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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-10446
LITHIUM TECHNOLOGY CORPORATION
(Name of Small Business Issuer in Its Charter)
DELAWARE 13-3411148
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5115 CAMPUS DRIVE, PLYMOUTH MEETING, PENNSYLVANIA
(Address of Principal Executive Offices)
19462
(Zip Code)
(610) 940-6090
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: NONE.
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK
PAR VALUE, $0.01
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendments to this Form 10-KSB.[ ]
State issuer's revenues for its most recent fiscal year. None.
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the stock was
sold, or the average bid and asked prices of such common equity, as of a
specified date within the past 60 days.
Approximately $102,069,961 as of March 1, 2000. The aggregate market value was
based upon the mean between the closing bid and asked price for the common stock
as quoted by the NASD Electronic Bulletin Board.
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ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of March 1, 2000, 49,990,835
shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security-holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). None.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Description of Business............................................................................. 4
Item 2. Description of Property............................................................................. 17
Item 3. Legal Proceedings .................................................................................. 17
Item 4. Submission of Matters to a Vote of Security Holders ................................................ 17
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters.............................. 18
Item 6. Management's Discussion and Analysis or Plan of Operation .......................................... 19
Item 7. Financial Statements ............................................................................... 22
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................ 22
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act................................................... 23
Item 10. Executive Compensation ............................................................................. 25
Item 11. Security Ownership of Certain Beneficial Owners and Management ..................................... 32
Item 12. Certain Relationships and Related Transactions...................................................... 33
Item 13. Exhibits and Reports on Form 8K .................................................................... 33
FINANCIAL STATEMENTS...................................................................................................... F-1
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PART I
SAFE HARBOR STATEMENT
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for certain forward-looking statements. Statements contained in this report that
are not historical facts are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those
stated in the forward-looking statements. Factors that could cause actual
results to differ materially include, among others: general economic conditions,
changes in laws and government regulations, fluctuations in demand for the
Company's products, the Company's ability to consummate the merger with Pacific
Lithium Limited, technology development problems, and the Company's ability to
successfully finance future plant and equipment plans, as well as its current
ongoing operations.
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Lithium Technology Corporation ("LTC" or the "Company") 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 (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 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, the Company had been named Hope Technologies, Inc. (HTI), consisting of
two subsidiaries: Hope Industries, Inc. (Industries) and Lithion Corporation.
Industries was the operating arm of 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, 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.
RECENT DEVELOPMENTS - MERGER AGREEMENT SIGNED WITH PACIFIC LITHIUM LIMITED
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
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 and non-exclusive licensee of lithium manganese
cathode products, lithium polymers and their production processes. PLL has an
exclusive
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licensing arrangement with the Massachusetts Institute of Technology (MIT) to
commercialize MIT's proprietary electrode and electrolyte polymers. PLL also has
exclusive and non-exclusive licenses for lithium manganese oxide compounds
developed by the National Research Center of Canada for use in cathodes in
battery applications. PLL is a significant supplier of high quality
battery-specific lithium carbonate to Japanese cathode and electrolyte
suppliers. For a description of PLL see "Pacific Lithium Limited" below in this
Item 1.
LTC believes that the new combined entity will have a unique position in the
lithium polymer battery market, providing a proprietary vertical integration
capability that would range from premium grade lithium carbonate and lithiated
manganese cathode materials to reinforced composite battery structures, with low
cost, high yield thin film manufacturing processes. LTC believes that this
combination of technologies, capabilities and people will enable the new company
to become the low cost provider of high quality and high performance lithium
polymer batteries. Targeted end user applications include the portable
electronics market, particularly notebook computers and PDAs, as well as the HEV
market.
Prior to the Merger, PLL will domesticate into the United States and become a
Delaware corporation pursuant to the provisions of Section 388 of the Delaware
General 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 second half of 2000 depending upon market
and other factors. The Merger will be closed contemporaneously with the Ilion
IPO; the offering will be made only by means of a prospectus.
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. The current asking price for sales of PLL
stock is approximately U.S. $3.00 per share. During 1999 PLL raised
approximately U.S. $6.5 million through the sales of PLL common stock at the
average share price of approximately U.S. $1.90 per share. As of the date of
the execution of the Merger Agreement, the number of Ilion shares to be issued
to the LTC stockholders in the Merger represented approximately 15% of the
outstanding shares of PLL. The actual percentage of the outstanding Ilion
shares that will be issued to the LTC stockholders at the time of the Merger
closing will be less than 15% of the outstanding shares since additional Ilion
shares will be issued in the Ilion initial public offering at the time of the
Merger closing and PLL may issue additional shares prior to the completion of
the Ilion IPO.
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 $975,000 as of March 1, 2000 for working
capital and $125,000 for the purchase of a packaging machine. 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").
LTC estimates that approximately $200,000 per month until December 2000, and
approximately $250,000 per month thereafter, will be required by LTC for
working capital. Under the agreements with PLL, 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 PLL under the Bridge Financing
Agreement. If the Merger does not close until February 2002, a total of
approximately $5,300,000 will be required by LTC for working capital from April
2000 until February 2002.
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 entered into on March 31, 2000, LTC is
required to obtain the approval of the Merger by the LTC stockholders by June
30, 2000, unless such date is further extended. 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.
PLL has agreed that upon the closing of the Merger, PLL will offer to each
full-time employee of LTC 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.
PLL will offer employment to Mr. David Cade, LTC's Chairman and Chief Executive
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.
PLL 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.
At the time of the Merger, Ilion will grant a minimum of three hundred thousand
(300,000) options to the LTC transferred employees for the purchase of Ilion
Common Stock at an exercise price of $2.25 per share.
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Effective at the Merger closing, LTC will have the right to appoint one member
to the Board of Directors of Ilion. PLL has agreed to use its reasonable best
efforts to cause such appointee to be elected to the Ilion Board of Directors.
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.
The changes to the terms of the warrants and options is conditioned on the
holders of such warrants and options consenting to the termination of the
warrant and option owned by such holder on the earlier of the original
termination date and 30 days prior to the closing date of the Merger. 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 warrants or options issued by LTC exercises such
warrants or options prior to the Merger closing date, LTC has agreed to use the
proceeds thereof as follows: (i) 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.
Contemporaneously with the consummation of the Merger and the Ilion IPO, PLL
will distribute the Merger Securities to the stockholders of LTC pursuant to an
effective registration statement. The LTC stockholders may elect to include the
Merger Securities owned by such stockholders in the Ilion IPO and PLL has agreed
to use its best efforts to include such Merger Securities in the Ilion IPO
(subject to cutback by the managing underwriter).
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.
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 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.
At March 1, 2000, PLL held $1,100,000 of convertible notes convertible into
11,000,000 shares of 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 June 30, 2000 or
such later date agreed to by PLL). LTC may issue up to approximately $5,300,000
of additional notes to PLL from April 2000 until February 2002, convertible into
53,000,000 shares of common stock at a conversion price of $.10 per share, and
may issue to PLL 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 PLL if the merger is closed.
The percentage ownership of LTC that PLL 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 PLL to LTC. If PLL advances another
$5,300,000 in addition to the $1,100,000 advanced through March 31, 2000, and
the notes were converted, PLL would own approximately 64,000,000 shares of LTC
common stock which would represent approximately 52% 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 PLL.
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 PLL. 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.
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Assuming the LTC stockholders approve the Merger, the closing of the Merger will
occur once all of the remaining closing conditions are satisfied, including the
consummation of the Ilion IPO. There can be no assurance that the Merger will be
approved by the stockholders of LTC or consummated. If LTC does not consummate
the Merger, LTC will assess all available options, including the suspension of
operations and possibly liquidation, bankruptcy or other measures.
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 (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 - 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 PLL has approved the purchase of the equipment necessary to
complete the PMMP. The equipment will be owned by PLL and located within LTC's
existing facility in Plymouth Meeting, Pennsylvania. There can be no assurance
however that LTC will be able to achieve the production capabilities that will
be necessary in order to ultimately achieve commercialization or generate
revenues or that PLL 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:
(i) hand-made call samples tested by potential strategic partners
in 1995 (accomplished);
(ii) installation of a pilot line continuous flow coating
laminating unit in 1996 (accomplished);
(iii) upgrade of the pilot line and distribution of lithium-ion
polymer cell samples produced on the pilot line to selected
OEMs beginning in early 1997 (accomplished);
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(iv) distribution of prototype battery cells to selected OEMs in
early 1998 (on-going);
(v) installation of packaging equipment and environmental control
equipment to achieve EPA compliance at the Plymouth Meeting
plant (fourth quarter 1999 - second quarter 2000);
(vi) initial commercial production at PMMP in 2000; and
(vii) 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 (v) and (vi) 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 PLL 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 HEV battery applications. The two companies intend to establish
JV manufacturing or technology licensing relationships at selected locations
worldwide.
MARKET OVERVIEW
The worldwide battery market is expected to grow significantly over the next few
years. Certain market segments are expected to grow significantly faster, such
as the high performance rechargeable battery market, LTC's principal target.
This market segment includes portable electronics applications as well as Hybrid
Electric Vehicle (HEV) and Electric Vehicle (EV) applications. LTC believes that
there is sufficient room in this rapidly expanding market for new battery
companies to emerge without significant impact on the market share of existing
players.
The global market demand for a small, lightweight, ultra-thin, longer operating
time rechargeable battery for mobile computing and communications applications
is enormous and growing at a phenomenal rate as the trends of increased wireless
usage and miniaturization of electronics continue unabated. Industry sources
believe that there will be well over a billion portable communications and
computing devices in use early in the next century. Moreover, there is a growing
demand, spearheaded by Japan, for HEVs, which is expected to become a very large
market for advanced rechargeable batteries. Nomura Research Institute forecasts
that HEV and EV applications will be almost eight times larger than portable
electronics applications by 2005.
Based on this market demand, LTC's near-term focus is on the portable
electronics device (particularly notebook computers) and HEV segments. LTC's
battery cell size, form factor, performance, and low-cost manufacturability
profile are particularly suited for these applications. Additionally, LTC is
considering, on a case-by-case basis, specialty application opportunities
including microelectronics, aerospace/defense, solar energy and portable medical
devices.
According to Fuji Chemical, worldwide sales of rechargeable batteries
manufactured in Japan were approximately $11 billion in 1999. Sales breakout by
chemistry is 63% for liquid lithium-ion, 20% for nickel metal hydride and 17%
for nickel cadmium. This represents an ever growing market share for liquid
lithium-ion versus nickel metal hydride (1998 sales figures were 58%
lithium-ion, 21% nickel metal hydride and 20% nickel cadmium). Going forward,
lithium-ion polymer batteries are expected to become a growing part of the
overall lithium-ion market
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share.
As lithium-ion polymer technology enters the marketplace, its thin, flat form
factor, lighter weight and safety advantages over liquid electrolyte lithium-ion
systems are expected to enable it to capture increasing market share. The market
for lithium-ion polymer batteries is expected to grow significantly over the
next decade due to the widespread and growing use of portable consumer
electronics including mobile personal computers and wireless communications
devices such as cellular phones and PCS handsets. The market for lithium-ion
polymer batteries is expected to be the fastest growing projected segment of the
high performance rechargeable battery market. The advancement of consumer
electronics in recent years has led to battery power, size and shape becoming
the limiting factors in product engineering and design. LTC believes its
proprietary battery characteristics offer design flexibility while providing
superior performance and safety. Additionally, LTC's batteries address the
increasing demand for environmentally friendly batteries which can be recycled
and do not contain heavy metals which have become public health concerns.
TECHNOLOGY OVERVIEW
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.
LTC holds 22 issued and 10 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
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- - 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 productbility; 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 twenty-two 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
that gave LTC patent protection on the use of metalized fiber webs for building
electrodes and separators. These 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 "Description of
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 Lithium 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
</TABLE>
10
<PAGE> 11
<TABLE>
<S> <C>
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
Electochemical 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
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.
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<PAGE> 12
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 that 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 Original Equipment Manufacturers
(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").
- - 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 HEV 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.
12
<PAGE> 13
Nickel-Cadmium
Nickel-Cadmium (NiCad) batteries have experienced evolutionary improvement.
However, even with capacity improvements, NiCads 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 NiCads due to disposal
concerns.
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 NiCads. However, they cannot
discharge as quickly, have slower recharge times, and are currently twice as
expensive than NiCads. 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 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 which 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
13
<PAGE> 14
phone batteries in 1999, but apparently halted production due to performance
problems. 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, LTC believes that with the growing size of the market there should be
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 HEV 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 PLL'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 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
14
<PAGE> 15
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.
PACIFIC LITHIUM LIMITED
PLL was formed in 1994 as a New Zealand company and expects to domesticate into
Delaware and become a Delaware company in April 2000. PLL started out as a
company looking to commercially extract lithium from sea water. Although PLL
developed the capability to do so, the market price for technical grade lithium
carbonate fell significantly as a result of a new supplier entering into the
market and the extraction of lithium from sea water turned out to be non
economic under prevailing market conditions. PLL then utilized 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. PLL has exclusive and non-exclusive worldwide licenses for advanced
materials developed by the Massachusetts Institute of Technology ("MIT") and
exclusive and non-exclusive worldwide licenses for advanced materials developed
by the National Research Council of Canada. PLL 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, PLL
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.
PLL'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 PLL's primary goals is to
significantly reduce the price of lithium battery cells.
PLL employs two salespersons, one concentrating specifically on Asia and the
other on the United States and Europe.
PLL manufactures high grade and premium grade lithium carbonate at its
manufacturing facility in Auckland, New Zealand. PLL 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.
PLL plans to build a lithium-ion cell manufacturing facility by December 2000 to
be located at LTC's existing facility in Plymouth Meeting, Pennsylvania. PLL
currently employs a total of 29 full time persons, all of whom are based in New
Zealand. PLL also hires up to an additional 10 persons under contract labor for
its manufacturing facility, depending on its production requirements.
PLL operates its manufacturing plant in New Zealand from a leased industrial
site. The current lease term expires in February 2004. PLL has negotiated a
lease extension to 2007 with the right to renew for a further 3 years beyond
this. PLL has negotiated a growth clause with the landlord. PLL has its
management office in Auckland, New Zealand. PLL is currently in the process of
negotiating a joint lease for new premises.
15
<PAGE> 16
GLOSSARY OF TECHNICAL TERMS
Alkaline Metals.................. The elements which are in Group 1A of the
Periodic Table including lithium, sodium and
potassium.
Anode ........................... The electrode in a battery which releases
electrons to an external circuit and ions
into the electrolyte.
Cathode ......................... The electrode in a battery which accepts
electrons from the external circuit and ions
from the electrolyte.
Electrolyte ..................... The medium in a battery which provides the
ion transport mechanism between the anode
and cathode.
Electron ........................ An elementary particle having a negative
charge.
Energy Density .................. The total quantity of electrical energy in a
battery, expressed as a function of volume
(e.g., Watt-hours per liter) or weight
(e.g., Watt-hours per kilogram).
Ion ............................. An atom or a molecule that has acquired an
electrical charge by the loss or gain or
electrons.
Laminated Battery ............... A battery composed of thin sheets of anode,
electrolyte and cathode that have been
bonded together.
Lead Acid Battery ............... A rechargeable battery with electrodes made
of lead compounds and with an electrolyte
containing acid.
Lithium ......................... A soft, low density alkali earth metal with
high electrochemical potential.
Lithium Polymer Battery ......... A battery which has a polymer electrolyte
rather than the liquid electrolyte found in
conventional batteries. Also known as "solid
state" or "plastic" batteries.
Lithium Metal Polymer Battery ... A lithium polymer battery which uses pure
lithium foil or lithium alloy foil as the
anode and lithiated oxides in the cathode.
Lithium-Ion Polymer Battery ..... A lithium polymer battery which uses
lithiated graphite or carbon anode rather
than lithium metal foil and lithiated oxides
in the cathode.
Memory Effect ................... The undesirable characteristic of NiCd
batteries to lose energy storage capacity on
each recharge after a partial discharge.
Polymer ......................... A large molecule that is made by bonding
together many smaller identical molecules.
Primary Battery ................. A battery that is not rechargeable.
Rechargeable Battery ............ A battery that, after discharge, may be
restored close to the fully charged state by
the passage of electric current through the
battery in the opposite direction to that of
discharge.
Self-Discharge Rate ............. The rate at which a charged battery loses
energy while not in use.
Web ............................. A non-woven net composed of thin fibers that
have been randomly placed in all directions
and bonded together to form an open mesh
structure of continuous length.
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<PAGE> 17
ITEM 2. DESCRIPTION OF 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 June 30, 2000 to exercise the lease option or
give the six month notice of termination.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of LTC's security holders during the fourth
quarter of the fiscal year ended December 31, 1999.
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<PAGE> 18
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
LTC's common stock is traded in the over-the-counter market, and "bid" and
"asked" prices in the common stock are quoted on the NASD OTC Electronic
Bulletin Board under the symbol "LITH". 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 1999 and 1998. 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>
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 $ .84375
</TABLE>
As of December 31, 1999, there were approximately 807 holders of record of the
Company's common stock.
DIVIDEND POLICY
LTC has never paid cash dividends on its common stock and does not presently
anticipate paying cash dividends in the foreseeable future. It is anticipated
that earnings, if any, will be retained for use in the business of LTC for an
indefinite period. Payments of dividends in the future, if any, will depend,
among other things, on LTC's ability to generate earnings, its need for capital,
and its financial condition. Additionally, LTC's ability to pay dividends is
limited by applicable state law. Declaration of dividends in the future will
remain within the discretion of LTC's Board of Directors which will review its
dividend policy from time to time.
RECENT SALES OF COMMON STOCK
In October 1999, LTC approved the issuance of 103,449 and 151,724 shares of
common stock in settlement of fees owed to two advisors. There were no
underwriters involved in the transactions and the sales and issuances of common
stock were deemed to be exempt from registration under the Securities Act of
1933 pursuant to Section 4(2) thereof based on the investors' suitability and/or
representations furnished by the securityholders.
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<PAGE> 19
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
On January 4, 2000 the 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 April 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 the Company had outstanding
49,990,835 shares of common stock. The Company 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 Preferred Stock having the economic and voting
equivalent of the Common Conversion Shares.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this report.
GENERAL AND PLAN OF OPERATION
General and Business Strategy
LTC is a development stage company engaged in the business of developing and
seeking to commercialize unique, solid state, lithium-ion polymer rechargeable
batteries for portable electronic 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 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 - 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
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<PAGE> 20
environmental regulatory standards. The Board of Directors of PLL has approved
the purchase of the equipment necessary to complete the PMMP. The equipment
will be owned by PLL and located within LTC's existing facility in Plymouth
Meeting, Pennsylvania. There can be no assurance however that LTC will be able
to achieve the production capabilities that will be necessary in order to
ultimately achieve commercialization or generate revenues or that PLL will
provide all of the financing and equipment necessary to complete the PMMP.
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.
Merger Agreement with Pacific Lithium Limited
On January 19, 2000, LTC and Pacific Lithium Limited of Auckland, New Zealand
signed an Agreement and Plan of Merger to merge their respective companies.
Prior to the Merger PLL will domesticate into the U.S. and become a Delaware
corporation, change its name to Ilion Technology Corporation and consummate an
initial public offering in the United States and NASDAQ listing of Ilion. PLL
has indicated that it expects to complete the Domestication in April 2000 and
consummate the Ilion IPO during the second half of 2000 depending upon market
and other factors. The Merger will be closed contemporaneously with the Ilion
IPO; the offering will be made only by means of a prospectus.
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. As of the date of the execution of the Merger
Agreement, the number of Ilion shares to be issued to the LTC stockholders in
the Merger represented approximately 15% of the outstanding shares of PLL. The
actual percentage of the outstanding Ilion shares that will be issued to the LTC
stockholders at the time of the Merger closing will be less than 15% of the
outstanding shares since additional Ilion shares will be issued in the Ilion
initial public offering at the time of the Merger closing and PLL may issue
additional shares prior to the completion of the Ilion IPO.
Pursuant to the terms of a Bridge Loan, PLL has agreed to advance working
capital to LTC. PLL has advanced a total of U.S. $975,000 as of March 1, 2000
for working capital and $125,000 for the purchase of a packaging machine. In
addition, PLL has agreed to advance to LTC ongoing funds required by LTC for
ongoing employee, operating and administrative expenses excluding capital
expenses. LTC believes that provided PLL advances the needed working capital to
LTC until the consummation of the Merger, LTC will have sufficient capital
resources to meet LTC's needs and satisfy LTC's obligations through the date of
the Merger.
LTC estimates that approximately $200,000 per month until December 2000, and
approximately $250,000 per month thereafter, will be required by LTC for
working capital. Under the agreements with PLL, 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 PLL under the Bridge Financing
Agreement. If the Merger does not close until February 2002, a total of
approximately $5,300,000 will be required by LTC for working capital from April
2000 until February 2002.
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 entered into on March 31, 2000, 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.
The changes to the terms of the warrants and options is conditioned on the
holders of such warrants and options consenting to the termination of the
warrant and option owned by such holder on the earlier of the original
termination date and 30 days prior to the closing date of the Merger. 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.
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<PAGE> 21
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 as follows: (i) 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.
Contemporaneously with the consummation of the Merger and the Ilion IPO, PLL
will distribute the Merger Securities to the stockholders of LTC pursuant to an
effective registration statement. The LTC stockholders may elect to include the
Merger Securities owned by such stockholders in the Ilion IPO and PLL has agreed
to use its best efforts to include such Merger Securities in the Ilion IPO
(subject to cutback by the managing underwriter).
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 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, 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.
At March 1, 2000, PLL held $1,100,000 of convertible notes convertible into
11,000,000 shares of 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 June 30, 2000 or
such later date agreed to by PLL). LTC may issue up to approximately $5,300,000
of additional notes to PLL from April 2000 until February 2002, convertible into
53,000,000 shares of common stock at a conversion price of $.10 per share, and
may issue to PLL 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 PLL if the merger is closed.
The percentage ownership of LTC that PLL 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 PLL to LTC. If PLL advances another
$5,300,000 in addition to the $1,100,000 advanced through March 31, 2000, and
the notes were converted, PLL would own approximately 64,000,000 shares of LTC
common stock which would represent approximately 52% 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 PLL.
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 PLL. 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.
If LTC does not consummate the Merger, LTC will assess all available
alternatives including a sale of the assets of LTC to another party or a merger
with another party, the suspension of operations and possibly liquidation,
auction, bankruptcy, or other measures.
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 $818,000 from PLL as of December 31, 1999.
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 PLL 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
21
<PAGE> 22
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, PLL has agreed to advance working
capital to LTC until the closing of the Merger. PLL has advanced a total of U.S.
$975,000 through March 1, 2000 for working capital and $125,000 for the purchase
of a packaging machine. In addition, PLL 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, PLL has provided and will continue to provide working
capital for LTC. LTC believes that provided PLL 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 for the years ended December 31,
1999 and 1998. Engineering, research and development expenses were $1,385,000
for the year ended December 31, 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 for the year ended December
31, 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 the Company 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) for the
year ended December 31, 1999 compared to $341,000 (net of interest income of
$126,000) in 1998. The decrease in interest expense for the comparable periods
is attributable to the conversion of the Company's convertible term notes into
common stock.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements of LTC beginning on page F-1 are filed as part of this
Annual Report on Form 10-KSB and are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
22
<PAGE> 23
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth information concerning the directors and
executive officers of the Company as of the date of this report:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------- ----- ----------
<S> <C> <C>
David J. Cade 62 Chairman of the Board and Chief Executive Officer
George R. Ferment 60 President, Chief Operating Officer and Chief
Technical Officer and Director
Stephen F. Hope 57 Director
Barry Huret 62 Director
Ralph D. Ketchum 73 Director
Arif Maskatia 50 Director
John McFeeley 54 Director
John D. McKey, Jr. 56 Director
</TABLE>
David J. Cade was elected Chairmen and Chief Executive Officer of the Company on
November 1, 1999. Mr. Cade previously served as President and Chief Operating
Officer of the Company from May 1996 to November 1999. Mr. Cade served as the
Company'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 the
Company in August 1997. Mr. Cade has over thirty years of experience in senior
business development, marketing, sales and international strategic alliances in
global telecommunications systems, electronics and information technologies.
From February 1988 to October 1992, Mr. Cade was Senior Vice President of
Marketing and Business Development for COMSAT Systems Division and from October
1992 until April 1994, Mr. Cade was Vice President of Sales and Marketing at
Interdigital Communications Corporation, a Philadelphia company that
manufacturers wireless telephone systems for customers worldwide. Previously,
Mr. Cade held managerial positions with AT&T, Martin Marietta (now Lockheed
Martin) and the Department of Defense. Mr. Cade holds an MBA from Syracuse
University and an undergraduate degree from the University of Illinois.
George R. Ferment, Ph.D. was elected President and Chief Operating Officer of
the Company on November 1, 1999. Dr. Ferment also serves as the Chief Technical
Officer of the Company (since May 1996). Dr. Ferment previously served as
Executive Vice President of Operations of the Company since May 1996. Dr.
Ferment served as the Company's Vice President of Technology and Engineering
from October 1994 to May 1996 and from March 1994 through October 1994, as
Director of Technology Development. Dr. Ferment was elected a director of the
Company in August, 1997. Dr. Ferment has over 25 years of technology experience
in product and process development with extensive background in plastic and
polymer science. His early experience was in research and development of fibers
and polymers at Celanese Corporation. Dr. Ferment spent 14 years at GAF/Tarkett
Corporation where he rose to the position of General Manager (October 1983 - May
1988). From October 1989 to October 1993, Dr. Ferment was Group Director of
Campbell Soup Company where he had worldwide responsibility for the company's
diverse packaging technology development programs. Dr. Ferment received his
Master's Degree and Ph.D. in Chemical Engineering from the New Jersey Institute
of Technology.
Stephen F. Hope currently serves as a director of the Company and was President,
Chairman of the Board and Treasurer of the Company from October 1990 through
April 1994. He is a director of Lithion Corporation, a wholly-owned subsidiary
of the Company. Mr. Hope has an ongoing consulting arrangement with the Company
with
23
<PAGE> 24
respect to the battery technology that is being developed by the Company. He
received a B.A. from Dartmouth University in 1965 and is a member of the Society
of Manufacturing Engineers and the Society of Photo-Finished Engineers. Mr. Hope
was Director and the President of Hope Industries, Inc., a previously
wholly-owned subsidiary of the Company, from 1985 through December 1993.
Barry Huret was elected a Director of the Company on December 21, 1998. Mr.
Huret is the President and CEO of Huret Associates, Inc., Yardley, PA, a
management and battery consulting company. Previously, from 1982-1997, he served
as the Assistant General Manager, Division Head - OEM Battery Sales Group for
the Panasonic Industrial Company, Secaucus, New Jersey. He holds an MBA with
Distinction from the New York University, Graduate School of Business and a B.A.
with Honors in Economics from Cornell University, Ithaca, New York.
Ralph D. Ketchum was elected a director of the Company, effective July 1, 1994.
He has been President of RDK Capital, Inc. ("RDK Capital") since January 1987.
RDK Capital is a general partner of RDK Capital Limited Partnership, an
investment limited partnership. Mr. Ketchum served as Chief Executive Officer
and Chairman of the Board of Heintz Corporation ("Heintz"), a majority owned
subsidiary of RDK Capital Limited Partnership. Mr. Ketchum was Senior Vice
President and Group Executive of the Lighting Group, General Electric Company
from 1980 to 1987. He also serves as a director of Metropolitan Savings Bank,
Oglebay-Norton Corporation, Thomas Industries and Pacific Scientific, Inc.
Arif Maskatia was elected a director of the Company, effective February 23,
1999. Mr. Maskatia has over 27 years of experience in the computer industry. He
presently is Vice President of the Advanced Technology & Portable Development
Group for Acer Advanced Labs in San Jose, California, responsible for
development of new notebook computer platforms. Prior to joining Acer, he held
senior technology development positions with Zenith Data Systems and Alcatel/ITT
Information Systems. Mr. Maskatia holds Bachelors and Masters degrees in
electrical engineering from Cornell University.
Dr. John McFeeley was elected a Director of the Company on December 21, 1998.
Dr. McFeely is presently Manager of an Advanced Process Technology group at
Arkwright, Inc., Fiskeville, Rhode Island, responsible for development of new
chemical synthesis and web processing technologies. He had been with the
Polaroid Corporation, Cambridge, Massachusetts from 1971 to 1999, where he
served as a Senior Program Manager from 1989 - 1997 and became Distinguished
Engineer in 1997. Dr. McFeeley holds a B.S., M.S. and Ph.D. in Chemical
Engineering from the Polytechnic Institute of Brooklyn.
John D. McKey, Jr. was elected a director of the Company, effective September 8,
1995. He has, since September 1993, been a partner at the law firm of McCarthy,
Summers, Bobko & McKey, P.A., and, from June 1986 to September 1993, was a
partner at Kohn, Bobko, McKey & Higgins, P.A. Mr. McKey formerly served as a
director of Publishing Company of North America and currently serves as a
director of Consolidated Capital of North America, Inc.
William D. Walker, formerly the Treasurer and Chief Financial Officer of the
Company, resigned from such position effective August 19, 1999. Mr. Walker
continues to provide services to the Company as a part-time consultant.
Thomas R. Thomsen, formerly the Chairman and Chief Executive Officer of the
Company, resigned from such positions effective October 31, 1999.
The Company's directors hold office until the next annual meeting of the
Company's stockholders and until their successors have been duly elected and
qualified. The Company's directors do not receive compensation for their
services in that capacity.
24
<PAGE> 25
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who beneficially own, directly or
indirectly, more than ten percent (10%) of the registered class of the Company's
equity securities to file reports of ownership and changes in ownership on Forms
3, 4 and 5 with the Securities and Exchange Commission ("SEC") and the National
Association of Securities Dealers. Officers, directors and greater than ten
percent (10%) beneficial owners are required by SEC regulation to furnish the
Company with copies of all Forms 3, 4 and 5 they file.
All Forms 3, 4 and 5 that were required to be filed during 1999 pursuant to the
provisions of Section 16(a) of the Exchange Act have been filed. However, some
of the Forms 3, 4 and/or 5 that were required to be filed by the following were
not filed on a timely basis. David J. Cade (1), George R. Ferment (1), Gretchen
Deming (1). (The number in parenthesis after each name represents the number of
required forms that were not filed on a timely basis.)
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid by
the Company during the three years ended on December 31, 1999 to (i) the Chief
Executive Officer of the Company and (ii) all other executive officers of the
Company, or any of its subsidiaries, who were serving in such capacity on
December 31, 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 the Company 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.
25
<PAGE> 26
(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 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.
The Company has been accruing the full amount of his annual salary
during this period. In 1997, the Board of Directors approved the
issuance of 246,623 shares of the Company's common stock to Mr. Thomsen
in satisfaction of $100,000 of accrued but unpaid salary. Effective
November 1, 1999, Mr. Thomas R. Thomsen elected to step down as the
Chairman and Chief Executive Officer of the Company. 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.
26
<PAGE> 27
OPTION GRANTS IN FISCAL YEAR 1999
1994 STOCK INCENTIVE PLAN
In February 1994 the Board of Directors of the Company established the 1994
Stock Incentive Plan (the "1994 Stock Plan") to aid the Company in attracting,
retaining and motivating officers and key employees, whether or not they are
directors of the Company, and consultants and other advisors to the Company by
providing them with incentives for making significant contributions to the
growth and profitability of the Company. In February 1994, 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 the
Company'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 the Company to grant stock options, both
incentive stock options (within the meaning of Section 422 of the Internal
Revenue Code) and non-qualified stock options, SARs and awards payable in stock,
restricted stock or cash. All of such awards may be granted singly, in
combination or in tandem, or in substitution for awards granted previously under
the 1994 Stock Plan or any other stock plan of the Company. In addition, the
1994 Stock Plan permits the Company to extend dividend equivalency rights to
awards made thereunder. The payment or exercise of any awards, including stock
options, under the 1994 Stock Plan may be conditioned on the satisfaction of
various criteria, such as the achievement of specific business objectives,
attainment of growth rates and other comparable measurements of the Company's
performance. It is expected that, while some or all of the awards referred to
above may be made from time to time, the Company will principally grant stock
options pursuant to the 1994 Stock Plan. The 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 the Company.
DIRECTORS STOCK OPTION PLAN
In August 1995, the Board of Directors adopted the Directors Stock Option Plan
(the "Directors Plan") to aid the Company in attracting, retaining and
motivating independent directors by providing them with incentives for making
significant contributions to the growth and profitability of the Company. The
Directors Plan is designed to accomplish this goal by the granting of stock
options, thereby providing participants with a proprietary interest in the
growth, profitability and success of the Company. 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 the Company who are not officers or employees of the Company or any
subsidiary thereof ("Non-Employee Directors") are eligible to receive grants of
stock options pursuant to the Directors Plan. Under the Directors Plan,
non-qualified stock options to purchase shares of the Company's Common Stock
shall be granted automatically to Non-Employee Directors at the times specified
in the Directors Plan. Each Non-Employee Director receives an initial option to
purchase 13,334 shares of the Common Stock on the date on which such director
first becomes eligible to participate in the Directors Plan. Thereafter, as long
as a Non-Employee Director remains eligible to participate in the Directors
Plan, such director will receive on the date the Company consummates a joint
venture agreement with an investment in the Company of at least $3,000,000,
options to acquire up to an additional 20,000 shares. On December 2, 1997,
options to purchase an additional 20,000 shares were awarded each to Messrs.
Hope, Ketchum, Labush and McKey, Jr. recognizing consummation of the sale of
$5.5 million of the Company's Senior Secured Convertible Notes. As of Delaware
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 the Company.
27
<PAGE> 28
1998 PLAN
In December, 1998 the Board of Directors of the Company established the 1998
Stock Incentive Plan (the "1998 Plan") to aid the Company in attracting,
retaining and motivating officers and key employees, whether or not they are
directors of the Company, and consultants and other advisors to the Company by
providing them with incentives for making significant contributions to the
growth and profitability of the Company. The 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 the
Company's Common Stock for issuance for awards granted under the 1998 Plan. The
1998 Stock Plan authorizes the Company to grant stock options, both incentive
stock options (within the meaning of Section 422 of the Internal Revenue Code)
and non-qualified stock options, SARs and awards payable in stock, restricted
stock or cash. All of such awards may be granted singly, in combination or in
tandem, or in substitution for awards granted previously under the 1998 Stock
Plan or any other stock plan of the Company. The payment or exercise of any
awards, including stock options, under the 1994 Stock Plan may be conditioned on
the satisfaction of various criteria, such as the achievement of specific
business objectives, attainment of growth rates and other comparable
measurements of the Company's performance. It is expected that, while some or
all of the awards referred to above may be made from time to time, the Company
will principally grant stock options pursuant to the 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 the Company.
The following table sets forth stock options granted to each of the Named
Executive Officers during fiscal year 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).
28
<PAGE> 29
OPTIONS EXERCISED AND OPTIONS OUTSTANDING
The following table sets forth information with respect to (i) options exercised
by each of the Named Executive Officers in fiscal year 1999 (none) and (ii) the
number and value of in-the-money unexercised options held by each of the Named
Executive Officers at the end of fiscal year 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
$.24 as of December 31, 1999, accordingly there were no in-the-money unexercised
options as of that date.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1999 AND
DECEMBER 31, 1999 OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised in the Money
Options/Sars Options/Sars
at Fy-end (#) at Fy-end (#)
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) 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>
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
the Company'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
the Company 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 the Company's
common stock as of the repricing date; (ii) the Company is in a very competitive
industry and must compete for personnel with several companies that have
substantially greater financial and other resources than those of the Company;
and (iii) the Company, in order to gain and maintain its competitive advantage,
must attract, motivate and retain its key personnel in an effort to develop,
refine, market and exploit its technology. Accordingly, the Company approved the
reduction of the exercise price of the options to $.26 per share, the fair
market value of the Company'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 the Company. At this point the Company believes that the
repricing and 1999 Stock Plan are no longer necessary. As
29
<PAGE> 30
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 the Company and PLL. This action was
taken in connection with the Merger Agreement between the Company and PLL which
contains a covenant that the Company will use its best efforts to cause all
outstanding Company options to be exercised by the holders thereof prior to the
Merger.
COMPENSATION OF DIRECTORS
Directors receive no cash compensation for serving on the Company's Board of
Directors. Each Non-Employee Director receives an option to purchase 13,334
shares of Common Stock under the Company's Directors Stock Option Plan upon
election to the Board.
Under the Directors Plan, non-qualified stock options to purchase shares of the
Company'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 the Company
consummates a joint venture agreement with an investment in the Company of at
least $3,000,000, options to acquire up to an additional 20,000 shares.
EMPLOYMENT AGREEMENTS AND CERTAIN EMPLOYEE MATTERS
On May 9, 1996, the Company entered into a one-year employment agreement with
Thomas R. Thomsen pursuant to which Mr. Thomsen was employed as the Company's
Chief Executive Officer at an annual salary of $185,000. The agreement was
extended through May 8, 1998 and in June 1998, the Company extended his
employment agreement, as of May 1, 1998, through December 31, 1998. Mr. Thomsen
voluntarily elected to defer his compensation in the best interests of the
Company until October 1997. In 1997, the Board of Directors approved the
issuance of 246,623 shares of the Company's Common Stock to Mr. Thomsen in
satisfaction of $100,000 of accrued but unpaid salary. Mr. Thomsen's employment
agreement also provided for the issuance of a ten (10) year non-qualified option
to purchase 400,000 shares of the Company's common stock at an exercise price of
$2.5625 per share. In June 1997, the Board of Directors approved the exchange of
options held by each employee (including executive officers) under the Company's
Stock Plan for new options 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 the Company. 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, the Company entered into a one-year employment agreement with
David J. Cade pursuant to which Mr. Cade was employed as the Company's President
and Chief Operating Officer at an annual salary of $140,000. In May 1997, this
agreement was extended for one year on the same terms and conditions except that
no new options were granted. In June, 1998, the Company extended this employment
agreement for two years on the same terms and conditions except that no new
options were granted, and Mr. Cade's salary was increased to $155,000 per year.
Effective November 1, 1999, the Board of Directors elected Mr. Cade the
Company's Chairman
30
<PAGE> 31
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 the Company 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 the Company's common stock at an exercise price of
$1.33 per share. In June 1997, the Board of Directors approved the exchange of
options held by each employee (including executive officers) under the Company's
Stock Plan for new options 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 the Company's termination of his employment without cause. In
connection with the execution of the Merger Agreement between the Company and
PLL, Mr. Cade entered into an agreement with PLL and the Company 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 the
Company effective at the time of the Merger closing.
On July 24, 1996, the Company entered into a one-year employment agreement with
George R. Ferment pursuant to which Mr. Ferment was employed as the Company's
Executive Vice President of Operations and Chief Technical Officer at an annual
salary of $130,000. In May 1997, this agreement was extended for one year on the
same terms and conditions except that no new options were granted. In June,
1998, the Company extended this employment agreement for two years on the same
terms and conditions except that no new options were granted and Dr. Ferment's
salary was increased to $145,000 per year. Effective November 1, 1999, the Board
of Directors elected Dr. Ferment the Company'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 the Company 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) year incentive
option to purchase 133,333 shares of the Company's common stock at an exercise
price of $1.33 per share. In June 1997, the Board of Directors approved the
exchange of options held by each employee (including executive officers) under
the Company's Stock Plan for new options. The new options provide for an
exercise price of $0.58 per share and became exercisable on November 1, 1997. In
addition, Dr. Ferment was granted 316,000 stock options on December 2, 1997 at
an exercise price of $1.00, 528,029 options on December 18, 1998 at an exercise
price of $.28 and 165,000 options on September 26, 1999 at $.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 the Company's termination of his employment without cause. In
connection with the execution of the Merger Agreement between the Company and
PLL, Dr. Ferment entered into an agreement with PLL and the Company agreeing to
a modification of the change-in-control and
31
<PAGE> 32
severance provisions of his employment agreement and agreeing to a termination
of the employment agreement with the Company effective at the time of the Merger
closing.
In 1999 and 1998, the Company paid $53,218 and $73,781, respectively to
William D. Walker for services rendered to the Company. Mr. Walker served as
Treasurer and Chief Financial Officer of the Company until August 1999 and
continues to provide services as a consultant. Mr. Walker did not receive a
salary from the Company. 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 the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 1, 2000 with respect to
the equity securities of the Company known by the Company to be beneficially
owned by each beneficial owner of more than five percent of the Company's Common
Stock, by each current director and Named Executive Officer (as defined in
applicable SEC regulations), and by all current directors and executive officers
as a group.
<TABLE>
<CAPTION>
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 the Company as of
November 1, 1999.
(8) Includes options to acquire 1,960,219 shares of common stock.
32
<PAGE> 33
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 22, 1997, the Company entered into a Senior Secured Convertible
Note Purchase Agreement (the "1997 Note Purchase Agreement") with Lithium Link
LLC ("Lithium Link") for the sale of $5.5 million of the Company's Senior
Secured Convertible Notes (the "1997 Notes"). The 1997 Notes were convertible
into the Company's Common Stock at a conversion price of $.28 per share. In
January 1999, the Notes were converted into 19,642,857 shares of the Company's
Common Stock and 562,647 shares of the Company's Common Stock were issued to pay
accrued interest to the conversion date (together the "Interlink Shares"). In
February 1999, Lithium Link authorized the distribution of the Interlink Shares
to its members. Mr. Ketchum, a director of the Company and his wife were members
of Lithium Link and received a total of 383,660 shares of Company Common Stock
from Lithium Link in the distribution.
The Company believes that the transactions described above were fair to the
Company and were as favorable to the Company as those which it might have
obtained from non-affiliated third parties, given the circumstances under which
such transactions were proposed and effectuated.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following Exhibits are filed as part of this Report or
incorporated herein by reference:
2.1 Agreement and Plan of Merger dated January 19, 2000 between
Pacific Lithium Limited ("PLL") and the Company (Schedules
omitted).(1)
2.2 Amendment Agreement No. 1 dated March 31, 2000 between PLL and
the Company.+
3.1 Certificate of Incorporation.(2)
3.2 By-Laws, as amended.(2)
4.1 Specimen Common Stock Certificate.(2)
10.1 1994 Stock Incentive Plan, as amended.(3)
10.2 Directors Stock Option Plan.(3)
10.3 Employment Agreement, dated July 24, 1996, between David Cade
and the Company.(4)
10.4 Employment Agreement, dated July 24, 1996, between George
Ferment and the Company.(4)
10.5 Technology Development Agreement, dated March 29, 1996,
between Mitsubishi Materials Corporation, Mitsui & Co., Ltd.
and the Company.(5)
10.6 Stock Purchase Agreement, dated March 29, 1996, between
Mitsubishi Materials Corporation, Mitsui & Co., Ltd. and the
Company.(5) (without exhibits)
10.7 Form of Stock Option Agreement relating to the Company's 1994
Stock Incentive Plan, as amended.(5)
10.8 Form of Stock Option Agreement relating to the Company's
Directors Stock Option Plan.(5)
10.9 Lease Agreement, dated July 22, 1994, between PMP Whitemarsh
Associates and the Company and Addendum thereto dated July 22,
1994.(5)
33
<PAGE> 34
10.10 Consulting Agreement, dated January 18, 1995, between
Mitsubishi Trust and Banking Corporation and the Company.(5)
10.11 Warrant to Purchase Common Stock issued to Robert Pfeffer
dated June 20, 1996.(5)
10.12 Agreement of Settlement and Release, dated June 20, 1996, by
and between Matthew Stuart Co., Inc., Robert Pfeffer and the
Company.(6)
10.13 Employment Agreement, dated May 9, 1996, between Thomas R.
Thomsen and the Company.(6)
10.14 Stock Option Agreement, dated May 9, 1996, between Thomas R.
Thomsen and the Company.(6)
10.15 Warrant to Purchase Common Stock issued to Group III Capital,
Inc. dated May 9, 1996.(6)
10.16 Warrant to Purchase Common Stock issued to Nanele Services,
Inc., dated May 9, 1996.(6)
10.17 Stock Option Agreement, dated July 24, 1996, between David
Cade and the Company.(4)
10.18 Stock Option Agreement, dated July 24, 1996, between George
Ferment and the Company.(4)
10.19 Form of Restricted Stock Agreement relating to the Company's
1994 Stock Incentive Plan.(6)
10.20 Form of Warrant Agreement dated October 23, 1996 between the
Company and the Placement Agent.(7)
10.21 Form of Registration Rights Agreement dated October 23, 1996
between the Company and the Placement Agent.(7)
10.22 Letter Agreement dated February 5, 1997 between the Company
and Chase Manhattan Bank.(8)
10.23 Form of Senior Secured Convertible Note Purchase Agreement
dated September 22, 1997, between the Company and Lithium Link
LLC.(9)
10.24 Form of Convertible Promissory Note dated September 22, 1997
issued by the Company.(9)
10.25 Form of Common Stock Warrant dated September 22, 1997 issued
by the Company in favor of Interlink Management
Corporation.(9)
10.26 Employment Agreement Extension, dated June 1, 1998, between
David Cade and the Company.(10)
10.27 Employment Agreement Extension, dated June 1, 1998, between
George Ferment and the Company.(10)
10.28 1998 Stock Incentive Plan.(10)
10.29 Form of Stock Option Agreements relating to the Company's 1998
Stock Incentive Plan.(10)
10.30 Form of Stock Purchase Agreement relating to the sale of
4,500,000 shares of Company common stock.+
34
<PAGE> 35
10.31 Bridge Loan Financing Agreement dated as of November 29, 1999
between LTC and PLL.(1)
10.32 Convertible Secured Promissory Note dated as of November 29,
1999 issued by LTC to PLL in the principal amount of
$125,000.(1)
10.33 Convertible Promissory Note dated January 19, 2000 issued by
LTC to PLL in the amount of $975,000.(1)
10.34 Form of Operating Convertible Promissory Note.(1)
10.35 Security Agreement dated as of November 29, 1999 between LTC
and PLL.(1)
10.36 Warrant to purchase 7,500,000 shares of LTC Common Stock dated
as of January 19, 2000.(1)
10.37 License and Option Agreement effective as of October 1, 1999
between LTC and PLL.(1)
10.38 Form of Security Agreement and Assignment of Lease between LTC
and PLL.(1)
10.39 Agreement between David Cade, PLL and LTC dated January 19,
2000.(1)
10.40 Agreement between George Ferment, PLL and LTC dated January
19, 2000.(1)
10.41 Employment Agreement Extension dated January 4, 2000 between
LTC and David Cade.(1)
10.42 Employment Agreement Extension dated January 4, 2000 between
LTC and George Ferment.(1)
10.43 Lease Extension, dated February 3, 2000 between PMP Whitemarsh
Associates and the Company.+
21.1 List of Subsidiaries.(11)
27.1 Financial Data Schedule+
(1) Incorporated herein by reference to the Company's Report on
Form 8-K, dated January 19, 2000.
(2) Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31,
1989.
(3) Incorporated herein by reference to the exhibits contained in
the Company's Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934, dated January 19,
1996.
(4) Incorporated herein by reference to the Company's Quarterly
Report on Form 10- QSB for the quarter ended June 30, 1996.
(5) Incorporated herein by reference to the Company's Form 10-KSB
for the fiscal year ended December 31, 1995.
(6) Incorporated herein by reference to the Company's Registration
Statement on Form SB-2, File No. 333-08143, which was filed
with the Securities and Exchange Commission on July 15, 1996.
(7) Incorporated herein by reference to the Company's Report on
Form 8-K, dated October 25, 1996.
(8) Incorporated herein by reference to the Company's Annual
Report on Form 10-KSB, for the year ended December 31, 1996.
35
<PAGE> 36
(9) Incorporated herein by reference to the Company's Report on
Form 8-K, dated September 22, 1997.
(10) Incorporated herein by reference to the Company's Annual
Report on Form 10-KSB, for the year ended December 31, 1998.
(11) Incorporated herein by reference to the Company's
Post-Effective Amendment No. 9 to the Registration Statement
on Form SB-2, File No. 33-9323, which was filed with the
Securities and Exchange Commission on January 6, 1995.
+ Exhibit filed herewith in this Report.
(b) Form 8-K Reports. Reports on Form 8-K during the quarter ended
December 31, 1999: The Company filed a report on Form 8-K on
October 8, 1999 to report on the announcement of the execution
of a memorandum of agreement with Pacific Lithium Limited.
36
<PAGE> 37
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
DECEMBER 31, 1999
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Reports......................................... F-2
Consolidated Balance Sheet at December 31, 1999....................... F-4
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-5
Consolidated Statements of Changes in Stockholders' Equity
(Deficiency) for the Period from July 21, 1989 (Date of
Inception) to December 31, 1999....................................... F-6
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-14
Notes to Consolidated Financial Statements............................ F-17
F-1
<PAGE> 38
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-2
<PAGE> 39
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Lithium Technology Corporation and
Subsidiary (Development Stage Companies)
We have audited the consolidated statements of operations, changes in
stockholders' equity (deficit) and cash flows of Lithium Technology Corporation
and subsidiary (Development Stage Companies) for the period July 21, 1989 (date
of inception) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Lithium
Technology Corporation and subsidiary (Development Stage Companies) for the
period July 21, 1989 (date of inception) to December 31, 1996, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes 1 and 2 of the
financial statements, the Company is a development stage company, has suffered
recurring losses from operations and needs significant additional financing to
repay existing indebtedness and to continue the development of its technology.
These factors raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ WISS & COMPANY, LLP
Woodbridge, New Jersey
January 22, 1997
F-3
<PAGE> 40
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<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-4
<PAGE> 41
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-5
<PAGE> 42
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 A Series B Series C
Preferred Stock Convertible Preferred Stock Convertible Preferred Stock
------------------------- --------------------------- ---------------------------
Shares Amount Shares Amount Shares Amount
---------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JULY 21, 1989
PERIOD ENDED OCTOBER 31, 1989:
Net assets received in reverse
acquisition -- --
Change in par value -- --
Exchange for debt owed to officer 23,000 2,300,000 -- -- -- --
Shares sold to financial consultant
in conjunction with financing -- -- -- -- -- --
Expenses paid by principal shareholder
on behalf of Lithium Corporation -- -- -- -- -- --
Net income (loss) for the year
---------- ---------- -------- -------- -------- --------
BALANCES AT OCTOBER 31, 1989 23,000 2,300,000 -- -- -- --
YEAR ENDED OCTOBER 31, 1990
Issuance of Class B common stock for
cash to Investors -- -- -- -- -- --
Exercise of Class B common stock
warrants, net of offering costs -- -- -- -- -- --
NET INCOME (LOSS) FOR THE YEAR -- -- -- -- -- --
---------- ----------
BALANCE AT OCTOBER 31, 1990 23,000 $2,300,000 -- -- -- --
YEAR ENDED OCTOBER 31, 1991:
Conversion of debt due stockholder 10,000 1,000,000 -- -- -- --
Exercise of Class B common stock
warrants, net of offering costs
of $520,000 -- -- -- -- -- --
Fair value of warrants issued in
connection with financial
consulting services -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ----------
BALANCES AT OCTOBER 31, 1991 33,000 3,300,000 -- -- -- --
YEAR ENDED OCTOBER 31, 1992:
Issuance of common stock to certain
employees for services rendered -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ----------
BALANCES AT OCTOBER 31, 1992 33,000 3,300,000 -- -- -- --
YEAR ENDED OCTOBER 31, 1993:
Net loss -- -- -- -- -- --
BALANCES AT OCTOBER 31, 1993 33,000 $3,300,000 -- -- -- --
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 43
<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 JULY 21, 1989 2,333,000 1,000 -- -- -- (6,465,000) --
PERIOD YEAR ENDED OCTOBER 31, 1989:
Net assets received in reverses
acquisition (Note 1) -- -- 210,000 1,000 36,000 --
Change in par value
Exchange for debt owed to officer -- 6,000 -- (6,000)
Shares sold to financial consultant
in conjunction with financing -- -- 697,000 1,000 7,000 --
Expenses paid by principal
shareholder on behalf of
Lithium Corporation -- -- -- -- 79,000 --
Net income (loss) for the year -- -- -- -- -- 844,000 (502,000)
---------- ------ --------- ------ -------- ----------- ----------
BALANCES AT OCTOBER 31, 1989 2,333,000 7,000 907,000 2,000 116,000 (5,621,000) (502,000)
YEAR ENDED OCTOBER 31, 1990
Issuance of Class B common stock
for cash to Investors -- -- 57,000 -- 50,000 -- --
Exercise of Class B common stock
warrants, net of offering costs -- -- 15,000 -- -- -- --
NET INCOME (LOSS) FOR THE YEAR -- -- -- -- -- 569,000 (498,000)
---------- ------ --------- ------ -------- ----------- ----------
BALANCE AT OCTOBER 31, 1990 2,333,000 $7,000 979,000 $2,000 $166,000 $(5,052,000) (1,000,000)
YEAR ENDED OCTOBER 31, 1991:
Conversion of debt due stockholder -- -- -- -- -- -- --
Exercise of Class B common stock
warrants, net of offering costs
of $520,000 -- -- 145,000 -- 121,000 -- --
Fair value of warrants issued in
connection with financial
consulting services -- -- -- -- 30,000 -- --
Net loss -- -- -- -- -- (84,000) (560,000)
---------- ------ --------- ------ -------- ----------- ----------
BALANCES AT OCTOBER 31, 1991 2,333,000 7,000 1,124,000 2,000 317,000 (5,136,000) (1,560,000)
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 44
<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>
YEAR ENDED OCTOBER 31, 1992:
Issuance of common stock to
certain employees for services
rendered -- -- 96,000 -- 106,000
Net loss -- -- -- -- -- (23,000) (175,000)
---------- ------ --------- ------ --------
BALANCES AT OCTOBER 31, 1992 2,333,000 7,000 1,220,000 2,000 423,000 (5,159,000) (1,735,000)
YEAR ENDED OCTOBER 31, 1993:
Net loss -- -- -- -- -- (1,706,000) (66,000)
---------- ------ --------- ------ -------- ----------- ----------
BALANCES AT OCTOBER 31, 1993 2,333,000 $7,000 1,220,000 $2,000 $423,000 $(6,865,000) (1,801,000)
========== ====== ========= ====== ======== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Stock Convertible Preferred Stock Convertible Preferred Stock
--------------- --------------------------- ---------------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT OCTOBER 31, 1993 33,000 3,300,000 -- -- -- --
TWO MONTHS ENDED
DECEMBER 31, 1993:
Contribution to capital of Industries
accumulated losses in excess of
Company's investment -- -- -- -- -- --
Conversion of preferred stock to
common stock (33,000) (3,300,000) -- -- -- --
Fair value of option issued in exchange
for certain legal services -- -- -- -- -- --
Net loss -- -- -- -- -- --
------- ---------- ------ ------ ------ ------
BALANCE AT DECEMBER 31, 1993 -- -- -- -- -- --
YEAR ENDED DECEMBER 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-8
<PAGE> 45
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Stock Convertible Preferred Stock Convertible Preferred Stock
--------------- --------------------------- ---------------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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-9
<PAGE> 46
<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-10
<PAGE> 47
<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-11
<PAGE> 48
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During
Common Stock Paid-In Accumulated Development
Shares Amount CAPITAL DEFICIT STAGES
------ ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 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-12
<PAGE> 49
<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-13
<PAGE> 50
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)
------------ ------------ ------------
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)
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-14
<PAGE> 51
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
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-15
<PAGE> 52
<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-16
<PAGE> 53
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 a unique, solid-state, lithium ion-polymer rechargeable
battery. The Company is engaged in research and development activities
to further develop and exploit this battery technology and also holds
various patents relating to such batteries. The Company's
commercialization focus is on the rapidly growing portable electronics
market segment (notebook and palmtop computers and wireless
communications devices) 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
ultra-high 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. $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-17
<PAGE> 54
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.
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.
F-18
<PAGE> 55
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
(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.
F-19
<PAGE> 56
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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-20
<PAGE> 57
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.
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.
F-21
<PAGE> 58
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 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
F-22
<PAGE> 59
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
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.
F-23
<PAGE> 60
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
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-24
<PAGE> 61
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
LITHIUM TECHNOLOGY CORPORATION
Date: April 3, 2000 By: /s/ David J. Cade
---------------------------------------
David J. Cade, Chairman and Chief
Executive Officer (Principal Executive
Officer and Acting Principal Financial
and Accounting Officer)
In accordance with the Securities Exchange Act of 1934, this report has been
signed by the following persons and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David J. Cade Director April 3, 2000
- ----------------------------
David J. Cade
/s/ George R. Ferment Director April 3, 2000
- ----------------------------
George R. Ferment
/s/ Stephen F. Hope Director April 3, 2000
- ----------------------------
Stephen F. Hope
/s/ Barry Huret Director April 3, 2000
- ----------------------------
Barry Huret
/s/ Ralph D. Ketchum Director March 20, 2000
- ----------------------------
Ralph D. Ketchum
/s/ Arif Maskatia Director April 3, 2000
- ----------------------------
Arif Maskatia
/s/ John J. McFeeley Director March 14, 2000
- ----------------------------
John J. McFeeley
/s/ John D. McKey, Jr. Director March 13, 2000
- ----------------------------
John D. McKey, Jr.
</TABLE>
<PAGE> 1
Exhibit 2.2
AMENDMENT AGREEMENT NO. 1
This AMENDMENT AGREEMENT NO. 1 ("Agreement"), dated as of March 31, 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) pursuant to which LTC is
required to hold a stockholders meeting to vote on the merger contemplated by
the Merger Agreement (the "Merger") by a date that is no later than May 30,
2000; and
WHEREAS, the closing of the Merger will occur contemporaneously with the
Ilion IPO (as defined in the Merger Agreement), assuming the remaining closing
conditions have been met; and
WHEREAS, LTC and PLL currently have targeted June 30, 2000 as the LTC
stockholder meeting date with a Merger closing and Ilion IPO to occur within 90
days thereafter; and
WHEREAS, PLL and LTC desire to provide for an extension of the LTC
stockholder meeting date from May 30, 2000 to June 30, 2000 subject to the terms
and conditions of this Agreement;
WHEREAS, if the Ilion IPO is reasonably believed by PLL to have a
consummation date that will occur after September 30, 2000, LTC and PLL intend
to further extend the date of the LTC stockholder meeting date so that the
Merger closing date and Ilion IPO will not be more than 90 days after the LTC
stockholder meeting date.
NOW, THEREFORE, in consideration of these premises and the mutual
agreements contained in this Agreement, PLL and LTC agree as follows:
Each reference to action by the stockholders of LTC to approve the Merger
Agreement or the transactions contemplated therein on or before "May 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 "June 30, 2000" or such later date agreed to in
writing by PLL and LTC. In all other respects, the Merger Agreement and the
Bridge Loan Financing Agreements are hereby ratified and affirmed in their
entirety.
<PAGE> 2
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 Johannink
Title: Managing Director
LITHIUM TECHNOLOGY CORPORATION
By: /s/ David J. Cade
--------------------------------
Name: David J. Cade
Title: Chairman and
Chief Executive Officer
<PAGE> 1
EXHIBIT 10.30
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made as of
the date set forth on the signature page below by and between Lithium Technology
Corporation, a Delaware corporation (the "Company"), and each of the individuals
(individually an "Investor" and collectively the "Investors") whose signature is
affixed below who is subscribing for shares of the Company's common stock
indicated below his name on the signature page hereof (the "Shares").
1. Purchase and Sale of Shares. (A) Upon the execution of this
Agreement, the Investor will purchase from the Company, and the Company will
sell and issue to the Investor, the Shares that the Investor elects to purchase.
The purchase price to be paid by the Investor for the Shares is $0.10 per share.
(B) In connection with the purchase and sale of the Shares hereunder
the Investor represents and warrants to the Company that:
(1) The Investor understands that (A) the Shares have not been
registered under the Securities Act, nor qualified under the securities
laws of any other jurisdiction, (B) the Shares constitute "restricted
securities" for purposes of the Securities Act of 1933, as amended (the
"Securities Act"), (C) the Shares cannot be resold unless they
subsequently are registered under the Securities Act and qualified
under applicable state securities laws, unless the Company determines
that exemptions from such registration and qualification requirements
are available, and (D) the Investor has no right to require such
registration or qualification;
(2) The Shares to be acquired by the Investor pursuant to this
Agreement will be acquired for the Investor's own account and not with
a view to, or intention of, distribution thereof in violation of the
Securities Act, or any applicable state securities laws, and the Shares
will not be disposed of in contravention of the Securities Act or any
applicable state securities laws;
(3) The Investor has substantial knowledge and experience in
financial and business matters, has specific experience making
investment decisions of a similar nature, and is capable, without the
use of a financial advisor, of utilizing and analyzing the information
made available in connection with the acquisition of the Shares and of
evaluating the merits and risks of an investment in the Shares. The
Investor has complete knowledge of the Company's current financial and
operating condition and has reviewed: (i) the Company's SEC reports for
the year ended December 31, 1998 and the quarter ended March 31, 1999,
(ii) the Company's Confidential Private Placement Memorandum dated June
3, 1999, and (iii) the Company's unaudited balance sheet as of June 30,
1999. The Investor acknowledges and agrees that he has received
confidential, non-public information from the Company in connection
with this investment and accordingly, (i) the investor shall maintain
the confidentiality of such information and, (ii) the investor shall
not buy or sell securities of the Company on the basis of such
information except for the purchase of the Shares pursuant to the
Agreement.
(4) The Investor understands that his investment in the Shares
is subject to significant economic risk, including the relative
illiquidity resulting from the fact that the Shares have not been
registered under the Securities Act and, therefore, cannot be sold
unless they are subsequently registered under the Securities Act or an
exemption from registration is available;
(5) The Investor has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
the Shares and has had full access to such other information concerning
the Company as the Investor has requested;
<PAGE> 2
(6) The Investor is an "accredited investor" within the
meaning of Regulation D under the Securities Act;
(7) The Investor is a resident and domiciliary of the state or
other jurisdiction hereinafter set forth below the Investor's signature
and the Investor has no present intention of becoming a resident of any
other state or jurisdiction; and
(8) The Investor has not received and is not relying upon any
written offering literature or prospectus and has not received and is
not relying upon any oral representations.
(C) In connection with the purchase and sale of the Shares hereunder
the Company represents and warrants to the Investor that:
(1) The Company is a corporation duly organized under the laws
of the State of Delaware. This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, reorganization and other laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
(D) The closing of the purchase and sale of the Shares (the "Closing")
shall take place on the date of this Agreement (the "Closing Date").
(1) The following shall be delivered by the Company to the
Investor on the Closing Date: Certificate for the Shares.
(2) The following shall be delivered by the Investor to the
Company on the Closing Date: The purchase price by check, wire transfer, bank
draft or money order.
2. Shares Subject to Legend. The Investor acknowledges that the
certificate evidencing the Shares shall be imprinted with a customary
restrictive legend consistent with the Securities Act and applicable state
securities laws.
3. Miscellaneous.
(A) Upon its acceptance by the Company, this Agreement shall be binding
upon and inure to the benefit of the Company and its successors and assigns and
the Investor and the Investor's executors or administrators, personal
representatives, heirs, legatees and distributees. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same instrument.
(B) This Agreement is governed by and shall be construed in accordance
with the laws of the State of Pennsylvania excluding any conflict-of-laws rule
or principle that might refer the governance or the construction of this
Agreement to the law of another jurisdiction.
(C) This Agreement supersedes all prior discussions and agreements
between the parties with respect to the subject matter hereof between the
parties and contains the sole and entire agreement between the parties hereto
with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the latest date written below.
<PAGE> 3
INVESTOR'S NAME: __________________ INVESTOR'S NAME: __________________
No. of Shares of Common Stock: ____ No. of Shares of Common Stock: ____
Aggregate Consideration: $ ________ Aggregate Consideration: $ ________
______________________________ ______________________________
Investor Signature Investor Signature
Address: __________________________ Address: __________________________
___________________________________ ___________________________________
___________________________________ ___________________________________
Social Security No.: ______________ Social Security No.: ______________
INVESTOR'S NAME: __________________ INVESTOR'S NAME: __________________
No. of Shares of Common Stock: ____ No. of Shares of Common Stock: ____
Aggregate Consideration: $ ________ Aggregate Consideration: $ ________
______________________________ ______________________________
Investor Signature Investor Signature
Address: __________________________ Address: __________________________
___________________________________ ___________________________________
___________________________________ ___________________________________
Social Security No.: ______________ Social Security No.: ______________
INVESTOR'S NAME: __________________ INVESTOR'S NAME: __________________
No. of Shares of Common Stock: ____ No. of Shares of Common Stock: ____
Aggregate Consideration: $ ________ Aggregate Consideration: $ ________
______________________________ ______________________________
Investor Signature Investor Signature
Address: __________________________ Address: __________________________
___________________________________ ___________________________________
___________________________________ ___________________________________
Social Security No.: ______________ Social Security No.: ______________
ACCEPTED THIS __ DAY OF JULY, 1999 BY:
LITHIUM TECHNOLOGY CORPORATION
By: ____________________________________
Name: ______________________________
Title:______________________________
<PAGE> 1
EXHIBIT 10.43
PMP WHITEMARCH ASSOCIATES
1348 Gypsy Hill Road
Gwynedd Valley, PA 19437
February 3, 2000
Lithium Technologies
5115 Campus Drive
Plymouth Meeting, PA 19462-1129
Attention: George R. Ferment, Executive Vice President
Re: Lease Extension III
5115 Campus Drive
Dear Mr. Ferment:
I am writing to confirm our recent discussion regarding an
additional extension of the renewal option on the above premises. As
you are aware, by letter agreements dated May 4, 1999 and September 19,
1999 the lease option was extended.
PMP is willing to extend the option based upon the following
terms and conditions:
1. The option is extended for an additional six
(6) month period beyond that granted in the
September 19, 1999 letter or until June 30,
2000. Lithium must provide six (6) month
notice of its intention not to renew.
Pursuant to the foregoing should Lithium
elect not to exercise the option during the
entire length of the extension it will
remain liable under the lease up to and
including, December 31, 2000.
2. All remaining provision of the parties
lease, addendum and letter agreements of May
4, 1999 and September 14, 1999 shall remain
in full force and effect.
If you are in agreement with the foregoing, kindly execute
this letter in the space provided and return it to my attention.
<PAGE> 2
George F. Ferment
February 3, 2000
-Page 2-
Should you have any questions, please do not hesitate to
contact me.
Very Truly yours,
/s/ Charles F. Murphy
Charles F. Murphy
CFM:ce
cc: Patrick G. Murphy, Esquire
Reviewed and Accepted
Lithium Technologies
By: /s/ George Ferment
--------------------------------------------
George Ferment, Executive Vice President
Date: 2/10/00
-------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 38
<SECURITIES> 0
<RECEIVABLES> 21
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 77
<PP&E> 1,454
<DEPRECIATION> 1,024
<TOTAL-ASSETS> 528
<CURRENT-LIABILITIES> 630
<BONDS> 0
0
0
<COMMON> 483
<OTHER-SE> (1,403)
<TOTAL-LIABILITY-AND-EQUITY> 528
<SALES> 69
<TOTAL-REVENUES> 69
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,655
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> (4,593)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,593)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,593)
<EPS-BASIC> (.10)
<EPS-DILUTED> (.10)
</TABLE>
