of good financial standing and
intends to use the Premises for the Permitted and Required
Use;
(ii) the Annual Rent and all other monies payable by the Lessee
under this Lease shall have been punctually paid throughout
the term and are up-to-date;
(iii) there is then no existing unremedied breach of any of the
terms of this Lease;
(iv) in the case of an assignment of this Lease the assignee
shall before entering into possession of the Premises
execute and deliver to the Lessor, a deed of covenant in
favour of the Lessor whereby, in addition to and without
prejudice to the Lessor's right against the Lessee or any
other person, the assignee shall covenant to pay the rent
hereby reserved and to perform and observe all the Lessee's
obligations under this Lease (such deed of covenant to be
prepared by the Lessor's solicitors at the Lessee's cost);
13
<PAGE> 17
(v) the Lessee shall have procured the execution and delivery to
the Lessor of any covenant required under subclause (c) of
this clause; and
(vi) the Lessee shall have paid to the Lessor all costs incurred
by the Lessor of or incidental to the giving of its consent.
(b) Where the Lessee is a limited liability company, any transfer of any
share in that company or any reclassification of the rights attaching
to any such share or any other arrangement which results in a change of
effective control of the Lessee shall be deemed to be an assignment for
the purposes of this paragraph AND any assignment or underletting of
the type specified in Section 109(2) of the Property Law Act 1952 shall
be deemed to be an assignment for the purposes of this clause.
(c) In addition to the aforesaid deed of covenant, in the case of either an
assignment of the Lessee's rights under this Lease to a body corporate
(not being a company whose shares are listed on the New Zealand Stock
Exchange), or a transfer of shares, reclassification or arrangement of
the type mentioned in sub-clause (b) hereof the Lessee shall, if
required so to do by the Lessor, procure the execution of a guarantee
in favour of the Lessor by the persons holding the right to exercise a
majority of votes at general meetings of the body corporate or
effectively controlling the body corporate whereby such persons shall
personally guarantee payment of the rent hereby reserved and compliance
with all the Lessee's obligations under this Lease and such guarantee
shall be prepared by the Lessor's solicitors at the cost in all
respects of the Lessee.
(d) Any consent given by the Lessor to a subletting shall extend only to
such subletting and notwithstanding anything contained or implied in
such sub-lease such consent shall not permit the sub-lessee to deal
with the sub-lease in any way without the further consent of the
Lessor.
11. LESSORS RIGHTS OF ENTRY
(a) The Lessee shall permit the Lessor and its agents at any time or times
during the Term upon reasonable prior written notice (except in the
event of emergency in which case the Lessor may enter at any time
without notice) to enter upon the Premises and there to do all things
required in the opinion of the Lessor for the purpose of complying with
the terms of any legislation affecting the Premises or the Building or
for the purpose of complying with any notice served on the Lessor or
the Lessee by any competent authority or for the purpose of repairing
and maintaining the Premises or any adjoining Premises or the Building
or for the purpose of installing, repairing, maintaining or renewing
any drainage, water, electrical, gas or other installation in the
Building PROVIDED THAT nothing in this subclause shall oblige the
Lessor to carry out any repairs or maintenance or other work PROVIDED
FURTHER that if the Lessor carries out any such work it shall use its
best endeavours to minimize inconvenience to the Lessee bit under no
circumstances shall the Lessor be obliged to pay compensation to the
Lessee or any other person by reason of the Lessor exercising such
rights.
(b) The Lessee shall permit the Lessor and its agents, servants or
contractors at any time or times upon reasonable prior notice to enter
upon the Premises to view the condition thereof.
14
<PAGE> 18
(c) The Lessor may give notice in writing to the Lessee specifying any
defects in the Premises or breaches of covenant under this Lease for
which the Lessee is liable. The Lessee shall within such reasonable
time as shall be specified in such notice make good any such defect or
breach of covenant. If the Lessee fails to comply with such notice
within the time specified the Lessor may, at its option and without
prejudice to any other rights, powers or remedies do all things which
the Lessor shall consider to be necessary to make good such failure and
any moneys expended by the Lessor in so doing, together with interest
thereon at the Default Interest Rate computed from the time or
respective times of such moneys being actually expended by the Lessor
until actual payment thereof by the Lessee to the Lessor, shall be
payable on demand by the Lessee to the Lessor as rent or may be
recovered by distress as arrears of rent.
(d) If the Lessee either shall not elect to or shall not be entitled to
renew this Lease during the period of three (3) months immediately
preceding the expiration of the Term, the Lessor may enter upon the
Premises at any reasonable time with its agents and with other persons
for the purpose of showing the Premises to such other persons.
12. INTEREST ON ARREARS OF RENT
The Lessee shall pay to the Lessor interest calculated at the Default Interest
Rate computed on a daily basis on all rental and on all other sums of money for
which the Lessee is liable under this Lease as from the seventh day after any
such rental or sums of money shall have become due and payable until the actual
date of receipt thereof by the Lessor.
13. COSTS
In addition to the Annual Rent and other moneys payable by the Lessee under this
Lease, the Lessee shall pay:
(a) The Lessor's legal costs (calculated on a solicitor/client basis) of
and incidental to this Lease or any extension, renewal or variation of
this Lease and all stamp duty and other reasonable disbursements of the
Lessor's solicitors in relation to this Lease and the Lessor's costs in
obtaining any consents or approvals associated with the granting of
this Lease or any extension, renewal or variation of this Lease.
(b) All costs charges and expenses for which the Lessor shall become liable
in consequence of, or in connection with, any breach or default by the
Lessee in the performance or observance of any of the terms covenants
and conditions of this Lease.
15
<PAGE> 19
14. RISKS OF OCCUPANCY
(a) The Lessee shall keep indemnified the Lessor from and against all legal
liability, loss, damages, costs and expenses (including loss, damage or
injury to property or persons for which the Lessor shall or may be or
become liable) arising from or caused or contributed to either by the
negligence of the Lessee or by any agent of the Lessee, or by the
overflow or leakage of water (including rain water) into or from the
Premises caused or contributed to by the negligent or wilful act,
omission or default of the Lessee or any agent of the Lessee; or by any
breach of the Lessee's obligations under this Lease PROVIDED that the
Lessee shall not be under any obligation to indemnify the Lessor in
respect of any occurrence for which the Lessor is indemnified and
entitled to recover under the provisions of any insurance policy
effected in accordance with this Lease or otherwise.
(b) The Lessee shall occupy and use the Premises at the Lessee's risk in
all respects and the Lessee releases to the full extent permitted by
law the Lessor and its agents from all claims, demands and liability
which may arise in respect of any accident, damage or injury occurring
to any person or property in or about the Premises or the Building.
15. QUIET ENJOYMENT
For so long as the Lessee shall have complied with all its obligations under
this Lease and except as herein provided, neither the Lessor, nor any person
claiming by, through or under the Lessor, shall disturb the Lessee's quiet
enjoyment of the Premises.
16. DAMAGE OR DESTRUCTION
(a) If the Building or any part of the Building is destroyed or damaged and
the Lessor decides to demolish the Building notwithstanding that the
Premises may be unaffected or only partially affected by such damage or
destruction; or if the Premises shall be destroyed or so damaged as to
render the same untenantable, then this Lease shall determine and the
Lessee shall be liable for payment of rent only up to the date of such
determination but such determination shall not discharge any party in
respect of any antecedent breach of this Lease.
(b) If the Premises or any part of the Premises (other than a minor part
not affecting the usefulness thereof to any material extent) shall be
damaged to such an extent as to render it inexpedient in the opinion of
the Lessor to repair such damage and whether or not the Premises shall
be rendered untenantable, the Lessor may determine this Lease by giving
to the Lessee 30 days notice in writing but such determination shall
not discharge any party in respect of any antecedent breach of this
Lease.
(c) If the Premises or any part of the Premises shall be damaged but not to
such an extent as to render the same untenantable and if the Lessor
shall not elect pursuant to the foregoing provisions to determine this
Lease, the Annual Rent shall abate proportionately to the net lettable
area of the Premises rendered unusable by reason of such damage and in
case of any dispute or difference as to the amount or period of such
abatement or as to whether or not the Premises
16
<PAGE> 20
or any part of the Premises, or the area of any such part, are
untenantable such dispute shall be referred to two arbitrators, one to
be appointed by each party, and their umpire in accordance with the
Arbitration Act 1908 or any then substituting statutory modification or
re-enactment thereof.
(d) If the Premises or any part of the Premises shall be damaged and if
this Lease shall not have been determined pursuant to the foregoing
provisions and if the Lessor is able to obtain all necessary permits
and consents and if no mortgagee of the Lessor shall require the
proceeds of the insurance claim relating to such damage to be paid to
it and if the proceeds of such insurance claim will be sufficient
properly to repair such damage, then the Lessor shall with all
reasonable speed expend all such insurance moneys receivable in
repairing such damage PROVIDED THAT the Lessor shall not be obliged to
expend any money in the reinstatement of fittings or fixtures or
furnishings installed in the Premises by the Lessee and PROVIDED
FURTHER that the Lessor may repair the damage to the Premises in such
form and manner as the Lessor shall choose so long as the Premises as
so repaired shall be substantially similar to the Premises as they were
prior to such damage occurring. For the purposes of such repairs the
Lessor may require the Lessee to vacate all or part of the Premises for
such period as may be necessary and the Lessee shall not be entitled to
any compensation or damages on account thereof.
17. GENERAL RULES
The Lessee and its agents shall:
(i) Deposit all waste in proper receptacles in such locations as the Lessor
shall from time to time designate.
(ii) Not permit foodstuffs to be prepared within the Premises except in a
place designed for the particular purpose PROVIDED that this shall not
prohibit the serving of morning and afternoon teas within the Premises.
(iii) Not use any method of lighting, cooling or heating other than
appropriate conventional electrical appliances.
(iv) Use for the reception, delivery or other movement of any goods only
such parts of the Building and at such times and in such manner as the
Lessor may from time to time permit.
(v) Comply with all requirements of the Lessor and relevant authorities
regarding evacuation of the Building in the event of emergency
including practise of evacuation drills and keep the Lessor informed of
the name or names of such person employed by the Lessee who is charged
with the responsibility of supervising such evacuation.
(vi) Not permit the sale of liquor within the Premises save and except in
accordance with the Licensing Laws.
(vii) Not burn any substance within the Building.
(viii) Not permit any person to sleep in or reside upon the Premises.
17
<PAGE> 21
(ix) Advise the Lessor of the private address and telephone number of the
Lessee or if the Lessee is a corporation, of a responsible person
employed by the Lessee and shall keep the Lessor promptly informed of
any change of such address or telephone number.
18. DEFAULT
(a) If the Annual Rent shall be unpaid for seven (7) days after the due
date for payment then (whether or not any demand has been made) the
Lessor may enter upon the Premises and distrain for the Annual Rent so
in arrear.
(b) If the Annual Rent shall be unpaid for fourteen (14) days after the due
date for payment (whether or not demand has been made), or if the
Lessee shall have become insolvent, or shall have compounded with or
assigned the Lessee's estate or any substantial part thereof, for the
benefit of his/her creditors or any number of such creditors or being a
company shall have gone into liquidation, whether voluntarily or
otherwise, except for the purposes of reconstruction, or shall have
gone into receivership, or if the Lessee shall be in breach of its
obligations under this Lease and if the Lessor shall have given to the
Lessee notice of such breach requiring the Lessee to remedy such breach
within a specified reasonable period and if such breach shall continue
after the expiration of such period then the Lessor may re-enter upon
any part of the Premises in the name of the whole and thereby determine
this Lease but without releasing the Lessee or any Guarantor from
liability in respect of Annual Rent accrued to the date of such
re-entry or of any antecedent breach of the Lessee's obligations under
this Lease.
(c) For the purposes of this clause "Annual Rent" shall include all
payments of every kind for which the Lessee is liable under this Lease.
19. LAND TRANSFER TITLE
(a) The Lessee shall not be entitled to require registration of this Lease
under the Land Transfer Act 1952.
(b) The Lessor may sell or transfer its interest in the Premises to any
person without reference to the Lessee.
(c) The Lessee shall not register a caveat against the Lessor's title to
the Premises.
20. GUARANTEE
In consideration of the Lessor at the request of the Guarantor entering into
this Lease with the Lessee, the Guarantor covenants and agrees with the Lessor
(as construed in accordance with clause 1(e) of this Lease) that:
18
<PAGE> 22
(a) The Guarantor guarantees to the Lessor that the Guarantor shall with
the Lessee, be jointly and severally liable to the Lessor for the due
payment of all monies to be paid by the Lessee under this Lease and for
the due performance and observance by the Lessee of all the covenants
terms and conditions of this Lease on the part of the Lessee to be
performed and observed.
(b) The Guarantor shall indemnify the Lessor and shall at all times
hereafter keep the Lessor indemnified from and against all losses and
expenses which the Lessor may suffer or incur in consequence of any
breach or non-observance of any of the covenants terms and conditions
of this Lease on the part of the Lessee to be performed or observed and
the Guarantor agrees that the Guarantor shall remain liable to the
Lessor under this indemnity notwithstanding that as a consequence of
such breach or non-observance the Lessor has exercised any of its
rights under this Lease including its rights of re-entry and
notwithstanding that the Lessee (being a company) may be wound up or
dissolved or (being a natural person) may be declared bankrupt or
insolvent and notwithstanding that the guarantee given by the Guarantor
may for any reason whatsoever be unenforceable either in whole or in
part.
(c) On any default or failure by the Lessee to observe and perform any of
the covenants terms and conditions of this Lease the Guarantor will
forthwith on demand by the Lessor pay the rent and make good to the
Lessor all losses and expenses sustained or incurred by the Lessor by
reason or in consequence of any such default or failure by the Lessee
in the payment of rent or in performing or observing any of the
covenants terms and conditions of this Lease without the necessity of
any prior demand having been made on the Lessee.
(d) The liability of the Guarantor under this guarantee and indemnity shall
not be affected by the granting of time or any other indulgence to the
Lessee or by the compounding compromise, release abandonment waiver
variation or renewal of any of the rights of the Lessor against the
Lessee or by any other thing which under the law relating to sureties
would or might but for this provision release the Guarantor in whole or
in part from the obligations of the Guarantor under this Lease.
(e) Notwithstanding that as between the Guarantor and the Lessee the
Guarantor may be a surety only nevertheless as between the Guarantor
and the Lessor the Guarantor shall be deemed to be a principal debtor
jointly and severally with the Lessee.
(f) To the fullest extent permitted by law the Guarantor hereby waives such
of the rights of the Guarantor as surety or indemnifier (legal,
equitable, statutory or otherwise) which may at any time be
inconsistent with any of the provisions of this Lease.
(g) The covenants and agreements made or given by the Guarantor shall not
be conditional or contingent in any way or dependent upon the validity
or enforceability of the covenants and agreements of any other person
and shall be and remain binding notwithstanding that any other person
shall not have executed or duly executed this Lease or this guarantee
and indemnity.
(h) The Guarantor waives any right to be notified of or to approve any
variation of, or any review of, rental payable under this Lease or any
determination of any new rental pursuant to this Lease and the
Guarantor acknowledges that,
19
<PAGE> 23
notwithstanding the absence of any such approval or consent, this
guarantee shall apply to the new rental as so varied or determined.
(i) If this Lease shall contain any right of renewal for a further lease
and the Lessee shall exercise such right the grant of such a further
lease shall be subject to the Guarantor guaranteeing the obligations of
the Lessee under such further lease and indemnifying the Lessor in
respect thereof on the same basis as the guarantees and indemnities
contained in this Lease.
(j) The Guarantor agrees, upon demand, to sign any further lease or other
document to record the application of this guarantee to any variation
or determination of the Annual Rental from time to time during the term
and to any renewal or extension of the Term or to any new lease granted
to the Lessee pursuant to the exercise of any right recording in this
Lease.
(k) The obligations of the Guarantor under this Lease shall continue to
remain in force until all rent or other monies payable pursuant to this
Lease shall have been paid and until all other obligations and
indemnities shall have been performed, observed and satisfied and such
obligations shall not be reduced or affected by any notice to quit
given by either party to this Lease or the death, insolvency,
liquidation or dissolution of the Lessee or the Guarantor or either of
them.
(l) Where there is more than one person or corporation which together
constitute the Guarantor to this Lease the obligations and liabilities
of each and every such person or corporation shall be joint and
several.
(m) The transfer or assignment of the land or the Building or the Lessor's
interest in this Lease shall not release or discharge the Guarantor or
any guarantor of the Lessee's obligations under this Lease and any such
Guarantor shall upon demand enter into, execute and deliver any further
document which any such transferee or assignee may require to ensure
that the obligations of the Guarantor are enforceable by and for the
benefit of any such transferee or assignee.
EXECUTED as a Deed.
EXECUTED by )
MFL MUTUAL FUND LIMITED as Lessor )
(under its name and seal) )
by )
/s/ [Illegible] Director
[MFL Mutual Fund SEAL]
/s/ [Illegible] Director
EXECUTED by )
PACIFIC LITHIUM LIMITED as Lessee )
by its duly authorised directors: )
/s/ Robin T. Johannink 16.01.98 Director
- ----------------------------------------
/s/ Keith Young 16.01.98 Director
- ----------------------------------------
20
<PAGE> 1
EXHIBIT 10.61
AGREEMENT
AGREEMENT ("Agreement"), dated as of May 3, 2000, among LITHIUM
TECHNOLOGY CORPORATION, a Delaware corporation (the "Company"), and THOMAS R.
THOMSEN ("Thomsen"), residing at 26 Bellinghamshire Place, New Hope,
Pennsylvania 18938.
WITNESSETH
WHEREAS, the Company is indebted to Thomsen in connection with accrued
and unpaid salary in the amount of $365,000 (the "Obligation");
WHEREAS, the Company and Thomsen desire to enter into this Agreement to
formalize the satisfaction of the Obligation on the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants made herein, and other good and valuable consideration, receipt
of which is hereby acknowledged, the Company and Thomsen agree as follows:
1. Satisfaction of Obligation. As satisfaction of the Obligation, the
Company and Thomsen hereby agree as follows:
(a) In lieu of delivering a cash exercise payment of $165,000 to the
Company upon the exercise options held by Thomsen to purchase shares of
common stock of the Company, Thomsen may apply $165,000 of the
Obligation to the exercise price of such options;
(b) The Company shall pay Thomsen $120,000 within 90 days of the
exercise of all of the options referenced in Section 1(a)
above; and
(c) The Company shall pay Thomsen $80,000 within 180 days of the
exercise of all of the options referenced in Section 1(a)
above.
Upon receipt of the certificates evidencing the shares of the
Company upon exercise of the options as set forth in Section 1(a) hereof and
upon receipt of the cash payments as set forth in Sections 1(b) and 1(c) above,
Thomsen agrees that the Obligation shall be discharged in full, without further
action by the Company or Thomsen.
2. Representations and Warranties.
(a) The Company hereby represents and warrants to Thomsen
that: (i) the Company is duly incorporated, validly existing and in good
standing under the laws of the State of Delaware; (ii) the execution, delivery
and performance of this Agreement by the Company have been duly authorized by
all necessary corporate actions of the Company; and (iii) this Agreement
constitutes the legal, valid and binding obligation of the Company enforceable
in accordance with its terms, except as the same may be modified by bankruptcy,
insolvency, moratorium and other similar laws affecting creditors' rights
generally and by general principles of equity.
(b) Thomsen hereby represents and warrants to the Company
that: (i) the execution, delivery and performance of this Agreement by Thomsen
have been duly authorized by all necessary action of Thomsen; and (ii) this
Agreement constitutes the legal, valid and binding obligation of Thomsen
enforceable in accordance with its terms, except as the same may be modified by
bankruptcy, insolvency, moratorium and other similar laws affecting creditors'
rights generally and by general principles of equity.
51
<PAGE> 2
3. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior written agreements
and understandings relating to the subject matter hereof.
4. Successors and Assigns. This Agreement shall be binding on and inure
to the benefit of the respective successors, assigns and heirs of the parties
hereto.
5. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
6. Counterparts. This Agreement may be executed in any number of
counterparts, each of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Agreement as of the date first above written.
LITHIUM TECHNOLOGY CORPORATION
By: /s/ David J. Cade
David J. Cade, Chairman and
Chief Executive Officer
/s/ Thomas R. Thomsen
Thomas R. Thomsen
The foregoing Agreement is accepted by
Pacific Lithium Limited
By: /s/ Robin T. Johannink
Name: Robin T. Johannink
Title: Managing Director
Date: May 3, 2000
<PAGE> 1
EXHIBIT 11.01
PACIFIC LITHIUM LIMITED
RECONCILIATION OF NET LOSS AND PRO FORMA EARNINGS PER COMMON SHARE
Amounts in thousands, except per share data
(Unaudited)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED NINE MONTHS ENDED YEAR ENDED NINE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1998 DECEMBER 31, 1998 MARCH 31, 1999 DECEMBER 31, 1998
<S> <C> <C> <C> <C> <C>
EARNINGS (LOSS) PER SHARE
Basic loss per share:
NUMERATOR:
Basic net loss $ (2,094,982) $(3,308,819) $ (2,445,764) $ (3,781,808) $ (3,315,409)
============= =========== ============= ============== =============
DENOMINATOR:
Basic weighted average
shares outstanding 13,069,000 15,499,946 17,069,320 17,273,161 20,180,240
============= =========== ============= ============== =============
Basic net loss per share $ (0.16) $ (0.21) $ (0.14) $ (0.22) $ (0.16)
============= =========== ============= ============== =============
Diluted earnings (loss) per share:
NUMERATOR:
Diluted net loss $ (2,094,982) $(3,308,819) $ (2,445,764) $ (3,781,808) $ (3,315,409)
============= =========== ============= ============== =============
DENOMINATOR:
Weighted average shares
outstanding 13,069,000 15,499,946 17,089,320 17,273,161 20,180,240
Dilutive effect of options 0 0 364,361 398,932 357,646
Dilutive effect of warrants(1) 0 0 0 0 0
------------- ----------- ------------- -------------- -------------
Dilutive weighted average
shares outstanding 13,069,000 15,499,946 17,453,681 17,432,792 20,537,886
============= =========== ============= ============== =============
Diluted earnings (loss)
per share $ (0.16) $ (0.21) $ (0.14) $ (0.22) $ (0.15)
============= =========== ============= ============== =============
If anti-dilutive, use Basic Anti-dilutive Anti-dilutive Anti-dilutive Anti-dilutive Anti-dilutive
</TABLE>
(1) Where there is an anti-dilutive effect on the calculation the item is set to
zero.
<PAGE> 1
EXHIBIT 11.02
LITHIUM TECHNOLOGIES CORPORATION
RECONCILIATION OF NET LOSS AND PRO FORMA EARNINGS PER COMMON SHARE
(Unaudited)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
<S> <C> <C>
EARNINGS (LOSS) PER SHARE
Basic loss per share:
NUMERATOR:
Basic net loss $(4,593,000) $(3,261,000)
=========== ===========
DENOMINATOR:
Basic weighted average
shares outstanding 44,354,000 21,697,000
=========== ===========
Basic net loss per share $ (0.10) $ (0.15)
=========== ===========
Diluted earnings (loss) per share:
NUMERATOR:
Diluted net loss $(4,593,000) $(3,261,000)
=========== ===========
DENOMINATOR:
Weighted average shares
outstanding 44,354,000 21,697,000
Dilutive effect of options 2,625,680 2,948,041
Dilutive effect of warrants 3,080,992 3,715,754
----------- -----------
Dilutive weighted average
shares outstanding 50,060,672 28,360,795
=========== ===========
Diluted earnings (loss)
per share $ (0.09) $ (0.11)
=========== ===========
If anti-dilutive, use Basic Anti-dilutive Anti-dilutive
</TABLE>
<PAGE> 1
Lithion Corporation - a Pennsylvania Corporation
(100% subsidiary of Lithium Technology Corporation)
<PAGE> 1
EXHIBIT NUMBER 23.3
<PAGE> 2
We consent to the use in this registration statement of Pacific Lithium Limited,
relating to the proposed merger of Lithium Technology Corporation into Pacific
Lithium Limited, of our report dated May 11,1999, on the financial statements of
Pacific Lithium Limited, and to the use of our name and the statements with
respect to us under the heading "Experts" in the Prospectus.
HORWATH PORTER WIGGLESWORTH
Auckland, New Zealand
May 11, 2000
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Lithium Technology
Corporation on Form S-4 of our report dated February 11, 2000 (March 31, 2000 as
to Note 10) (which report expresses an unqualified opinion and includes an
explanatory paragraph relating to the Company's ability to continue as a going
concern), appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the headings "Unaudited Pro Forma
Financial Information" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE, LLP
Philadelphia, Pennsylvania
May 12, 2000
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to use in this Form S-4 Registration Statement of our report
dated January 22, 1997 relating to the consolidated statements of operations,
changes in stockholders' equity (deficit) and cash flows of Lithium Technology
Corporation and subsidiary for the period July 21, 1989 (date of inception) to
December 31, 1996.
/s/ WISS & COMPANY, LLP
May 12, 2000
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PACIFIC
LITHIUM LIMITED'S FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> NEW ZEALAND DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 3,914,537
<SECURITIES> 0
<RECEIVABLES> 506,272
<ALLOWANCES> 0
<INVENTORY> 137,086
<CURRENT-ASSETS> 4,557,895
<PP&E> 3,548,351
<DEPRECIATION> 456,001
<TOTAL-ASSETS> 12,928,341
<CURRENT-LIABILITIES> 624,886
<BONDS> 0
0
0
<COMMON> 26,134,193
<OTHER-SE> 537,460
<TOTAL-LIABILITY-AND-EQUITY> 12,928,341
<SALES> 946,409
<TOTAL-REVENUES> 0
<CGS> 1,214,938
<TOTAL-COSTS> 1,214,648
<OTHER-EXPENSES> 3,038,648
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,281
<INCOME-PRETAX> (3,315,409)
<INCOME-TAX> (3,315,409)
<INCOME-CONTINUING> (3,315,409)
<DISCONTINUED> (3,315,409)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,315,409)
<EPS-BASIC> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
PROXY CARD
LITHIUM TECHNOLOGY COPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 31, 2000
The undersigned hereby constitutes and appoints David Cade and George
Ferment and each of them, the true and lawful attorneys and proxies of the
undersigned with full power of substitution and appointment, for and in the
name, place, and stead of the undersigned, to act for and to vote all of the
undersigned's Common Shares of $.01 par value per share of Lithium Technology
Corporation ("LTC") at the Special Meeting of Shareholders (the "Meeting") to be
held at 5115 Campus Drive, Plymouth Meeting, Pennsylvania, on July 31, 2000, at
10:00 a.m. local time, and at all adjournments thereof for the following
purposes:
<TABLE>
<CAPTION>
<S> <C>
1. Approval of the Merger between LTC and Ilion Technology Corporation;
[ ] FOR [ ] AGAINST [ ] ABSTAIN FROM VOTING
2. In their discretion, the Proxies are authorized to vote upon
such other business as lawfully may come before the Meeting.
</TABLE>
The undersigned hereby revokes any proxies as to said shares
heretobefore given by the undersigned and ratifies and confirms that said
attorneys and proxies lawfully may do by virtue hereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THEN THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
AT THE MEETING.
It is understood that this proxy confers discretionary authority in
respect to matters not known or determined at the time of the mailing of the
Notice of Special Meeting of Stockholders to the undersigned. The proxies and
attorneys intend to vote the shares represented by this proxy on such matters,
if any, as determined by the Board of Directors.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Stockholders and the Proxy Statement and Prospectus furnished
therewith.
Dated and Signed:
- --------------------------------------------, 2000
- -------------------------------------------------
- -------------------------------------------------
Signature(s) should agree with the name(s) stenciled hereon.
Executors, administrators, trustee, guardians and attorneys
should so indicate when signing. Attorneys should submit
powers of attorney.
53
