<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[XX] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required] For Fiscal Year Ended December_31,_1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required] For the transition period
__________________ to __________________.
Commission File No. 1-9547
INTERSYSTEMS,_INC.
(Name of Small Business Issuer in its charter)
___________DELAWARE____________ _____________13-3256265_____________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8790_Wallisville_Road,_Houston,_Texas __77029__
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (713)_675-9000
Securities_registered_pursuant_to_Section_12(b)_of_the_Act:
___Title_of_each_class_____ Name_of_each_exchange_on_which_registered
Common Stock, $.01 par value American Stock Exchange
Common Stock Purchase Warrants American Stock Exchange
Securities_registered_pursuant_to_Section_12(g)_of_the_Act: None
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter 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 no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is contained herein, and no disclosure will be contained,
to the best of the issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [__]
The issuer's revenues for the year ended December 31, 1995 were
$16,555,000.
The aggregate market value of the voting stock held by non-affiliates of
the issuer is approximately $7,700,000, based upon the closing price of
the issuer's common stock, $.01 par value, as reported by the American
Stock Exchange on March 15, 1996, which was $1 7/8.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding on March 25, 1996: 6,254,313
Documents incorporated by reference: NONE
Transitional Small Business Format: Yes ____ No __X__
PAGE 1 OF 142 PAGES; EXHIBITS BEGIN ON PAGE 57
<PAGE> 2
PART_I
ITEM_1:__BUSINESS
Introduction_and_Business_Development
InterSystems, Inc. was originally organized under the laws of the
state of Delaware in 1984. The Company's two principal lines of
business today consist of the operations of its wholly-owned
subsidiary, InterSystems, Inc., a Nebraska corporation ("InterSystems
Nebraska"), which designs, manufactures and sells specialized
materials handling equipment, and the custom resin compounding
operations conducted by its wholly-owned subsidiary, Chemtrusion,
Inc. ("Chemtrusion"). For each of the two years ended December 31,
1995, approximately 76% of the Company's revenues were attributable
to the business of InterSystems Nebraska and approximately 24% of the
Company's revenues were attributable to the business of Chemtrusion.
Information regarding the dollar amount of revenues, operating profit
and identifiable assets for each of the Company's lines of business
is included in Note 15 to the Company's consolidated financial
statements.
Historically, the Company's principal line of business had been the
sale and distribution of thermoplastic resins on a worldwide basis.
In April 1993, the Company completed the sale to Bamberger
Acquisition Corp., a newly formed Delaware corporation
("Acquisition") owned by six individuals who were then members of the
Company's senior management (the "Management Group"), of all the
assets related to its domestic and international resin trading and
distribution business. The sale was approved by the stockholders of
the Company at a special stockholders meeting held in March 1993.
The sales price of $1,955,331 was paid at closing by the delivery to
the Company of (i) $608,526 in cash, (ii) an additional $187,639
through the surrender by members of the Management Group of
debentures of the Company and affiliates held by them, (iii) a
promissory note of Acquisition in the original principal amount of
$796,166 (the "Note"); and (iv) $363,000 in payments pursuant to a
non-compete agreement with the Company. Acquisition also assumed
certain liabilities of the Company.
In addition, in August 1993 the Company completed the purchase from
Helm Resources, Inc., the then holder of approximately 48% of the
Company's common stock ("Helm"), of all of the outstanding capital
stock of InterSystems Nebraska. The purchase was approved by a
majority of the stockholders of the Company at a special stockholders
meeting held in March 1993. The basic purchase price of $3,300,000
was paid at the closing by the delivery to Helm of (i) $500,000 in
cash, (ii) a one-year promissory note in the amount of $300,000, and
(iii) a commitment to issue to such persons as may be designated by
Helm $2,100,000 aggregate principal amount of the Company's newly
issued ten year 8% Convertible Debentures. In additon, the Company
offset $340,000 of intercompany debt owed by Helm to the Company and
transferred to Helm $60,000 in principal amount of Helm debentures
received from the Management Group in connection with the sale of the
Trading Business. Helm is also entitled to an earnout and certain
royalties. See "Certain Relationships and Related Party
Transactions."
<PAGE> 3
Recent_Developments
In late 1995 and into 1996, the Company and its subsidiaries,
InterSystems Nebraska and Chemtrusion, embarked on plans for major
expansion, in the form of new facilities and new product lines, which
will have the effect of greatly expanding manufacturing capacity and
rounding out product lines to reduce the effects of seasonality on
product demand, as more fully described below.
The_Company
Possible Acquisition of Interpak Holdings, Inc. and Election of
Independent Directors to the Board of Directors. The Company is
proceeding with negotations for the acquisition of Interpak Holdings, Inc.
headquartered in Houston, Texas ("Interpak") from Helm Resources, Inc.
("Helm"), which currently owns approximately 24.5% of the Company's
outstanding shares of Common Stock.
In November and December, 1995, the Board of Directors of the Company
elected Mr. William Lurie and Mr. Leonard Friedman, respectively, to the
board as independent directors, and created an Acquisition Committee which
is headed by Mr. Lurie. Mr. Friedman has joined Mr. Lurie on the
Acquisition Committee. See Part III, Item 9 for a discussion of the
business and professional experience of Messrs. Lurie and Friedman.
The Committee will undertake an independent analysis of the
transaction utilizing the assistance of Price Waterhouse & Co. and Baker &
Botts as it deems necessary and appropriate in its discretion, and will
negotiate at arms length with Helm in order to determine if an acquisi-
tion can be completed. The discussions between the Company and Interpak
are in the preliminary stages and no agreement in principle has been
reached. If an agreement is reached, the acquisition would be subject
to a number of conditions, including the Company's arranging financing
to complete the acquisition and stockholder approval. The Company may
be required to undertake a debt or equity financing to have sufficient
available funds to pay any cash down payment. It is expected that the
purchase price will be paid with a combination of cash, the assumption
of certain Helm debentures and the issuance to Helm of shares of common
stock.
Interpak is a custom-packager of thermoplastic resins and also
provides warehousing services to plastics producers and distributors. The
Company believes that Interpak would complement the operations of its
Chemtrusion subsidiary, which specializes in the custom-compounding of
plastic resins by enabling the Company to provide plastic producers with
single source, value-added processing and packaging services from a fully
integrated entity.
<PAGE> 4
In 1995, Interpak had revenues of $15,066,502 and a net loss of
($240,800). The loss from operations in 1995 was attributable in part to
the residual effects of the reduction experienced by Interpak of its
normal rail car packaging and warehousing business due to distribution
disruptions caused by floods and a pipeline explosion in the Houston area
in the fourth quarter of 1994. These natural disasters resulted in an
extreme shortage of domestic thermoplastic resins, which caused the
company's warehouse utilization to fall to an all-time low of
approximately 57% in mid-1995, as compared to approximately 85% as of
March 1, 1996.
Private Placement. On December 1, 1995, the Company commenced a
private placement of 25 Units consisting of 40,000 shares of Common Stock
and 20,000 Common Stock Purchase Warrants for $55,000 per Unit. The
Company reserved the right to sell up to 35 Units, and to sell fractional
Units. The purchase price per Unit was based upon the average of the
closing price of the common stock on the American Stock Exchange during
the ten trading days preceding November 15, 1995, which is the date the
Board of Directors of the Company authorized the offering, or $1.375. The
private placement closed in February 1996 after the Board of Directors of
the Company resolved to accept subscriptions for 39 Units, which yielded
approximately $2,100,000 in proceeds to the Company. These proceeds were
used to repay debt, to provide working capital and to provide in part
funds for the proposed Interpak and Tropical Manufacturing Group
acquisitions (discussed below).
InterSystems_Nebraska
Expansion of Omaha Facility. In November 1995, InterSystems
Nebraska entered into a lease for a second 30,000 square foot facility in
Omaha, thereby nearly doubling total square footage under use to 70,000
square feet. In connection with the expansion, the subsidiary has
arranged $1.1 million in operating leases and $500,000 in equipment
financing for advanced robotics, software and other automated equipment to
be installed in both facilities. Installation is expected to be completed
by the end of April 1996. The planned expansion and automation are
designed to render the combined facility efficient and state-of-the-art
without changing the present workforce, and to increase manfacturing
capacity to permit InterSystems Nebraska to meet its record backlog, bring
subcontracted work back into the plant and take on additional customers.
Acquisition of The Tropical Manufacturing Group, Inc.
InterSystems Nebraska, through a subsidiary, Tropical Systems,Inc. ("TSI")
signed a letter of intent in September 1995 (the "Letter of Intent") for
the acquisition of the assets of The Tropical Manufacturing Group, Inc.
headquartered in Miami, Florida ("Tropical"), and has entered into an
operating agreement with Tropical, which is engaged in the business of
manufacturing and selling commercial rolling doors and hurricane resistant
doors and shutters in South Florida, Latin American and the Caribbean.
Under the operating agreement, Tropical (i) has assigned to TSI its rights
to sell, market and distribute its products and (ii) is manufacturing its
products for the sole account of TSI, in exchange for the agreement of TSI
to pay Tropical cost plus 1% for each product so manufactured. This is
intended as an interim arrangement which may be terminated at any time by
TSI, and which will be terminated upon the purchase by TSI of all of
<PAGE> 5
Tropical's assets and the assumption of certain liabilities of
Tropical pursuant to the Letter of Intent. The consummation of the
purchase is conditioned upon arranging the necessary financing to complete
the purchase and obtaining clear title to the assets of Tropical, which
are currently subject to various tax and other liens. At the present
time, the cost of acquiring the assets of Tropical is expected to be
approximately $250,000, although transactional expenses and the cost of
clearing title may increase this estimate considerably.
The acquisition of this facility and product line is expected to
complement the present product demand of InterSystems Nebraska, which
usually peaks in the summer months and drops in the winter months, whereas
TMG experiences high product demand year round, but especially during
hurricane season.
Chemtrusion
On January 26, 1996, Chemtrusion entered into a Definitive Agreement
for Compounding Services with Mytex Polymers ("Mytex"), a Delaware general
partnership of affiliates of Mitsubishi Chemical America and Exxon
Chemical Company, a division of Exxon Corporation.
Pursuant to the Agreement, Chemtrusion has undertaken to acquire 16.4
acres of land in Jeffersonville, Indiana, and to construct thereon and
equip in accordance with agreed upon plans and specifications a plastics
compounding plant at a cost currently estimated not to exceed $12.7
million. As designed, the plant will initially contain four production
lines with an annual capacity of 35 million pounds of product, and will
contain sufficient space to add several additional production lines, if
desirable, at a future date. Chemtrusion and Mytex are working together
to obtain construction financing for the plant, and Mytex has agreed to
fund the cost of construction on an interim basis until permanent
construction financing is in place. Ground has been broken and the
expected completion date of the plant is August 31, 1996.
Upon completion of the plant, Chemtrusion will produce an array of
polypropylene-based compounds at the plant exclusively for the benefit of
Mytex. Production at the plant will use raw materials and specifications
provided by Mytex. Once the plant is completed, Chemtrusion will be paid
a monthly management fee for its operation of the plant which will cover
most operating expenses of the plant and construction financing debt
service, and which management currently expects to provide significant net
profits to Chemtrusion.
The initial term of the Agreement is five years, and Mytex has the
option to renew the Agreement for two additional five year terms. The
Agreement may be terminated by either party upon the default of the other,
except that certain defaults require notice and an opportunity to cure.
Termination of the Agreement triggers purchase rights on behalf of Mytex
(the "Option") and put rights on behalf of Chemtrusion (the "Put") with
respect to the facility. The purchase price under the Option and Put
ranges from $1.5 million plus assumption of the construction financing, to
assumption of construction financing less $700,000, depending on when the
rights are exercised and whether the exercise follows a default by Mytex
or Chemtrusion.
<PAGE> 6
Mytex has the right to require Chemtrusion to
undertake the expansion of the plant at any time at its sole cost and
expense, with adjustment in the management fee payable to Chemtrusion.
---------
The Company had revenues from continuing operations of $16,555,000 and
$15,063,000, respectively, for the years ended December 31, 1995 and
1994. For these same periods, losses from continuing operations were
($695,000), and ($732,000), respectively.
The_Business_of_InterSystems_Nebraska
InterSystems Nebraska designs, manufactures, sells and leases equipment
for sampling, conveying, elevating, weighing and cleaning a wide variety
of products for the industrial and agricultural sectors of the economy,
including the following industries: grain and animal feed, fertilizer,
petrochemical, milling, plastics, chemical, pharmaceutical, food, minerals
and paper and pulp. In addition, pursuant to its subsidiary's Operating
Agreement with The Tropical Manufacturing Group, Inc., InterSystems
Nebraska is engaged in the manufacture and sale of commercial rolling
doors and hurricane resistant shutters. See Recent Developments--
InterSystems Nebraska--Acquisition of The Tropical Manufacturing Group,
Inc. on page 4.
The equipment that InterSystems Nebraska designs and manufactures includes
automatic samplers, mechanical truck and rail probes, conveyors, bucket
elevators, screeners and bulk weighing systems. A brief description of
the equipment is set forth below:
Automatic_samplers. Automatic samplers are used to sample materials such
as powders, pellets, granules and liquids in gravity, pneumatic or liquid
applications. Samplers are used at different stages of a material
handling or production process to determine the quality of the products
being received, produced or transported. Automatic samplers are sold to
customers in substantially all businesses served by InterSystems Nebraska
and can be adapted to extreme applications, such as high temperatures,
toxic materials and non-standard pressures.
Truck_and_Rail_Probes. Truck and rail probes are used to mechanically
sample commodities being received by truck or railcar to determine
quality. Either a core or a compartmentalized probe is hydraulically
inserted into the load and a sample is retrieved. Examples of commodities
that can be sampled using truck and rail probes include grains, soymeal,
sunflowers, flax, cranberries and wood chips.
Conveyors. Conveyors are used to transport bulk materials horizontally or
at inclines of up to 60 degrees. The material is moved by using a chain
and a series of paddles to drag the material or to move it en masse.
Conveyors are frequently used for the movement of such commodities as
grain, feed, sugar, green barley malt, flour, minerals, oyster shells and
fertilizer.
<PAGE> 7
Bucket_elevators. Bucket elevators are used to elevate material
vertically. The material is elevated by utilizing buckets attached to a
belt. Material flows into the buckets at the bottom and is discharged
when reaching the top. This equipment is typically required by customers
to elevate commodities such as wood chips, slate, fertilizer, flour,
grains and malt.
Screeners. Screeners are used to separate smaller particles from the
product stream. This is accomplished by running the product over screens
which separate the material by particle size. Screeners are typically
used for commodities such as grains, pellets, feed, pet food and soymeal.
Bulk_Weighing_Systems. Bulk weighing systems are used to weigh free
flowing bulk commodities that are being continuously loaded into trucks,
railcars, barges or ships. During the weighing operation, information can
be obtained and assessed without interrupting the scale process. A
typical system includes a structure with several hoppers and an electronic
package that controls the weighing operation. These systems are generally
sold for the bulk weighing of grains, oil, flour, soymeal and fertilizer.
Sales_and_Marketing
InterSystems Nebraska's industrial samplers are sold by approximately 80
manufacturer's representatives who are independent sales representatives
and independent contractors of InterSystems Nebraska. These
representatives typically market various lines of industrial products and
equipment manufactured by InterSystems Nebraska as well as five to ten
other companies. However, the representatives do not offer or sell
products competitive with those of InterSystems Nebraska within a given
product line. Each representative has an exclusive territory within which
the representative operates. Compensation of such representative is
strictly on a commission basis.
Intersystems Nebraska's other products are sold by 5 sales personnel who
are employees of the Company. In addition, InterSystems Nebraska leases
its agricultural automatic sampling systems. In this circumstance,
InterSystems Nebraska typically enters into a three-year agreement with
its customer, generally a grain elevator, pursuant to which InterSystems
Nebraska installs the sampling system and maintains the system on a
continuing basis. In consideration for these services, the customer
agrees to pay InterSystems Nebraska monthly for each sample drawn and to
pay for a minimum number of samples during each l2-month period.
To date, a significant percentage of InterSystems Nebraska's equipment has
been sold within the grain, feed and grain processing industries.
InterSystems Nebraska is seeking to increase its sales volume by marketing
its products outside of the United States. InterSystems Nebraska
currently has the following foreign representatives: 4 in Mexico, 8 in
Canada, 4 in Europe, one in Australia and one servicing the remainder of
Central America and South America.
Manufacturing
InterSystems Nebraska fabricates, welds and assembles raw material and
other purchased components into its finished sampling and handling
systems. InterSystems Nebraska's products are designed and manufactured
<PAGE> 8
at its two Omaha facilities with a combined area of 70,000 square feet,
of which approximately 60,000 square feet are dedicated to manufacturing
operations. The subsidiary relies where possible on automated production
systems, and has invested in a CNC turret punch, computerized machining
and fabrication equipment and automatic welding equipment. In addition,
all engineering utilizes a Computer Aided Design (CAD) system.
Suppliers_and_Raw_Materials
The principal raw materials used by InterSystems Nebraska in its product
manufacturing consist of steel, plastic and other stock, all of which are
commonly available from numerous suppliers and vendors. InterSystems
Nebraska has not experienced, nor does it reasonably anticipate, any
material interruption in the supply of raw materials necessary to
manufacture its products.
Backlog_and_Customers
InterSystems Nebraska had a sales backlog of approximately $2,300,000 at
December 31, 1995, compared with $1,350,000 at December 3l, 1994. All
orders at December 3l, l995 are believed to be firm and are expected to be
filled by December 3l, l996.
During 1995, InterSystems Nebraska provided equipment to approximately
1,300 customers. No single customer has accounted for 10% or more of
InterSystems Nebraska's total revenues during 1995 or 1994. InterSystems
Nebraska does not believe that the loss of any single customer would have
a material adverse effect on its business operations.
Competition
InterSystems Nebraska competes against numerous equipment
manufacturers and suppliers of products similar to those it
manufactures. Many of these manufacturers and suppliers have longer
operating histories and greater resources than InterSystems Nebraska.
Competition in the markets served by InterSystems Nebraska is mainly
through product quality and performance, competitive pricing,
engineering expertise and timely service.
Patents_and_Trademarks
InterSystems Nebraska has a registered trademark in the United States
for its "I-S" logo. InterSystems Nebraska's marketing efforts are
not materially dependent in any way on any trademark, patent or other
intellectual property rights, although InterSystems Nebraska has
received certain design patents on aspects of its equipment,
including its wood pulp sampler, wood chip sampler, grain cleaner
bypass and radius bottom conveyor.
<PAGE> 9
The_Business_of_Chemtrusion
Chemtrusion provides the value-added service of custom compounding
thermoplastic resins for resin producers. Custom resin compounding
involves the combining of a resin with various additives such as
pigments, impact modifiers, mineral fillers or stabilizers to
customize the product to a particular end use. The end use may
require color, opaqueness, toughness, stiffness, flame or chemical
retardance characteristics or other specified qualities not available
in standard thermoplastic resins. These compounds are used
extensively in consumer products, packaging materials, automotive
parts, and in the electrical, agricultural and office equipment
industries. A variety of compounds are manufactured by Chemtrusion,
including filled polyolefins, glass reinforced thermoplastics of all
kinds and additive concentrates for the polyolefin film industry.
Compounding_Operations
Chemtrusion provides custom compounding services using three twin
screw extruders, various blenders and other equipment. Based on the
rated capacity of its equipment and given the current mix of the
products manufactured by Chemtrusion, Chemtrusion's present annual
manufacturing capacity is approximately 34 million pounds. 1995
production was approximately 28,943,000 pounds, compared to
approximately 27,391,429 pounds in 1994. From the perspective of
pounds of resin processed, Chemtrusion's business consists
predominantly of toll compounding operations, although to a very
limited extent Chemtrusion is engaged in proprietary compounding. In
1996, Chemtrusion will undertake the construction of a $12.7 million
plastics compounding plant in Jeffersonville, Indiana, which will
contain four production lines and will be operated by Chemtrusion for
the sole benefit of Mytex Polymers. See "Business--Recent
Developments--Chemtrusion" on page 5.
In Chemtrusion's compounding operations, the customer supplies all or
most of the raw materials including resin and other additives.
Chemtrusion supplies the operating equipment and process technology
for combining the feedstocks and additives into finished compounded
resins. Chemtrusion does not typically acquire an ownership interest
in the raw materials or finished product. In most cases,
Chemtrusion's customer supplies the specifications and formulations
for the end product. In others, a customer with a specific end use
for a compound requests Chemtrusion to modify the customer's existing
formulation. To an increasing extent, Chemtrusion is assisting
customers in developing products that have resulted from the
customers' research and development activities to a product that is
ready for commercial use.
Suppliers_and_Raw_Materials
Chemtrusion is typically not required to purchase any significant raw
materials for its compounding operations other than maintenance
related supplies for its compounding equipment. These supplies are
commonly available from numerous suppliers and vendors. Chemtrusion
has not experienced, nor does it reasonably anticipate, any material
interruption in the supply of materials for its compounding
operations.
<PAGE> 10
Sales_and_Marketing
Marketing efforts are conducted through involvement of Chemtrusion
executive officers in industry and trade networks, attendance at
trade and technology conferences and symposia and other venues where
resin producers or independent proprietary compounding houses can
learn of Chemtrusion's capabilites. Chemtrusion does not have an
outside or field sales force. Chemtrusion believes its focus on
quality has resulted in the development of stable, long-term customer
relationships.
Customers
The customer base for Chemtrusion's compounding business consists
primarily of resin producers, although end product distributors and
independent proprietary compounders also represent a small portion of
the company's customer base. For each of the last two fiscal years,
approximately 70% to 80% of total revenues of the compounding
business were attributable to between eight and ten regular
customers. Of these, one customer accounted for approximately 75% of
total revenues of the compounding business for the years ended
December 31, 1995 and 1994. This customer is a large and well known
resin producer, and is the oldest customer of the compounding
business. The Company believes that the loss of this customer would
have a material adverse effect on the compounding business and on the
Company's revenues. Although there are minor fluctuations in demand
for custom compounding services resulting from new automobile model
introductions in the fall and plastic outdoor product sales in the
spring and summer, these fluctuations are not significant.
Competition
Chemtrusion competes with numerous compounding businesses, and its
operations represent an insignificant percentage of the overall
compounding activities in the United States. The primary competitive
factors in compounding of resins are the ability to provide high
quality, precise, high yield, value added services to the customer on
a timely basis, in accordance with customer specifications. Price is
typically a secondary concern due to the "made to order" nature of
the business. Chemtrusion has sought to position itself as a custom
compounder capable of handling a broad spectrum of compounding jobs
in a timely and precise manner.
Research and Development
During the two fiscal years ended December 31, 1995 and 1994, the
Company spent minimal amounts on research and development activities.
Employees
The Company currently employs 182 persons, all of whom are full time
employees, in executive, administrative and clerical, and production,
engineering and laboratory personnel capacities. None of the
Company's employees are represented by a union. The Company believes
that its labor relations are good.
<PAGE> 11
Environmental Matters
The Company does not currently anticipate any material effect upon
its capital expenditures, earnings or competitive position as a
result of its compliance with Federal, state and local provisions
which have been enacted or adopted relating to the protection of the
environment.
ITEM_2:__PROPERTIES
The Company: The Company's executive offices are located at 8790
Wallisville Road, Houston, Texas where it shares 800 square feet of
office space with Interpak Terminals, Inc. pursuant to a lease
expiring in February 2003. The Company does not pay any rent in
connection with this space. The rent expense that could be allocated
for the Company's executive offices would be minimal.
The Company shares occupancy with four other corporations of 4,500
square feet of office space located at 537 Steamboat Road, Greenwich,
Connecticut. The lease commenced in June 1995, and has a term of
three years with an annual base rent of $99,000 for the first year,
$103,500 for the second year and $108,000 for the third year. The
three other corporations sharing this space are corporations as to
which Messrs. Herbert Pearlman and/or David Lawi serve as directors
and to which they devote some of their business time. The rent is
apportioned among the four corporations occupying the space.
InterSystems Nebraska: InterSystems Nebraska owns a 40,000 square
foot office and manufacturing facility in Omaha, Nebraska, subject to
a mortgage of $840,000 to secure indebtedness of an industrial
development bond due in December 1996, requiring periodic payments of
interest and principal. The interest rate is 11% and the remaining
principal balance is approximately $41,220. The facility is subject
to a second mortgage with respect to a term loan due in September
1999.
In November 1995, InterSystems Nebraska entered into a lease for a
facility comprising 30,000 square feet of additional manufacturing
space in Omaha. The lease provides for an annual rental of
approximately $100,000 per year and expires in November 2000.
Given the current mix of equipment manufactured by InterSystems
Nebraska and its current pricing, the Company believes that the
facilities are capable of manufacturing equipment representing
approximately $20,000,000 in sales. The Company utilized 100% of the
productive capacity of its original facility in 1995.
InterSystems Nebraska also leases approximately 950 square feet of
office space in Dallas, Texas for use as a regional sales office at
an annual rental of approximately $11,400. This lease expires in
December 1996, and is subject to renewal.
Chemtrusion: Chemtrusion conducts its business in a leased 78,410
square foot facility located in Houston, Texas. The current annual
rent is $205,800, and the lease expires in April 1997. The Company
estimates that Chemtrusion operated at approximately 86% of the
facility's practical capacity during 1995.
<PAGE> 12
In January 1996, Chemtrusion acquired a 16.4 acre parcel of land in
Jeffersonville, Indiana, on which it will construct a $12.7 million
plastics compounding plant, which will contain four production lines and
will be operated by Chemtrusion for the sole benefit of Mytex Polymers.
See "Business-Recent Developments-Chemtrusion."
The Company believes that its facilities and the facilities of its
subsidiaries are adequate for the current and reasonably forseeable
future needs.
ITEM_3:__LEGAL_PROCEEDINGS
At the present time, the Company is not a party to any lawsuits which
are expected to have a material adverse effect on the financial
position of the Company.
ITEM_4:__SUBMISSION_OF_MATTERS_TO_A_VOTE_OF_SECURITY_HOLDERS: None
PART_II
ITEM_5:__MARKET_FOR_THE_REGISTRANT'S_COMMON_STOCK_AND_RELATED_
SECURITY_HOLDER_MATTERS
a. Market_Price_and_Holders. The Company's Common Stock presently is
listed on the American Stock Exchange and is presently traded under the
symbol "II". The table below sets forth, for the period indicated, the
high and low closing prices on the respective dates of such quotations.
<TABLE>
High Low
<S> <C> <C>
Fiscal_1994
First Quarter $1 1/4 $1
Second Quarter 2 1/16 1 1/4
Third Quarter 1 13/16 1 3/8
Fourth Quarter 1 5/8 1 1/16
Fiscal_1995
First Quarter 1 3/4 1
Second Quarter 1 1/2 1
Third Quarter 1 5/8 1 1/16
Fourth Quarter 2 1/8 1 1/4
</TABLE>
The closing price of the Common Stock on March 15, 1996 was $1-7/8. As
of March 15, 1996, there were, to the best of the Company's knowledge,
approximately 163 holders of record (not beneficial holders) of the
Company's Common Stock.
b. Dividend_Policy The Company has not paid any cash dividends during
the last two fiscal years. The Company currently intends to retain all
of its earnings to support the development of its business and does not
anticipate paying any cash dividends for the forseeable future.
Furthermore, InterSystems Nebraska is a party to a credit and security
agreement providing for a revolving line of credit up to $1.5 million
which prohibits the declaration or payment of cash dividends by Inter-
Systems Nebraska. This prohibition has the practical effect or
restricting the payment of dividends on the Company's common stock.
<PAGE> 13
ITEM_6:__MANAGEMENT'S_DISCUSSION_AND_ANALYSIS_OF_FINANCIAL_CONDITION_
AND_RESULTS_OF_OPERATIONS
Results of Operations
Year Ended December 31, 1995 compared to December 31, 1994
Sales increased $1,492,000 (10%) in 1995 to $16,555,000 compared to
$15,063,000 in 1994. Chemtrusion's sales increased $177,000 (5%) to
$3,969,000 in 1995 from $3,792,000 in 1994 due to higher tolling
volumes. Essentially all revenue of Chemtrusion is a result of toll
processing. InterSystems Nebraska's sales increased $1,315,000
(12%)to $12,586,000. The increase is primarily a result of sales
volume at its new Tropical Systems, Inc. ("TSI") facility in Florida
($852,000) and an increase in InterSystems Nebraska industrial
sampling sales.
Gross margin as a percentage of sales was 30% in 1995 as compared to
32% in 1994.
Selling, general and administrative expense increased $446,000
(10.2%) in 1995 while remaining constant as a percentage of sales.
The increase was mainly attributable to added general and
administrative expenses associated with TSI. Selling, general and
administrative expenses for 1995 also included a charge of $59,000 for
due diligence expenses on a potential acquisition.
Interest expense increased approximately $173,000 in 1995 as compared
to 1994. Parent company interest expense increased $23,000 due to
loans for working capital. Chemtrusion interest expense rose $83,000
primarily due to financing of its new extruding line placed in
service in the first quarter of 1995. InterSystems Nebraska interest
expense increased $67,000 primarily due to increased borrowings on
term loans and lines of credit.
In 1994, InterSystems Nebraska provided a $495,000 ($.13 per share)
special charge for damage to conveying equipment resulting from an
harmonic vibration which developed after installation of two en masse
conveyors built for one of its customers. The company has built
similar conveyors before and has never encountered such a problem
either during product testing or after installation.
The 1995 results of operations were impacted by a loss of $231,000 from
start-up and other costs associated with its new Tropical Systems, Inc.
facility in Florida.
Liquidity and Capital Resources
Cash used by operating activities in 1995 amounted to $396,000.
Proceeds from the note receivable from the sale of the Trading
Business was 265,000; $764,000 was provided from proceeds on lines of
credit and short and long-term obligations; $438,000 was provided
from loans from affiliated companies; and $183,000 was provided from
the sale of common stock. Fixed asset purchases amounted to
$531,000, advances of $50,000 were made on notes receivable to
affiliated companies and long-term debt repayments amounted to
$699,000. There was a net decrease in cash of $26,000 for the year
ended December 31, 1995.
<PAGE> 14
The Company anticipates that its future operating needs will be
satisfied from the operations of its subsidiaries which, on a
combined basis, are expected to generate positive cash flow, and from
collections on the notes receivable from the sale of the Trading
Business, and the approximate $2.1 million in proceeds from a private
placement in early 1996. The Company from time to time may seek to
borrow funds for actual or anticipated funding needs. There can be
no assurances that management will be able to obtain such financing.
Parent_company. On December 1, 1995, the Company commenced a private
placement of Units consisting of 40,000 shares of Common Stock and
20,000 Common Stock Purchase Warrants for $55,000 per Unit. The
Company reserved the right to sell up to 35 Units, and to sell
fractional Units. The Company sold 39 Units, which yielded over
$2,100,000 in proceeds to the Company. These proceeds were used to
repay debt, to provide working capital and to provide in part funds
for the proposed Interpak and Tropical Manufacturing Group
acquisitions (discussed below) (See note 17 to the consolidated
financial statements).
The Company is proceeding with negotations for the acquisition of
Interpak Holdings, Inc. headquartered in Houston, Texas ("Interpak")
from Helm Resources, Inc. ("Helm"), which currently owns
approximately 25% of the Company's outstanding shares of Common
Stock. If an agreement is reached, the acquisition would be subject to a
number of conditions, including the Company's arranging financing to
complete the acquisition and stockholder approval. The Company may
be required to undertake a debt or equity financing to have
sufficient available funds to pay any cash down payment. It is expected
that the purchase price will be paid with a combination of cash, the
assumption of certain Helm debentures and the issuance to Helm of shares
of common stock. Interpak is a custom-packager of thermoplastic resins
and also provides warehousing services to plastic producers and
distributors.
At December 31, 1995, the Company had borrowings totalling $438,000
outstanding under a credit facility with an affiliated company. The
line of credit provides a maximum borrowing of $450,000, bears
interest at 25%, expires December 15, 1996, and is collateralized by
the note receivable from the sale of the Trading Business. During
1995 and 1994, the Company incurred interest expense of $73,000 and
$8,000, respectively, of which $31,000 remained unpaid at December
31, 1995. The principal portion of these borrowings were repaid in
February 1996.
At December 31, 1995, the Company had unsecured notes payable
totalling $100,000 to a company in which an officer of the Company is
a stockholder. The notes bear interest at 15% payable monthly and
were repaid in February 1996. During 1995, interest expense incurred
by the Company was minimal.
<PAGE> 15
In April 1995, the Company made an offer to issue new warrants to
purchase 275,000 shares of common stock at $1.50 per share to those
holders of $1.00 warrants for the purchase of 275,000 shares of
common stock if they exercised the $1.00 warrant at a reduced price
of $.60 per share. The new warrants expire June 30, 2000 and the
$1.00 warrants expire April 30, 1996. All holders of the 275,000
warrants accepted the offer and the Company received proceeds of
$165,000.
In April 1993, the Company sold the net assets and operations related
to the Company's Trading Business to certain members of management.
The company remained liable under operating leases which were either
sublet or assigned to the purchaser. The leases expire in years
through 1998 and, at December 31, 1995, have aggregate future minimum
rentals of approximately $654,000.
InterSystems_Nebraska. InterSystems Nebraska ordinarily manufactures
products to meet customer specification and, consequently, maintains
relatively small amounts of inventory, most of which is required to
meet existing contracts. At December 31, 1995, InterSystems Nebraska
had a revolving credit agreement with a bank. The financing
agreement provides for borrowings of up to $1,500,000 based upon a
borrowing base and expires June 26, 1996. At December 31, 1995,
borrowings of $1,500,000 were outstanding under this agreement,
bearing interest at the bank's base rate plus .5% (10% at December
31, 1995). InterSystems Nebraska has pledged its accounts
receivable, inventory, equipment and fixtures and intangibles as
collateral for the debt. The net book value of the collateral
totalled approximately $4,803,000 at December 31, 1995. In addition,
the Company has pledged all outstanding shares of InterSystems
Nebraska's common stock as additional collateral. The agreement (1)
requires InterSystems Nebraska, among other things, to maintain a
certain minimum net worth, working capital and debt to equity ratio,
(ii) restricts the payment of dividends and (iii) limits the amount
expended for capital additions, officers' salaries, management fees
and loanssss to affiliates.
In December 1995, InterSystems Nebraska entered into an additional
agreement with the bank for $250,000. The note bears interest at the
bank's prime plus .5% and is due on April 30, 1996. The agreement
has the same loan covenants and collateral as defined above. In
addition, a limited partnership owned by Helm, and certain officers
of Helm, have guaranteed the additonal borrowings.
InterSystems Nebraska entered into a lease for a second 30,000 square
foot facility in Omaha, thereby increasing total square footage under
use to 70,000 square feet. In connection with the expansion, the
subsidiary has arranged $1.1 million in operating leases and $500,000
in equipment financing for advanced robotics, software and other
automated equipment to be installed in both of its facilities. This
equipment financing is pursuant to a 9.25% term loan agreement which
InterSystems Nebraska entered into with a bank in December 1995, the
proceeds of which were used for the purchase of computer equipment
and software. The agreement has substantially the same loan
covenants and collateral as the revolving credit agreement previously
described, in addition to requiring the maintenance of minimum debt
<PAGE> 16
service ratio. As of December 31, 1995, InterSystems Nebraska had
no borrowings outstanding under this agreement.
Installation of the new equipment is expected to be completed by the
end of April 1996. The planned expansion and automation are designed
to render the combined facility efficient and state-of-the-art
without changing the present workforce, and to increase manfacturing
capacity to permit InterSystems Nebraska to meet its record backlog,
bring subcontracted work back into the plant and take on additional
customers.
InterSystems Nebraska, through a subsidiary, Tropical Systems,Inc.
("TSI") signed a letter of intent in September 1995 (the "Letter of
Intent") for the acquisition of the assets of The Tropical
Manufacturing Group, Inc. headquartered in Miami, Florida
("Tropical"). Tropical is engaged in the business of manufacturing
and selling commercial rolling doors and hurricane-resistant doors
and shutters in South Florida, Latin American and the Caribbean. To
date, InterSystems Nebraska has advanced $1.0 million in working
capital to TSI, which included funds borrowed under InterSystems
Nebraska's credit line as described above amd from the Company's
private placement proceeds. At the present time, the cost of
acquiring the assets of Tropical is expected to be approximately
$250,000, although transactional expenses and the cost of clearing
title may increase this estimate considerably.
Chemtrusion. At December 31, 1995, Chemtrusion had a revolving line
of credit agreement with a bank. The agreement provides for a
maximum borrowing of $300,000 and expires in September 1996. The
agreement bears interest at the bank's base rate plus 2% (10.5% at
December 31, 1995) and is collateralized by Chemtrusion's accounts
receivable and inventory. At December 31, 1995, Chemtrusion had
borrowings outstanding totaling $295,000 under this line and the net
book value of collateral totalled approximately $691,000. The
agreement requires Chemtrusion, among other things, to maintain a
certain minimum net worth and debt to equity ratio. Subsequent to
December 31, 1995, Chemtrusion has reduced the borrowings outstanding
under this line of credit to $197,500.
Chemtrusion purchased an additional twin screw extruder in the fourth
quarter of 1994 in anticipation of increased tolling activity. The
total cost was approximately $950,000. In December 1994, Chemtrusion
entered into a capitalized lease financing for its purchase. The
five year lease provides for a total of $1,221,000 in monthly
installment payments ranging from $18,800 to $26,550 per month, with
an option to purchase the equipment at the end of the lease for
$95,455.
On January 26, 1996, Chemtrusion entered into a Definitive Agreement
for Compounding Services with Mytex Polymers ("Mytex"), a Delaware
general partnership of affiliates of Mitsubishi Chemical America and
Exxon Chemical Company, a division of Exxon Corporation.
Pursuant to the Agreement, Chemtrusion has undertaken to acquire 16.4
acres of land in Jeffersonville, Indiana, and to construct thereon
and equip in accordance with agreed upon plans and specifications a
<PAGE> 17
plastics compounding plant at a cost currently estimated not to
exceed $12.7 million. Chemtrusion and Mytex are working together to
obtain construction financing for the plant, and Mytex has agreed to
fund the cost of construction on an interim basis until permanent
construction financing is in place.
The expected completion date of the plant is August 31, 1996. Once
the plant is completed, Chemtrusion will be paid a monthly management
fee for its operation of the plant which will cover most operating
expenses of the plant and construction financing debt service.
Management currently expects the project to provide significant annual
net profits to Chemtrusion.
Impact of Inflation
Inflation has not had a significant impact on the Company's
operations. Since the Company has no long term fixed price
contracts, the Company believes it should be able to pass through to
its customers most cost increases resulting from inflation. However,
competitive factors may require the Company to absorb at least a
portion of these cost increases, particularly during periods of high
inflation.
Seasonality
A substantial portion of InterSystems Nebraska's revenues are derived
from the agricultural sector of the economy and, accordingly, are
subject to seasonal fluctuations. InterSystems Nebraska's revenues
are highest in the third quarter (32% of annual revenues in 1995 was
recorded). While revenues for the remaining quarters are generally
constant, InterSystems Nebraska's success is, to some extent,
dependent upon weather conditions affecting domestic grain
production, conditions in the grain industry generally and the value
of the United States dollar against foreign currency.
The acquisition of Tropical is expected to complement the present
product demand of InterSystems Nebraska, which usually peaks in the
summer months and drops in the winter months, whereas Tropical
experiences high product demand year round, especially during
hurricane season.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of (SFAS No. 121). SFAS No. 121 requires, among other
things, that impairment losses on assets to be held, and gains or
losses from assets that are expected to be disposed of, be included
as a component of income from continuing operations. The Company
will adopt SFAS No. 121 in 1996 and its implementation is not
expected to have a material effect on the consolidated financial
statements.
<PAGE> 18
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123). SFAS No. 123 encourages
entities to adopt the fair value method in place of the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB No. 25), for all arrangements under which
employees receive shares of stock or other equity instruments of the
employer or the employer incurs liabilities to employees in amounts
based on the price of its stock. The Company does not anticipate
adopting the fair market method encouraged by SFAS No. 123 and will
continue to account for such transactions in accordance with APB No.
25. However, the Company will be required to provide additional
disclosures beginning in 1996 providing pro forma effects as if the
Company had elected to adopt SFAS No. 123.
ITEM_7:__FINANCIAL_STATEMENTS
The financial statements filed as part of this report include:
<TABLE>
<S> <C>
Page
Report of Independent Certified Public
Accountants.....................................F-2
Consolidated Balance Sheet as of
December 3l, l995...............................F-3
Consolidated Statements of
Loss for the Years Ended
December 3l, 1995 and 1994......................F-4
Consolidated Statements of
Shareholders' Equity
for the Years Ended December
31, 1995 and 1994...............................F-5
Consolidated Statements of
Cash Flows for the Years Ended
December 3l, 1995 and 1994......................F-6
Notes to Consolidated Financial
Statements......................................F-7 to F-24
</TABLE>
ITEM_8:__CHANGES_IN_AND_DISAGREEMENTS_WITH_ACCOUNTANTS_ON_ACCOUNTING_
AND_FINANCIAL_DISCLOSURE None.
<PAGE> 19
PART_III
ITEM_9:__DIRECTORS,_EXECUTIVE_OFFICERS,_PROMOTERS_AND_CONTROL_
PERSONS;_COMPLIANCE_WITH_SECTION_16(a)_OF_THE_EXCHANGE_ACT
The Directors and the Executive Officers of the Company are set
forth below. In 1988, the Company adopted a classified Board of
Directors. At each annual meeting, the successors to the class of
directors whose term expires at that meeting are elected to serve a
three-year term and until their successors are elected and qualified.
Directors_
Name, Principal Occupation Director Term as
Over Past Five Years And of the Director
Other_Directorships_of_Director Age Company_Since Expires_in
David S. Lawi.....................60 1984 1996
Mr. Lawi has been Secretary of the Company since March 1984. He
was elected Chairman of the Executive Committee in October 1986. He
has been Secretary and a Director of Helm Resources, Inc., a public
company which initiates, develops, acquires and oversees the
management of various business enterprises and which is the holder of
aproximately 25% of the Company's outstanding common stock, since
1980, and served as Executive Vice President of Helm from 1980 until
1992. Since l982 he has been a Director of Seitel, Inc. ("Seitel")
and has been Chairman of Seitel's Executive Committee since 1989.
Seitel is a publicly-held company engaged in acquiring and marketing
seismic information to the oil and gas industry. Since 1989, Mr.
Lawi has been a director of PLB Management Corp. ("PLB Managment"),
the general partner of The Mezzanine Financial Fund, L.P., a
privately held limited partnership engaged in extending senior and
subordinated credit primarily to borrowers with annual sales of
$5,000,000 to $20,000,000 (the "Fund"). Since 1993, he has been a
Director of Professionals' Financial Services, Inc., a privately held
company engaged in providing asset-based lending and factoring
services ("Professionals"). In 1993 he became Secretary and
Treasurer of Unapix Entertainment, Inc. ("Unapix"), which is engaged
in marketing and distributing films and television products. Mr.
Lawi is also a Director and Secretary of Cliff Engle Ltd., which
receives limited royalty revenue from an NFL license it holds ("Cliff
Engle"). Helm holds an equity position in Professionals, Unapix and
Cliff Engle, and a limited partnership interest in the Fund.
Walter M. Craig, Jr.............. 41 1993 1996
Mr. Craig joined Helm in March 1984 as Vice President and General
Counsel. In July, 1991, he was appointed Senior Vice
President--Business and Legal Affairs, in July 1992 he was appointed
Executive Vice President and Chief Operating Officer of Helm and in
1993 he was appointed a Director of Helm. In 1991, he became
President of Cliff Engle and in 1993 he became President and a
Director of PLB Management and President of the Fund. Since 1993, he
has been a Director and President of Professionals. He has been a
Director of Seitel since 1987 and a Director of Unapix since 1993.
<PAGE> 20
Leonard E. Friedman............... 58 1995 1996
Mr. Friedman was first elected to the Board of Directors in
December 1995. He presently is Chairman and President of LEFMARK,
Inc., a leading Houston-based real estate holding and management
company in which capacity he has served since 1989. Previously, he
was the founding partner and Chairman of the Board of The Corum
Company, which acquired and developed premier shopping centers in the
Houston area. Mr. Friedman also serves on the Boards of Directors of
Texas Commerce Bank in River Oaks, Texas, and Revac, Inc., a real
estate information marketing company based in Houston.
--------------------
William Lurie..................... 65 1995 1997
Mr. Lurie was first elected to the Board of Directors in November
1995 and became Chairman of the Acquisition Committee. Mr. Lurie is
presently serving as President and a Director of Prevention & Early
Resolution of Conflicts, Inc., a consulting firm. Prior thereto, he
spent almost 20 years with General Electric Company and ten years
with International Paper Company in increasingly important management
positions, including General Counsel, and thereafter served as
President of The Business Roundtable for ten years. He also serves
as a Director of Mineral Technologies, Inc., Seitel and Co-Counsel,
Inc..
Daniel T. Murphy ................. 57 1986 1997
Mr. Murphy joined the Company in May 1984 as Vice
President-Finance and Operations and has been Executive Vice
President of Operations and Chief Financial Officer of the Company
since July 1985. Mr. Murphy joined Helm in May 1984 as Vice
President and Chief Financial Officer. Since 1989, he has served as
a Director and Chief Financial Officer of PLB Management.
Herbert M. Pearlman .............. 63 l984 1998
Mr. Pearlman has been Chairman of the Company's Board of
Directors since March l984. He has served as President, Chief
Executive Officer and a Director of Helm since 1980. Since June 1984
he has been Chairman of the Board of Helm. Mr. Pearlman is Chairman
of the Board of Directors of Seitel and Unapix. In 1994, Mr.
Pearlman became Chairman of the Board of ABC Dispensing Technologies,
Inc., a public company which is engaged in the business of designing
and manufacturing equipment which dispenses liquids, solids, gases,
pastes and gels. He has also served as Chairman of the Board of
Directors of PLB Management since 1989 and of Professionals' since
1993. Mr. Pearlman is also a Director of Cliff Engle.
Fred S. Zeidman................... 49 1993 1998
Mr. Zeidman was appointed President, Chief Executive Officer and
a Director of the Company in July 1993. He also serves as President
of Interpak Terminals, Inc., a wholly-owned subsidiary of Helm
engaged in the packaging and distribution of thermoplastic resins.
<PAGE> 21
Previously, Mr. Zeidman served as Chairman of Unibar Energy
Services Corporation, one of the largest independent drilling fluids
company in the United States, from 1985 to 1991, when it was acquired
by Anchor Drilling Fluids of Norway. From April 1992 until July
1993, Mr. Zeidman served as President of Service Enterprises, Inc.,
which is primarily engaged in plumbing, heating, air conditionaing
and electrical installation and repair. From 1983 to 1993, Mr.
Zeidman served as President of Enterprise Capital Corporation, a
federally licensed small business investment company specializing in
venture capital financings.
John E. Stieglitz ................62 1991 1998
Since l976, Mr. Stieglitz has been president of Conspectus, Inc.,
a privately held company engaged in providing consulting services in
the area of executive recruiting. Mr. Stieglitz has been a Director
of Helm since 1986 and a Director of Seitel since 1989.
Compensation_of_Directors
Non-employee directors generally receive a fee of $6,000 in cash
and $6,000 of common stock for services they render to the Company,
payable on December 31 of each year. In exchange for his
agreement to serve as Chairman of the Acquisition Committee (see "Recent
Developments"), the Company has agreed to pay Mr. Lurie an additional
$6,000 in cash and $6,000 in stock, and to issue to him five year options
to purchase 20,000 shares of common stock at $1 5/8. In addition, the
Company has agreed to issue to each Mr. Friedman and Mr. Stieglitz five
year options to purchase 10,000 shares of common stock at $1 5/8.
Expenses reasonably incurred in the furtherance of the directors' duties
are reimbursed by the Company.
Compliance_with_Section_16(a)_of_the_Exchange_Act
Based upon a review of Forms 3, 4 and 5, and amendments thereto
furnished to the Company pursuant to Rule 16a-3(e) promulgated under
the Securities Exchange Act of 1934, as amended, during, and with
respect to, its most recent fiscal year, and written representations
furnished to the Company, it appears that all such reports required
to be filed were filed on a timely basis, except that a report on
Form 4 for Helm Resources, Inc. reporting a private sale of 60,000
shares of common stock was filed late, and Mr. Friedman's intial
report on Form 3 was filed six days late.
<PAGE> 22
ITEM_10.__EXECUTIVE_COMPENSATION
Set forth below is certain information with respect to cash and
noncash compensation awarded to, earned by or paid to the Company's
Chief Executive Officer during 1995. With the exception of Mr. Pearlman,
no executive officers of the Company earned over $100,000 for the fiscal
year ended December 31, 1995.
<TABLE>
SUMMARY_COMPENSATION_TABLE
Name and Annual_Compensation__ All
Principal Other
Position Year Salary Bonus Compensation
<S> <C> <C> <C> <C>
Fred S. Zeidman, 1995 $ 50,000 $ - -
President and 1994 50,000 - -
CEO (1) 1993 18,138 - -
Herbert Pearlman, 1995 100,000 - -
Chairman 1994 100,000 - -
1993 100,000 - -
____________
</TABLE>
(1) Mr. Zeidman joined the Company in July 1993. See "Employment
Arrangements--Zeidman Agreement" below.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION/SAR VALUE TABLE
The following table sets forth aggregated option exercises in the
last fiscal year, the number of unexercised options and fiscal
year-end values of in the money options for the Chief Executive
Officer.
<TABLE>
Value of
Number of Unexercised
Shares Unexercised In-the-money
Acquired Options at Options at
on Fiscal year-end fiscal year end
Exercise Value Exercisable/ Exercisable/
Name __(#)___ Realized_($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Fred S.
Zeidman - - 300,000/100,000 $18,750/$6,250
Herbert M.
Pearlman - - 62,500/ - - / -
</TABLE>
<PAGE> 23
EMPLOYMENT_ARRANGEMENTS
The specific material terms of the agreements for the current
executive officers of the Company are set forth below.
Zeidman_Agreement
Mr. Zeidman and the Company have entered into a three-year employment
agreement pursuant to which Mr. Zeidman will serve as President and Chief
Executive Officer of the Company. Pursuant to the employment agreement,
Mr. Zeidman will receive a base salary of $150,000 per year and a bonus
beginning in 1994 of 2% of the first $1 million in net income of the
Company, 3% of the second $1 million of net income and 4% of all net
income in excess of $2 million, not to exceed 150% of salary. Mr.
Zeidman has also received options to purchase 200,000 shares of Common
Stock at $2.00 per share and options to purchase 200,000 shares of Common
Stock at $3.00 per share. Options to purchase 200,000 shares (100,000 at
$2.00/share and 100,000 at $3.00/share) vest on the first anniversary of
the grant date and options to purchase 100,000 shares (50,000 at
$2.00/share and 50,000 at $3.00/share) vest on each of the second and
third anniversaries of the grant date.
Mr. Zeidman also serves as President and Chief Executive Officer of
Interpak Terminals, Inc. ("Interpak"), a wholly-owned subsidiary of Helm
Resources, Inc. Mr. Zeidman allocates his time between the Company and
Interpak, and Interpak contributes a portion of the Company's contracted
salary directly to Mr. Zeidman in compensation of his services based upon
the relative amount of time spent at each company, thereby reducing the
amount of salary payable by the Company. During both 1995 and 1994, Mr.
Zeidman spent approximately 33% of his time on the business of the
Company and received approximately $100,000 in compensation from Interpak
for his services to that corporation in 1995 and 1994, and $66,700 in
1993, respectively. He also received a $10,000 bonus from Interpak in
1995 and 1994.
The Company's agreement with Mr. Zeidman also provides that the Board
of Directors will continue to cause Mr. Zeidman to be elected as a member
of the Board of Directors of the Company and a member of the Board of
Directors of Interpak Terminals, Inc., until the earlier of such time as
his ownership in the common stock of the Company is under 100,000 shares,
or his death or voluntary resignation. In addition, he has received from
Helm Resources, Inc. a five year option to purchase 16,667 shares of
common stock of Helm at $1.50 per share, which vests over a three year
period, and the right to receive from Interpak Terminals, Inc. an option
to purchase such number of shares of each class of capital stock of
Interpak Terminals, Inc. and any securities convertible or exchangeable
into or carrying the right to purchase such class of capital stock as
will equal two percent of such class on a fully diluted basis if a public
offering of Interpak Terminals securities is consummated before June
2003. The option price would be equal to the public offering price, less
applicable underwiting discounts and commissions.
Pearlman Agreement
Mr. Pearlman is a party to an employment agreement which provides for
his employment as Chairman of the Company for a term ending December 31,
1997, and renewable thereafter at the Company's option on a year to year
<PAGE> 24
basis. The agreement, as amended, provides for a base salary of
approximately $240,000, which has been voluntarily reduced to $100,000.
In addition, Mr. Pearlman is entitled to an annual bonus equal to 5% of
the Company's consolidated pre-tax profits, less the amount paid to Mr.
Pearlman by Helm for the Company's consolidated earnings for the year,
which are reflected in Helm's financial statements as a result of Helm's
ownership in the Company.
Upon a change in Helm's control of the Board, the agreement provides
that each officer may terminate his employment under the agreement upon
18 months notice and receive, upon conclusion of that period, after
diligently carrying out his duties, a lump sum severance payment equal to
18 months salary. The agreement provides that upon the expiration of the
term, if the officer's employment is not continued, he will be entitled
to a severance payment of two years' salary continuation (unless
employment is secured elsewhere).
If employment continuation is offered but declined by the officer,
the officer must act as a consultant for two years at 50% of his latest
salary, during which time he may not provide services for any
competitors.
In July 1995, the Company granted to Mr. Pearlman 100,000 common
stock purchase warrants, which have an exercise price of $1.50 per share,
vest 33% per year beginning with the year of grant and expire on July 31,
2000. The warrants were granted in lieu of cash compensation owing to
Mr. Pearlman under his employment agreements, which had been voluntarily
waived for several years prior to 1995.
David_S._Lawi
Mr. Lawi's contract contains essentially the same provisions as Mr.
Pearlman's agreement, except that it provides for a current base salary
of $130,000, which has been voluntarily reduced to $50,000, and a bonus
of 2.5% of the Company's consolidated pre-tax profits for each fiscal
year, less the amount paid to Mr. Lawi by Helm for the Company's
consolidated earnings for the year which are reflected in Helm's
financial statements as a result of Helm's ownership in the Company.
In July 1995, the Company granted to Mr. Lawi 50,000 common stock
purchase warrants, which have an exercise price of $1.50 per share, vest
33% per year beginning with the year of grant and expire on July 31,
2000. The warrants were granted in lieu of cash compensation owing to
Mr. Lawi under his employment agreement, which had been voluntarily
waived for several years prior to 1995.
Daniel_T._Murphy
Mr. Murphy's contract contains essentially the same provisions as Mr.
Pearlman's agreement, except that it provides for a current base salary
of $90,000, and a bonus at the discretion of the Board of Directors.
Effective November 1, 1995, Mr. Murphy agreed to accept $56,000 from the
Company, with the balance to be paid by affiliates of the Company for
whom he renders services.
<PAGE> 25
ITEM_11.__SECURITY_OWNERSHIP_OF_CERTAIN_BENEFICIAL_OWNERS_AND_
MANAGEMENT
Set forth below is certain information as of March 25, 1996
concerning the beneficial ownership of Common Stock (the Company's
only class of voting securities) held by each person who is the
beneficial owner of more than 5% of the Common Stock, and by each
director and by all executive officers and directors of the Company
as a group.
<TABLE>
Amount and Nature
of Beneficial Percent of
Name Ownership_(1)(2)_ Class_(2)_
<S> <C> <C>
Beneficial Holders
Helm Resources, Inc......... 1,537,583(3) 24.5%
537 Steamboat Road
Greenwich, CT 06830
John V. Winfield 576,000(4) 8.9%
2121 Avenue of the Stars
Los Angeles, CA 90067
Officers and Directors
Herbert M. Pearlman ........ 557,940(5) 8.4%
537 Steamboat Road
Greenwich, CT 06830
Fred S. Zeidman ............ 545,000(6) 8.3%
8790 Wallisville Road
Houston, Texas 77029
David S. Lawi .............. 391,101(7) 6.0%
537 Steamboat Road
Greenwich, CT 06830
Leonard Friedman............ 173,100(8) 2.8%
Daniel T. Murphy ........... 24,531(9) *
Walter M. Craig, Jr......... 24,353(10) *
John E. Stieglitz........... 11,923(11) *
William Lurie............... -
All executive officers
and directors
as_a_group_(8_persons) .... 1,727,948(12) 23.5%
* Less than 1%
</TABLE>
(1) Except as otherwise indicated, each named holder has, to the best
of the Company's knowledge, sole voting and investment power with
respect to the shares indicated.
(2) Includes shares that may be acquired within 60 days by any of the
named persons upon exercise of any right.
<PAGE> 26
(3) Includes shares that are issuable within 60 days upon exercise of
Common Stock Purchase Warrants expiring December 31, 1999 at
$3.50 per share which were issued as a dividend to the holders of
common stock in October 1991 (the "Dividend Warrants") (6,035)
and upon conversion of 10% Convertible Subordinated Debentures
due 2001 at $1.83 per share (the "10% Debentures") (16,393).
(4) Included 192,000 shares held by InterGroup Corporation, 2121
Avenue of the Stars, Los Angeles, CA 90067, with respect to
which Mr. Winfield is Chairman of the Board. Also includes
192,000 shares that are issuable on and after July 15, 1996 upon
exercise a like amount of Common Stock Purchase Warrants expiring
January 15, 2000 at $1.80 per share, 96,000 of which are held by
Mr. Winfield directly and 96,000 of which are held by InterGroup
Corporation.
(5) Includes shares that are issuable within 60 days upon exercise of
stock options (62,500), Dividend Warrants (77,551), Common Stock
Purchase Warrants expiring June 30, 2000 at $1.50 per share (the
"Warrants")(45,000), Common Stock Purchase Warrants expiring July
31, 2002 at $1.125 per share issued in lieu of compensation (the
"Employment Warrants")(33,333), conversion of Series A 10%
Convertible Subordinated Debentures due June 30, 2001 at $1.35
per share (the "Series A 10% Debentures") (148,148), and
conversion of 8% Convertible Debentures due January 31, 2004 at
$1.43 per share (the "8% Debentures") (13,356). Does not include
shares held by Mr. Pearlman's wife and children as to which he
disclaims beneficial ownership.
(6) Includes shares that are issuable within 60 days upon exercise of
stock options (300,000) and Warrants (15,000).
(7) Includes shares that are issuable within 60 days upon exercise of
stock options (39,062), Dividend Warrants (73,875), Employment
Warrants (16,667), Series A 10% Debentures (148,148) and 8%
Debentures (17,483). Does not include shares held by Mr. Lawi's
wife and children as to which he disclaims beneficial ownership.
(8) Includes 57,700 shares that are issuable within 60 days upon
exercise of Warrants.
(9) Includes shares that are issuable within 60 days upon exercise of
stock options (9,375) and Dividend Warrants (2,000) and
conversion of 10% Debentures (5,464) and 8% Debentures (7,692).
(10) Includes shares that are issuable within 60 days upon exercise
of stock options (8,594) and Dividend Warrants (2,500) and
conversion of Series A 10% Debentures (9,259).
(11) Includes shares that are issuable within 60 days upon exercise
of Warrants (5,000) and conversion of 8% Debentures (1,923).
<PAGE> 27
(12) Includes shares that are issuable within 60 days upon exercise
of stock options (419,531), Dividend Warrants (155,926), Warrants
(122,700) and Employment Warrants (50,000), and conversion of
Series A 10% Debentures (305,555), 10% Debentures (5,464) and 8%
Debentures (40,454).
ITEM_12.__CERTAIN_RELATIONSHIPS_AND_RELATED_PARTY_TRANSACTIONS
During 1995, management of Helm provided various administrative,
managerial, financial, legal and accounting services to the Company
and the Company paid Helm $5,153 during, and accrued an additional
$47,767 at December 31, 1995 for such services.
In the fall of 1994, the Company obtained a line of credit in the
maximum amount of $250,000 from the Mezzanine Financial Fund, L.P.
(the "Fund"), a Delaware limited partnership in which Helm holds a 9%
limited partnership interest, which line was increased to $450,000
during 1995. The loan bears interest at 15% per annum plus a 10%
enhancement fee thereafter, which fee is payable in common stock of
the Company, entitles the Fund to receive 2,000 common stock purchase
warrants for each month that the loan is outstanding and is secured
by a note receivable from the sale of the Trading Business. The loan
matured on December 31, 1995 and was paid in full in March 1996 using
proceeds from the December 1995 private placement. At December 31,
1995, $437,500 remained outstanding under the line. Messrs.
Pearlman, Lawi and Craig are limited partners of, and Mr. Craig is
President of, the Fund.
In January, 1995, Professionals' Financial Services, Inc.
("PFS"), an affiliate of Helm Resources, Inc. which is controlled by
Messrs. Herbert Pearlman, David Lawi and Walter M. Craig, Jr. made a
$100,000 accounts receivable line of credit available to The Tropical
Manufacturing Group, Inc.("TMG"), which is a party to an operating
agreement and a letter of intent for the purchase of assets with
Tropical Systems, Inc.("TSI"), a subsidiary of InterSystems Nebraska.
See Item 1. Business--InterSystems, Inc.--Recent Developments on page
4. Effective upon the execution of the operating agreement in
October 1995, no further accounts receivable of TMG were purchased
under the line of credit, and PFS entered into a substitute accounts
receivable line of credit in the amount of $250,000 with TSI. At
December 31, 1995, $203,804.39 was outstanding under the TMG line of
credit and $193,610.21 was outstanding under the TSI line of credit.
In December 1995, a corporation controlled by Mr. Fred Zeidman
made a $100,000 unsecured loan to the Company. The rate of interest
on this loan was 15%, payable monthly, and the loan was repaid in
full in February 1996 using proceeds from the private placement.
<PAGE> 28
Acquisition_of_InterSystems_Nebraska
In connection with the August 1993 purchase from Helm of all of
the outstanding capital stock of InterSystems Nebraska, described in
"Item 1. Introduction and Business Development" above, additional
consideration is payable to Helm in the form of an earnout and a
royalty.
Performance Earnout. Helm is entitled to receive a performance
earnout payable in the event that InterSystems Nebraska's average
earnings before federal income taxes, related party management fees
and non-recurring or extraordinary expense ("EBTME") in 1992 through
1995 inclusive, exceeds $550,000. If during this period, the average
EBTME of InterSystems Nebraska exceeds $550,000, the Company is
required to pay to Helm an amount equal to six (6) times such excess
(the "Earnout Payments"). Earnout Payments are required to be made
commencing March 1994 (for any Earnout Payment payable under the
formula for 1992 and 1993), and each successive year thereafter, as
necessary, until March 1996. The March 1994 Earnout Payment covers
average EBTME for 1992 and 1993. The March 1995 Earnout Payment
covers average EBTME for 1992 through and including 1994. The March
1996 Earnout Payment covers average EBTME for 1992 through and
including 1995. In the event of a reduction of average EBTME for any
period from the average EBTME for previous periods, no refund of
Earnout Payments will be made. However, the Payments due in March
1995 and 1996 will reflect a credit of the payments previously made
toward the total earnout payment owed. Earnout Payments may be made,
at the Company's option, by delivering cash, shares of common stock
(valued at the average closing sale price on the American Stock
Exchange for the 60 days preceding delivery), by delivering to Helm
shares of the Company's common stock having an aggregate value of
such Earnout Payment or other agreed upon consideration or by the
retirement of indebtedness of Helm to the Company. InterSystems
Nebraska's EBTME for the years 1995, 1994, 1993 and 1992 was $567,000,
$507,000, $666,000 and $420,000, respectively. No Earnout Payment
was due for March 1994, March 1995 or March 1996.
Royalty Arrangements. In addition to the base purchase price and the
earnout payments, Helm also is entitled to receive royalties on three
classes of InterSystems Nebraska products that were developed with
the assistance of Helm, and that have not yet had a material impact
on InterSystems Nebraska's sales to date. These three products are:
a sampler used to sample, among other things, wood chips and coal; a
higher capacity sampler used to sample, among other things, wood
pulp, cement and coal; and a radius bottom conveyor. With respect to
each of these three products, Helm will receive a royalty of 5% of
all net sales of such products exceeding certain established
thresholds (which thresholds approximated the highest annual net
sales for each of the products during the last three years), payable
on an annual basis for the 15-year period following the closing (the
"Royalties"). In no case can the annual Royalties paid to Helm in
any year with respect any of the products licensed exceed 10% of the
annual gross profit of such product, calculated in accordance with
the accounting procedures and practices currently employed by
InterSystems Nebraska. Royalties to Helm on account of 1995 sales
were approximately $7,000, which remained unpaid at December 31,
1995, as compared to $5,000 in 1994.
<PAGE> 29
<TABLE>
13._Exhibits,_List_and_Reports_on_Form_8-K
(a) List of Exhibits
Number Description Location
<S> <C> <C>
3.1 Certificate of Incorporation and
Amendments thereto i
3.2 By-Laws, as amended i
3.3 Certificate of Amendment to
Certificate of Incorporation
dated 9/28/85 ii
3.4 Certificate of Amendment to
Certificate of Incorporation
dated March 9, 1993, and filed
April 28, 1993 vi
3.5 Certificate of Amendment to
Certificate of Incorporation
dated December 17, 1993, and filed
January 10, 1994 vii
4.1 Form of 10% Convertible Debenture
due June 30, 2001 issued in the
1991 Private Placement iv
4.2 Form of Common Stock Purchase Warrant
expiring December 31, 1999 iv
4.3 Form of 8% Convertible Debenture
due 2003 issued in connection with the
acquisition of InterSystems Nebraska vii
4.4 Form of Common Stock Purchase Warrant
expiring June 30, 2000 ix
4.5 Form of Common Stock Purchase Warrant
expiring July 30, 2000 issued in lieu of Filed Herewith
compensation
4.6 Form of Common Stock Purchase Warrant Filed Herewith
expiring January 15, 2000 issued in
December 1995 Private Placement
10.1 The Company's 1986 Employee
Stock Option Plan i
10.2 Form of Promissory Note issued by Company
to Helm Resources, Inc. iii
10.3 Employment and Deferred Compensation
Agreement between Company
and Herbert M. Pearlman ii
</TABLE>
<PAGE> 30
<TABLE>
<S> <C> <C>
10.4 Employment and Deferred Compensation
Agreement between Company
and David S. Lawi ii
10.5 Employment and Deferred Compensation
Agreement between Company
and Daniel T. Murphy ii
10.6 Amendment to Employment Agreement between
Company and Herbert M. Pearlman x
10.7 Amendment to Employment Agreement between
Company and David S. Lawi x
10.8 Amendment to Employment Agreement between
Company and Daniel T. Murphy x
10.9 Asset Purchase Agreement dated November
16, 1992 between the Company and certain
of its subsidiaries and Bamberger
Acquisition Corp., as amended. v
10.10 Stock Purchase Agreement dated as of the
30th day of November, 1992 between the
Company, Helm Resources, Inc., and certain
subsidiaries of Helm Resources, Inc.,
as amended. v
10.11 Subordination Agreement dated as of April 28, vi
1993 between Congress Financial Corporation
and BPI Liquidation Corp., a subsidiary
10.12 Stock Pledge Agreement dated April 28, 1993 vi
in favor of Bamberger Polymers, Inc., a New
York corporation and a subsidiary
10.13 Non-competition Agreement dated as of April 28, vi
1993 between the Company and its subsidiaries
and Bamberger Acquisition Corp.
10.14 Toll Compounding Contract dated April 1, x
1994 between Chemtrusion, Inc. and Himont
U.S.A., Inc.
10.15 Employment Agreement dated as of July 26, 1993 viii
between the Company and Fred Zeidman
10.16 Investment Agreement dated as of June 24, 1993 viii
between the Company and Fred Zeidman
10.17 Definitive Agreement for Compounding Services Filed
between Chemtrusion, Inc. and Mytex Polymers Herewith
22.1 Subsidiaries Filed
Herewith
23.1 Consent of BDO Seidman, LLP to incorporation by Filed
reference of their opinion into filed Herewith
registration statements
</TABLE>
<PAGE> 31
_______________
i: Filed as an exhibit to the Company's Registration Statement (No.
33-10108) on Form S-1 and incorporated herein by reference
ii: Filed as an exhibit to Company's Form 10-K for the year ended
December 31, 1988 and incorporated herein by reference.
iii: Filed as an exhibit to Company's Form 10-K for the year ended
December 31, 1989 and incorporated herein by reference.
iv: Filed as an exhibit to Company's Form 10-K for the year ended
December 31, 1991 and incorporated herein by reference.
v: Filed as an exhibit to the Company's Proxy Statement and Notice of
Special Meeting dated February 16, 1993 and incorporated herein by
reference.
vi: Filed as an exhibit to Company's Form 10-K for the year ended
December 31, 1992 and incorporated herein by reference.
vii: Filed as an exhibit to the Company's Registration Statement (No.
33-71582) on Form S-1 and incorporated herein by reference.
viii: Filed as an exhibit to Company's Form 10-K for the year ended
December 31, 1993 and incorporated herein by reference.
ix: Filed as an exhibit to the Company's Registration Statement (No.
333-00003) on Form S-3 and incorporated herein by reference.
x: Filed as an exhibit to Company's Form 10-KSB for the year ended
December 31, 1994 and incorporated herein by reference.
(b) Reports on Form 8-K:
The Company filed a Report of Form 8-K dated December 11, 1995 which
reported, in Item 5, recent developments of the Company and its
subsidiaries.
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly
authorized on this th day of March, 1996.
INTERSYSTEMS, INC.
By:/s/_Fred_S._Zeidman_____
Fred S. Zeidman
President,
Chief Executive Officer
By:/s/_Daniel_T._Murphy____
Daniel T. Murphy
Executive Vice President
Chief Financial Officer
By:/s/_Wm._Chris_Mathers___
Wm. Chris Mathers
Chief Accounting Officer and
Controller
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report is signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
/s/_Herbert_M._Pearlman Chairman of the Board March , 1996
Herbert M. Pearlman
/s/_Fred_S._Zeidman__ Director, President and March , 1996
Fred S. Zeidman Chief Executive Officer
/s/_Daniel_T._Murphy_ Executive Vice President March , 1996
Daniel T. Murphy Chief Financial
Officer
/s/_David_S._Lawi____ Director, Secretary March , 1996
David S. Lawi
/s/_Walter_M._Craig,_Jr. Director March , 1996
Walter M. Craig, Jr.
/s/_John_E._Stieglitz Director March , 1996
John Stieglitz
/s/_William_Lurie Director March , 1996
William Lurie
_______________________ Director March , 1996
Leonard Friedman
<PAGE> 33
INDEX TO FINANCIAL STATEMENTS
<TABLE>
PAGE
----
<S> <C>
InterSystems, Inc. Consolidated Financial Statements:
Report of Independent Certified Public Accountants .......... F-2
Consolidated Balance Sheet as of December 31, 1995 .......... F-3
Consolidated Statements of Loss for the Years Ended
December 31, 1995 and 1994 ............................... F-4
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1995 and 1994 ................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995 and 1994 ............................... F-6
Notes to Consolidated Financial Statements ..................F-7 - F-24
</TABLE>
<PAGE> 34
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Shareholders of
InterSystems, Inc.
We have audited the accompanying consolidated balance sheet of
InterSystems, Inc. as of December 31, 1995, and the related
consolidated statements of loss, shareholders' equity, and cash
flows for the each of the two years in the period ended December
31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of InterSystems, Inc. at December 31, 1995,
and the results of its operations and its cash flows for the each
of the two years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
BDO Seidman, LLP
Houston, Texas
February 27, 1996
F-2
<PAGE> 35
INTERSYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1995
(In thousands, except par value)
<TABLE>
Assets 1995
<S> <C>
Current Assets:
Cash ........................................................... $ 6
Trade receivables, less allowances of $20 (Notes 4, 5 and 8(b))... 2,568
Due from affiliate (Note 8(a)) .................................. 90
Inventories (Notes 2, 4 and 5) .................................. 2,140
Notes receivable - Sale of Trading Business (Notes 8(d) and 12)... 265
Note receivable (Note 16(a)) ..................................... 50
Prepaid expenses and other ...................................... 201
-------
Total Current Assets ......................................... 5,320
Property, Equipment and Leasehold Improvements, Net
(Notes 3, 4 and 5) ............................................. 5,388
Notes Receivable - Sale of Trading Business,
Less Current Portion (Notes 8(d) and 12) ....................... 254
Other Assets ...................................................... 365
-------
$11,327
=======
Liabilities and Shareholders' Equity
Current Liabilities:
Demand notes payable (Note 4) ................................... $ 2,045
Notes payable, affiliated companies (Note 8(d)) .............. 538
Current portion of long-term debt (Note 5) ....................... 591
Accounts payable ................................................. 1,819
Accrued expenses (Note 8(d)) ..................................... 765
Due to affiliate (Note 8(c)) ..................................... 189
-------
Total Current Liabilities ..................................... 5,947
Long-term Debt, Less Current Maturities (Note 5) .................. 1,873
Subordinated Debentures (Note 7) ................................. 2,802
-------
Total Liabilities ............................................ 10,622
-------
Commitments and Contingencies (Notes 8(b), 10, 16 and 17)
Shareholders' Equity (Note 9):
Preferred stock, $.01 par value, 5,000 shares authorized;
-0- shares issued and outstanding ............................. -
Common stock, $.01 par value, 20,000 shares authorized;
4,479 shares issued and outstanding .......................... 45
Additional paid-in capital ..................................... 3,045
Deficit ........................................................ (2,285)
Note receivable for sale of stock .............................. (100)
------
Total Shareholders' Equity .................................... 705
------
$11,327
=======
</TABLE>
see accompanying notes to consolidated financial statements
F-3
<PAGE> 36
INTERSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF LOSS
For the Years ended December 31, 1995 and 1994
(In thousands, except per share data)
<TABLE>
1995 1994
---- ----
<S> <C> <C>
Net sales (Note 14) ................................. $16,555 $15,063
Cost of sales ...................................... 11,573 10,298
------- -------
Gross profit ..................................... 4,982 4,765
Selling, general and administrative expenses ........ 4,827 4,381
Management fees to affiliate (Note 8(c)) ....... 36 36
Interest income .................................... (67) (78)
Interest expense (Note 8(d)) ....................... 836 663
Loss on disposal of equipment ....................... 45 -
Non-recurring charge (Note 11) ..................... - 495
------ -------
Net loss ...................................... $ (695) $ (732)
Net loss per share ............................. $ (.16) $ (.19)
Average number of common shares outstanding ....... 4,316 3,899
======= =======
</TABLE>
see accompanying notes to consolidated financial statements
F-4
<PAGE> 37
INTERSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For The Years Ended December 31, 1995 and 1994
(In thousands, except share data)
<TABLE>
Note
Additional Receivable Total
Common Stock Paid-In For Sale Shareholders
Shares Amount Capital Deficit of Stock Equity
------ ------- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 3,596,088 $ 36 $ 1,748 $(858) $ (100) $ 826
Conversion of 10% subordinated
debentures (Note 7(a)) 148,148 1 190 - - 191
Conversion of 8% subordinated
debentures (Note 7(b)) 274,865 3 404 - - 407
Redemption value of 275 shares
of common stock (Note 9(d)) - - 275 - - 275
Net loss - - - (732) - (732)
--------- ------ ----- ------ ---- ----
Balance at December 31, 1994 4,019,101 40 2,617 (1,590) (100) 967
Conversion of 10% subordinated
debentures (Note 7(a)) 18,939 - 23 - - 23
Conversion of 8% subordinated
debentures (Note 7(b)) 154,178 2 225 - - 227
Shares issued with exercise
of warrants (Note 9(d)) 275,000 3 162 - - 165
Shares sold to employees 12,000 - 18 - - 18
Net loss - - - (695) - (695)
--------- ------ ------ ------ ---- ----
Balance at December 31, 1995 $4,479,218 $ 45 $ 3,045 $(2,285) $ (100) $ 705
========== ======= ======== ======= ====== =====
</TABLE>
see accompanying notes to consolidated financial statements
F-5
<PAGE> 38
INTERSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1995 and 1994
(In thousands)
(Note 13)
<TABLE>
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................... $(695) $ (732)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ................ 778 757
Loss on disposal of equipment ................ 45 -
Loss on sale of property and equipment........ - 9
Provision for losses on accounts receivable 27 3
Changes in assets and liabilities:
Decrease (increase) in:
Trade receivables ....................... (464) (544)
Inventories ............................. (579) (126)
Due from affiliate ...................... (90) -
Increase (decrease) in:
Accounts payable and accrued expenses .... 789 40
Due to affiliate ....................... - 17
Other changes - net ....................... (207) (90)
------ -----
Total adjustments ................... 299 66
------ -----
Net cash used in operating activities. (396) (666)
------ -----
Cash flows from investing activities:
Proceeds from sale of fixed assets ............... - 7
Purchases of fixed assets ........................ (531) (462)
Payments on notes receivable - sale of Trading Business 265 265
Advances on note receivable ..................... (50) -
----- ------
Net cash used in investing activities (316) (190)
----- ------
Cash flows from financing activities:
Net proceeds on lines of credit and
other short-term borrowings .................... 413 833
Net proceeds on line of credit, affiliated company 338 100
Proceeds from notes payable, affiliated company 100 -
Payments under various long-term debt obligations (699) (511)
Proceeds from long-term debt obligations ........ 351 497
Net repayments to Helm and affiliates ............ - (190)
Proceeds from sale of common stock .............. 183 -
----- -----
Net cash provided by financing activities 686 729
----- -----
Net decrease in cash ............................ (26) (127)
Cash, beginning of year ........................... 32 159
----- -----
Cash, end of year ............................... $ 6 $ 32
===== =====
</TABLE>
see accompanying notes to consolidated financial statements
F-6
<PAGE> 39
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Business and Basis of Presentation
The consolidated financial statements include the accounts of
InterSystems, Inc., a Delaware corporation and Subsidiaries (the "Company"),
all of which are wholly-owned. All significant intercompany balances
and transactions have been eliminated in consolidation.
The Company, through its wholly-owned subsidiary, Chemtrusion, Inc.
("Chemtrusion"), a Texas corporation, specializes in the
custom-compounding of thermoplastic resins for the petrochemical industry in
Houston, Texas. Compounding entails combining a resin with various additives
to enhance and customize the thermoplastic resins for a particular end use.
The Company, through its wholly-owned subsidiary, InterSystems, Inc. a
Nebraska corporation ("InterSystems Nebraska"), located in Omaha, Nebraska
is engaged in the design, manufacture, sale and leasing of equipment for
sampling, conveying, elevating, weighing and cleaning a wide variety of
products for agriculture and other industries.
On October 6, 1995, InterSystems Nebraska formed a wholly-owned subsidiary,
Tropical Systems, Inc. (Tropical). InterSystems Nebraska, through
Tropical, markets rolling doors and hurricane shutters, primarily to the
construction, distribution and retail industries in South Florida, Latin
America and the Caribbean (see Note 16).
On August 31, 1993, the Company acquired all the outstanding capital
stock of InterSystems Nebraska from Helm Resources, Inc. ("Helm"), an
affiliated company. The acquisition was accounted for in a manner similar
to a pooling-of-interest.
Financial Instruments and Credit Risk Concentration
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
Concentrations of credit risk with respect to such receivables are limited
due to generally short payment terms and their dispersion across geographic
areas, see Note 14 for major customer.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
on a first-in, first-out basis.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost. The
Company provides for depreciation and amortization on certain equipment by
utilizing the units of production method based upon the number of
hours the compounding equipment operates. Depreciation and amortization
on other equipment and leasehold improvements is provided using the
straight-line method over the estimated useful lives of the assets or
the lease period, whichever is less. For income tax purposes, depreciation
on certain assets is calculated using accelerated methods.
F-7
<PAGE> 40
Income Taxes
Deferred income taxes result from the temporary differences between
the financial statement and tax basis of assets and liabilities (see
Note 6). The Company adjusts the deferred tax asset valuation allowance
based on judgments as to future realization of the deferred tax
benefits supported by demonstrated trends in the Company's operating
results.
Revenue Recognition
Sales are recorded in the periods that products are shipped or as services
are performed.
Loss Per Share
Loss per share is computed on the basis of the weighted average number of
outstanding shares of common stock during the year. Stock options and
warrants were anti-dilutive and, therefore not included in calculating net
loss per share.
Lease Accounting
The Company, through InterSystems Nebraska, leases grain sampling
systems to certain of its customers. The leases generally provide
for revenues based on samples taken on a monthly basis with a minimum
number on an annual basis. Revenue is recorded monthly based on the
number of samples and any difference between the number billed and
the minimum annual amount is recorded on the annual anniversary date of the
lease.
Equipment leased to others is recorded at cost and is being depreciated
on a straight-line basis over eight years.
Management's Estimates and Assumptions
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 reported periods. The Company reviews all significant estimates
affecting the financial statements on a recurring basis and records the
effect of any necessary adjustments prior to their issuance.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS No.
121). SFAS No. 121 requires, among other things, that impairment losses on
assets to be held, and gains or losses from assets that are expected to be
disposed of, be included as a component of income from continuing operations.
The Company will adopt SFAS No. 121 in 1996 and its
implementation is not expected to have a material effect on the
consolidated financial statements.
F-8
<PAGE> 41
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation." (SFAS No. 123). SFAS No. 123 encourages
entities to adopt the fair value method in place of the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB No. 25), for all arrangements under which employees
receive shares of stock or other equity instruments of the employer or the
employer incurs liabilities to employees in amounts based on the price of
its stock. The Company does not anticipate adopting the fair value
method encouraged by SFAS No. 123 and will continue to account for
such transactions in accordance with APB No. 25. However, the Company
will be required to provide additional disclosures beginning in 1996
providing pro forma effects as if the Company had elected to adopt SFAS No.
123.
NOTE 2 - INVENTORIES
Inventories consisted of the following at December 31, 1995 (in
thousands):
<TABLE>
Amount
------
<S> <C>
Raw materials and component parts .................... $ 1,481
Finished goods ..................................... 659
-------
$ 2,140
=======
</TABLE>
NOTE 3 - PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consisted of the
following at December 31, 1995 (in thousands):
<TABLE>
Amount
------
<S> <C>
Land ................................................ $ 134
Building ............................................. 820
Machinery and equipment ............................. 4,171
Other equipment .................................... 1,408
Equipment leased to others .......................... 970
Leasehold improvements ............................. 459
Equipment under capital leases ...................... 2,193
Furniture and fixtures ............................... 41
-------
10,196
Less: Accumulated depreciation and amortization,
of which $764,000 relates to leased equipment (4,808)
------
$5,388
======
</TABLE>
F-9
<PAGE> 42
The Company leases grain sampling equipment to certain of its
customers under operating leases with initial terms of three years. The
leases contain provisions for minimum annual rentals plus contingent usage
rentals. Contingent lease revenues were $238,000 and $180,000 in 1995
and 1994, respectively. At December 31, 1995, the approximate aggregate
minimum rentals to be received in future years are $231,000 in 1996;
$262,000 in 1997; and $123,000 in 1998.
NOTE 4 - DEMAND NOTES PAYABLE
At December 31, 1995, InterSystems Nebraska had a revolving credit
agreement with a bank. The financing agreement provides for borrowings of
up to $1,500,000 based upon a borrowing base (as defined) and expires June
26, 1996. At December 31, 1995, borrowings of $1,500,000 were outstanding
under this agreement and bear interest at the bank's base rate plus .5%
(10% at December 31, 1995). InterSystems Nebraska has pledged its
accounts receivable, inventory, equipment and fixtures and intangibles
as collateral for the debt. The net book value of the collateral totalled
approximately $4,803,000 at December 31, 1995. In addition,
InterSystems, Inc., a Delaware corporation, has pledged all outstanding
shares of InterSystems Nebraska's common stock as collateral. The
agreement (i) requires InterSystems Nebraska, among other things, to
maintain a certain minimum net worth, working capital and debt to equity
ratio (as defined), (ii) restricts the payment of dividends and (iii)
limits the amount expended for capital additions, officers' salaries,
management fees and loans to affiliates.
In December 1995, InterSystems Nebraska entered into an additional
borrowing agreement with the bank for $250,000. The note bears interest at
the bank's prime plus .5% and is due on April 30, 1996. The agreement
has the same loan covenants and collateral as defined above. In addition,
a limited partnership owned by Helm and certain officers of Helm,
guaranteed the additional borrowings.
At December 31, 1995, Chemtrusion had a revolving line of credit
agreement with a bank. The agreement provides for a maximum borrowing
of $300,000 and expires September 5, 1996. The agreement bears interest at
the bank's base rate plus 2% (10.5% at December 31, 1995) and is
collateralized by Chemtrusion's accounts receivable and inventory. At
December 31, 1995, Chemtrusion had borrowings outstanding totalling
$295,000 under this agreement and the net book value of collateral
totalled approximately $691,000. The agreement requires Chemtrusion,
among other things, to maintain a certain minimum net worth and debt to
equity ratio, as defined. Subsequent to year ended, Chemtrusion reduced
its outstanding borrowings under this agreement by $97,500.
F-10
<PAGE> 43
NOTE 5 - LONG-TERM DEBT
Long-term debt consisted of the following at December 31,
1995 (in thousands):
<TABLE>
Amount
------
<S> <C>
Subordinated 9.0% term note (interest subject to
adjustment in 1996) payable $6,108 monthly,
including interest, through September 1,
1999, secured by land .................................. $ 451
8.75% term note payable $16,500 quarterly,
plus interest monthly through May 1999,
secured by accounts receivable, inventory,
equipment and intangibles ............................. 231
10.25% term note, payable $3,800 monthly,
including interest, through March 2000,
secured by equipment ................................. 155
10.5% term note, payable $5,774 monthly,
including interest, through January
1998, secured by equipment ........................... 150
Industrial Revenue Bond obligation ...................... 41
Obligations under capital lease ........................ 1,285
Other obligations ...................................... 151
--------
Total ............................................... 2,464
Less: Current maturities ............................ (591)
Total long- term debt ............................. $ 1,873
========
</TABLE>
The Industrial Revenue Bond matures on December 15, 1996, and bears
interest at 75% of the prime rate, with the interest rate assessed not less
than 11% or greater than 15%. The interest rate was 11% for all years
presented. The Bonds are collateralized by a mortgage on all of InterSystems
Nebraska's real property and a security interest in all equipment and other
personal property acquired with proceeds from the Bond. The net
book value of the collateral totalled approximately $548,000 at December 31,
1995. The Bond is guaranteed by Helm.
Under the terms of its loan agreements and the Bond indenture,
InterSystems Nebraska is subject to certain covenant requirements that, among
other things, require maintenance of minimum net worth, working capital,
current ratio, and also limits the amount of indebtedness, dividends and
management fees. InterSystems Nebraska was in violation of certain covenants,
F-11
<PAGE> 44
which have been waived through the maturity date of the line of credit and
the additional short-term borrowing agreement (see Note 4) and January 1997
for the other loan agreements and bond indenture.
On December 11, 1995, InterSystems Nebraska entered into a 9.25% term
loan agreement with a bank which provides a $500,000 loan commitment for the
purchase of equipment. The agreement has substantially the same loan
covenants and collateral as the revolving credit agreement described in
Note 4, in addition to requiring the maintenance of a minimum debt service
ratio, as defined. As of December 31, 1995, InterSystems Nebraska had no
borrowings outstanding under this agreement.
Chemtrusion leased certain machinery and equipment under capital leases
expiring through 1999. At December 31, 1995, future minimum lease payments
under capital leases, together with the present value of the net minimum
lease payments, are as follows (in thousands):
<TABLE>
Amount
------
<S> <C>
1996 ............................................. $466
1997 ............................................. 466
1998 ............................................. 441
1999 ............................................. 224
------
Total minimum lease payments .................... 1,597
Less: Amount representing interest
calculated at the incremental borrowing rate ... 312
------
Present value of net minimum lease payments ..... 1,285
Less: Current portion ........................... 316
------
Long-term portion of capital leases ............. $969
======
</TABLE>
The net book value of machinery and equipment under capital lease at
December 31, 1995 was $1,876,000.
Future maturities oflong-term debt at December 31, 1995, including
capital leases summarized above are: 1996 - $591,000; 1997 - $591,000;
1998 - $581,000; 1999 - $691,000; 2000 - $10,000.
NOTE 6 - INCOME TAXES
Deferred taxes are determined based on temporary differences between the
financial statement and income tax basis of assets and liabilities as
measured by the enacted tax rates which will be in effect when these
differences reverse.
Net deferred income tax asset (liability) consisted of the following at
December 31, 1995 (in thousands):
F-12
<PAGE> 45
<TABLE>
Amount
-------
<S> <C>
Net operating loss carryforwards ............................ $1,479
Tax basis in excess of assets acquired
(InterSystems Nebraska) ................................. 702
Expenses accrued for financial reporting
purposes not deducted for tax purposes, net ............. 46
Tax credit carryforwards .................................... 98
-------
Deferred tax asset .......................................... 2,325
Valuation allowance ......................................... (1,276)
-------
Net deferred tax asset ...................................... 1,049
Deferred tax liability - depreciation ....................... (1,049)
Net deferred income tax asset (liability) ................... $ -
=======
</TABLE>
For the years ended December 31, 1995 and 1994, the income tax benefit
differs from the amount of income tax benefit determined by applying the
statutory income tax rate to pre-tax loss as follows:
<TABLE>
1995 1994
------ ------
(In thousands)
<S> <C> <C>
Statutory rate ........................... $(236) $(248)
------ ------
Increase in valuation allowance .......... 151 147
Other - net .............................. 85 101
------ ------
$ - $ -
====== ======
</TABLE>
As of December 31, 1995, the Company had for income tax purposes, net
operating loss carryforwards of approximately $3,696,000, which expire in
years through 2010. The Company also has general business credit
carryforwards of approximately $98,000. The general business credits can be
carried forward indefinitely, however, these credits are subject to certain
future limitations in usage.
F-13
<PAGE> 46
NOTE 7 - SUBORDINATED DEBENTURES
Subordinated debentures consist of the following at December
31, 1995 (in thousands):
<TABLE>
Amount
------
<S> <C>
10% debentures, net of discount of $47,000 (a) ............ $1,335
8% debentures (b) ......................................... 1,467
------
$2,802
======
</TABLE>
Included in the total above are debentures payable to affiliates of
$1,285,000 as of December 31, 1995.
(a) During May 1991, the Company issued a private-placement consisting
of approximately $1,837,500 of 10% convertible subordinated debentures
maturing June 30, 2001 (the "10% Debentures") and 367,500 stock-purchase
warrants ("placement warrants"). These warrants were subsequently exchanged on
a one for one basis for dividend warrants (see Note 9(c)). The 10% Debentures
aggregating $750,000 are currently convertible into the Company's common
stock at a per share price of $1.32, reduced from the original conversion
rate of $2.50, due to dilutive provisions and other reductions in the
conversion price in prior years. The remaining amount of 10% Debentures are
currently convertible at a per share price of $1.96 ($1.83 after the private
placement, see Note 17(a)), reduced from the original conversion rate of
$2.50, due to dilutive provisions. The debt is subordinate to the senior debt
of the Company, as defined. During 1995, debentures totalling $25,000 were
converted at $1.32. During 1994, debentures totalling $200,000 were
converted, of which $125,000 were converted at $1.35 instead of $2.02, based
on negotiations between the debenture holders and the Company. Accordingly,
the Company recognized a conversion expense of approximately $46,000 in 1994.
The 10% Debentures also contain anti-dilution provisions entitling the
holders to receive the number of dividend warrants they would have been
entitled to receive had they converted all of the 10% Debentures held on the
record date of the warrant dividend (see Note 9(c)); however, dividend
warrants are only payable on the 10% Debentures if they are converted into
common stock.
(b) In connection with the acquisition of InterSystems Nebraska, the
Company issued $2,100,000 aggregate principal amount of 8% convertible
subordinated debentures maturing August 31, 2003 (the "8% Debentures"), which
were then exchanged by Helm to retire Helm's outstanding debentures. The 8%
Debentures are currently convertible into the Company's common stock at a
price per share of $1.46 ($1.43 after the private placement, see Note 17(a))
reduced from the original conversion rate of $1.48, due to dilutive
provisions, subject to adjustments in certain circumstances and are
subordinate to the senior debt of the Company, as defined. The 8% Debentures
are callable by the Company in the event that the market price of the common
stock exceeds $1.92 for any period of 20 consecutive days. Debentures
totalling $227,000 and $407,000 were converted in 1995 and 1994,
respectively, at a conversion rate ranging from $1.46 to $1.48.
F-14
<PAGE> 47
Subsequent to December 31, 1995, debentures totalling $305,000
were converted into 210,763 shares of the Company's common stock.
NOTE 8 - RELATED PARTY TRANSACTIONS
(a) As of December 31, 1995 and 1994, Helm owned approximately 35%
(25% after the private placement, see Note 17(a)) and 41%, respectively, of
the Company's outstanding common stock. Helm provides the Company with
various managerial and administrative functions and services for which the
Company is charged direct costs and expenses. Certain indirect administrative
and managerial costs are allocated to the Company based on certain formulas
which management deems to be reasonable. The allocations charged to the
Company totalled $66,000 and $44,000 in 1995 and 1994, respectively. At
December 31, 1995, the Company had net advances due from Helm totalling
$90,000. The net advances are for general corporate matters, less unpaid
allocated expenses totalling $48,000.
(b) During 1995, Tropical entered into an agreement with an affiliated
company (the Purchaser), which is 14% owned by Helm, to sell certain accounts
receivable without recourse. The agreement allows Tropical to sell accounts
receivable on an account by account basis and receive 80% of the account
receivable balance, less 3.5% for a purchase discount fee. Tropical is
required to maintain a reserve with the Purchaser of not less than 20% of
unpaid accounts receivable sold under the agreement. The agreement limits the
amount of receivables that can be purchased to the unpaid accounts receivable
balance less the reserve, up to a maximum of $250,000, as defined. Tropical
is required to pay the Purchaser a minimum fee of $2,000 a month during the
term of the agreement. At December 31, 1995, Tropical had unpaid accounts
receivable held by the Purchaser totalling $194,000 under this agreement and
a reserve totalling $43,000. For the year ended December 31, 1995, Tropical
incurred fees totalling $9000 under this agreement. The agreement is
collateralized by substantially all assets of Tropical and expires May 31,
1996, with annual renewals, unless either party terminates the agreement.
At December 31, 1995, Tropical has guaranteed Tropical Groups (see
Note 16(a)) required reserve balance under a similar agreement with the
affiliated company. At December 31, 1995, Tropical Group's reserve totalled
$48,000.
(c) Interpak Holdings, Inc. ("Interpak"), a subsidiary of Helm (and a
former subsidiary of the Company), provides management services to
Chemtrusion. The allocated expenses, for such management services, based on
certain formulas which management deems to be reasonable, amounted to $36,000
for both 1995 and 1994. In addition, during 1995 and 1994, Interpak paid
certain operating expenses on behalf of the Company. At December 31, 1995,
the Company had a balance due to Interpak totalling $189,000.
(d) At December 31, 1995, the Company had borrowings totalling
$438,000 outstanding under a line of credit with an affiliated company. The
line of credit provides a maximum borrowing of $450,000, bears interest at
25%, expires December 15, 1996, and is collateralized by the note receivable
from the sale of the Trading Business. During 1995 and 1994, the Company
incurred interest expense of $73,000 and $8,000, respectively, of which
$31,000 remained unpaid at December 31, 1995. The principal portion of these
borrowings were repaid in February 1996 (see Note 17(a)).
F-15
<PAGE> 48
At December 31, 1995, the Company had unsecured notes payable
totalling $100,000 to a company in which an officer of the Company is a
stockholder. The notes bear interest at 15%, payable monthly and were repaid
in February 1996 (see Note 17(a)). During 1995, interest expense incurred by
the Company was minimal.
(e) In 1993, the Company sold 200,000 shares of common stock at $1.00
per share to its new President in connection with his employment; $100,000
was paid in cash and the Company received a three year note in the principal
amount of $100,000 with interest at the lesser of 12% per annum or the prime
rate. For the years ended December 31, 1995 and 1994, the Company earned
interest on the note receivable totalling $10,000 and $7,000, respectively.
At December 31, 1995, unpaid interest totalled $20,000 under this note
agreement.
NOTE 9 - COMMON STOCK, STOCK OPTIONS AND WARRANTS
(a) The Company has a stock option plan, whereby options to purchase
up to 325,000 shares of the Company's common stock may be granted at the
market value of the common stock on the date of the grant. The options may be
incentive stock options, as defined by the Internal Revenue Code, or
non-qualified stock options. Options are generally exercisable for a term of
ten years. The options vest at a rate of 25% per year. A summary of activity
for the years ended December 31, 1995 and 1994, relating to the stock option
plan is as follows:
<TABLE>
1995 1994
-------- --------
<S> <C> <C>
Options outstanding beginning of year ...... 171,228 242,735
Options granted ............................ - -
Options cancelled - $5.60 .................. - (11,719)
4.00 .................. - (7,788)
8.20 .................. - (2,000)
1.25 .................. - (50,000)
------- --------
Options outstanding end of year ............. 171,228 171,228
</TABLE>
Options outstanding and exercisable at December 31, 1995 are as follows:
<TABLE>
Expiration Shares subject Option
date to option price
---------- -------------- -------
<C> <C> <C>
10/14/96 66,797 $5.60
10/26/97 53,931 4.00
08/14/98 500 8.20
08/31/03 50,000 1.25
-------
171,228
=======
</TABLE>
F-16
<PAGE> 49
As a result of certain anti-dilution provisions provided for
within the options, the exercisable price of the options issued prior to
December 1990 may be subject to reduction.
(b) In June 1993, the Company granted to its new President, options to
purchase 200,000 shares of common stock at an exercise price of $2 and an
additional 200,000 shares at an exercise price of $3. These options vested
50% on the first anniversary and 25% in each of the next two anniversaries
and may be exercised at any time through June 1998. No options have been
exercised as of December 31, 1995.
(c) In October 1991, the Company issued a warrant dividend of .25
warrants for each common share outstanding. Approximately 766,000 stock
purchase warrants were issued with an exercise price of $3.50 per share and
they expire on December 31, 1999. In addition, if at any time after
September 23, 1993, the market price of the common stock equals or exceeds
$5.00 for 30 consecutive business days, then the Company has the right to
shorten the expiration date upon 60 days public notice to warrant holders.
Pursuant to certain anti-dilution provisions, holders of the placement
warrants (see Note 7) became entitled to receive the number of dividend
warrants they would have been entitled to receive had they exercised the
warrants owned by them on the dividend record date. Therefore, holders of the
placement warrants received an aggregate of 91,875 warrants as a result of
the dividend. The dividend was payable with respect to the placement
warrants on or about the record date, and payment did not require prior
exercise of the placement warrants issued with the Debentures. Upon
conversion of the Debentures, pursuant to anti-dilution provisions, the
holders thereof are entitled to receive an aggregate of 140,750 dividend
warrants (see Note 7).
(d) Certain of the bank debt of the Trading Business (see Note 12)
was assumed by the purchaser, and the purchaser replaced and refinanced the
bank debt of the Trading Business that it did not assume. Concurrent with the
sale of the Trading Business, the Company issued to this domestic bank, whose
credit facility was refinanced, 275,000 shares of common stock and warrants
to purchase an additional 275,000 shares of common stock, which were
exercisable at $1 per share (subject to adjustment in certain circumstances)
on or prior to April 30, 1996. The bank had the right to put the shares of
common stock back to the Company on April 28, 1996 for $1 per share, or
aggregate cash consideration of $275,000. In June 1994, a group of investors
including directors, officers and employees of the Company, purchased the
275,000 shares of common stock and warrants from the bank. The put option was
canceled and the redemption value of common stock was credited to additional
paid-in capital at December 31, 1994. The Company's obligations to make
payments pursuant to the above-described agreements were guaranteed by Helm.
During 1995, the warrant holders exercised the 275,000 warrants as
defined above at a reduced exercise price of $.60 per share. Of the 275,000
warrants exercised, 146,300 were held by directors, officers and employees of
the Company. Compensation expense associated with the 146,300 warrants for
the difference between the reduced exercise price plus the warrant cost and
the market price of the Company's common stock was minimal. Simultaneously,
the Company issued the holders additional warrants to purchase 275,000 shares
of common stock, at an exercise price of $1.50 per share.
(e) At December 31, 1995, shares reserved for future issuance are as
follows:
F-17
<PAGE> 50
<TABLE>
Shares
---------
<S> <C>
Conversion of Debentures ........................... 1,870,771
Shares reserved for stock option plan, including
171,228 options outstanding ..................... 325,000
Stock options outstanding .......................... 400,000
Warrants to purchase common stock .................. 1,724,375
---------
Total shares reserved for issuance .................. 4,320,146
=========
</TABLE>
NOTE 10 - COMMITMENTS AND CONTINGENCIES
(a) The Company is obligated under various long-term noncancelable
operating leases, including leases entered into subsequent to year end, for
office and warehouse facilities, certain vehicles and office equipment
expiring through 2001 at minimum annual rentals as follows (in thousands):
<TABLE>
Amount
------
<S> <C>
1996 ................ $ 536
1997 ................ 450
1998 ................ 387
1999 ................ 303
2000 ................ 258
Thereafter ............. 183
------
$2,117
======
</TABLE>
Rent and lease expense was $368,000 and $327,000 for the years ended
December 31, 1995 and 1994, respectively.
In connection with the sale of the Trading Business, the Company
remains liable under certain operating leases which were either sublet or
assigned to the purchaser. The leases expire in years through 1998 and, at
December 31, 1995, have aggregate future minimum rentals of approximately
$654,000.
(b) In connection with the purchase of InterSystems Nebraska, the
Company is obligated to pay Helm additional consideration in the form of
contingent consideration (based on earnings, as defined) and a royalty on the
sale of certain products.
F-18
<PAGE> 51
Since August 31, 1993, date of acquisition, through December 31,
1995, no additional consideration was paid for the purchase of InterSystems
Nebraska. Royalties to Helm totalled approximately $7,000 and $5,000 for 1995
and 1994, respectively.
(c) InterSystems Nebraska has a savings and profit-sharing plan which
allows participants to make contributions by salary reduction pursuant to
Section 401(k) of the Internal Revenue Code. InterSystems Nebraska matches
contributions at the rate of $.50 per dollar up to 2% of the employee's
salary. Contributions are fully vested to the employee when made.
Contributions to the plan were $52,000 and $41,000 for the years ended
December 31, 1995 and 1994, respectively.
(d) The Company is involved in various legal actions arising in the
normal course of business. Management is of the opinion that their outcome
will not have a material adverse effect on the Company's financial position
or results of operations.
NOTE 11 - NON-RECURRING CHARGE
During the third and fourth quarters of 1994, nonrecurring charges
totalling $300,000 and $195,000, respectively, were recorded for costs to
repair and replace equipment installed by InterSystems Nebraska for one of
its customers. The damage resulted from a harmonic vibration which developed
after installation of two en-masse conveyors. As of December 31, 1995, all
costs associated with this situation had been paid.
The customer has filed a claim with InterSystems Nebraska's insurance
carrier for reimbursement of business interruption costs incurred as a result
of the damage. Management believes it has incurred all of the costs to be
borne by InterSystems Nebraska related to this incident, and that the
business interruption claim by the customer will be covered by InterSystems
Nebraska's insurance carrier.
NOTE 12 - NOTES RECEIVABLE FROM SALE OF TRADING BUSINESS
On April 29, 1993, the Company sold the net assets and operations
related to the Company's Trading Business, formerly the Company's primary
business, to certain members of management. At December 31, 1995, the
Company had remaining notes receivable due from the sale totalling $519,000,
of which $265,000 is due April 1996, with interest at prime, and the
remaining is non-interest bearing and payable in six consecutive annual
installments commencing in 1997. The non-interest bearing note was recorded
at its discounted value based on an imputed interest rate of 9.7%, unearned
interest at December 31, 1995, totalled $109,000. The notes are secured by
a pledge of all the outstanding capital stock of the purchasing entity, but
are subordinated to that entity's senior debt, as defined.
The bank debt of the Trading Business was either assumed or refinanced
by the purchasing entity. However, concurrent with the sale of the Trading
Business, the Company issued to a domestic bank whose credit facility was
refinanced 275,000 shares of common stock and warrants to purchase an
additional 275,000 shares of common stock (see Note 9(d)).
F-19
<PAGE> 52
<TABLE>
NOTE 13 - STATEMENTS OF CASH FLOWS December 31, December 31,
1995 1994
------------ ------------
(In thousands)
<S> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid .............................. $ 776 $ 666
====== ======
Income taxes paid .......................... $ 6 $ 7
====== ======
Non-cash transactions relating to financing activities:
Conversion of Debentures into common stock.. $ 250 $ 598
====== ======
Equipment acquired in exchange for debt .... $ - $ 65
====== ======
Capital lease obligation ................... $ - $ 955
====== ======
Redemption value of common stock ........... $ - $ 275
====== ======
</TABLE>
NOTE 14 - MAJOR CUSTOMER AND FOREIGN SALES
The Company's custom compounding business segment had sales to one
customer totalling $3,022,000 and $2,861,000 for the years ended December 31,
1995 and 1994, respectively.
Export sales to foreign countries totalled $1,512,000 for the year
ended December 31, 1994, of which $855,000, $217,000, $188,000 and $252,000
were to China, Canada, Mexico and other foreign countries, respectively.
Export sales for 1995 were less than 10% of net sales.
F-20
<PAGE> 53
NOTE 15 - BUSINESS SEGMENTS
The Company has two reportable business segments, as noted below:
Plastic Resins Group: custom-compounding of thermoplastic resins.
Industrial Products Group: designs, manufactures and sells equipment
utilized by the agricultural industry in weighing or moving grain, soybeans
and other agricultural products and develops, manufactures, leases and sells
sampling equipment for use in handling agricultural products and in
manufacturing and other industries. The group also markets rolling doors and
hurricane shutters primarily to the construction, distribution and retail
industries.
<TABLE>
December 31,
1995 1994
-------- --------
(In thousands)
<S> <C> <C>
Revenues from unaffiliated customers:
Plastic resins ................................. $ 3,969 $ 3,792
Industrial products ............................ 12,586 11,271
-------- --------
Total revenues .......................... $ 16,555 $ 15,063
======== ========
Operating profit:
Plastic resins ................................. $ 442 $ 419
Industrial products ............................ 350 208
-------- --------
Total operating profit .................. 792 627
Expenses and other:
General and administrative expense - parent .... (718) (774)
Interest expense ............................... (836) (663)
Interest income ................................ 67 78
------- -------
Loss from continuing operations before income
taxes ....................................... $ (695) $ (732)
======== ========
</TABLE>
F-21
<PAGE> 54
<TABLE>
As of
December
31,
1995
--------
(In thousands)
<S> <C>
Identifiable assets:
Plastic resins ................................ $ 4,651
Industrial products ........................... 5,636
Corporate ..................................... 1,040
--------
$ 11,327
========
</TABLE>
<TABLE>
For the year December 31,
1995 1994
-------- --------
(In thousands)
<S> <C> <C>
Capital expenditures:
Plastic resins ................................ $ 289 $ 1,273
Industrial products ........................... 242 209
-------- --------
$ 531 $ 1,482
======== ========
Depreciation and amortization:
Plastic resins ................................ $ 562 $ 550
Industrial products ........................... 216 207
-------- --------
$ 778 $ 757
======== ========
</TABLE>
NOTE 16 - PENDING ACQUISITIONS
(a) In September 1995, InterSystems Nebraska, through its subsidiary,
Tropical, signed a letter of intent to acquire the assets of the Tropical
Manufacturing Group, Inc. ("Tropical Group") and has entered into an
operating agreement with Tropical Group, which is engaged in the business of
manufacturing and selling commercial rolling doors and hurricane resistant
doors and shutters in South Florida, Latin America and the Caribbean. In
accordance with the operating agreement, Tropical Group has assigned to
InterSystems Nebraska its right to sell, market and distribute its products
and is manufacturing its products solely for InterSystems Nebraska, in
exchange for the agreement of InterSystems Nebraska to pay Tropical Groups
cost plus 1% for each product manufactured. This is intended as an interim
arrangement which may be terminated at any time by InterSystems Nebraska, and
which will be terminated upon the purchase of all of Tropical Group's assets
and assumption of certain liabilities of Tropical Group in accordance with
the letter of intent. The consummation of the purchase is conditioned upon
F-22
<PAGE> 55
arranging the necessary financing to complete the purchase and obtaining
clear title to the assets of Tropical Group, which are currently subject to
various tax and other liens. At the present time, the cost of acquiring the
assets of Tropical Group is expected to be approximately $250,000, although
transactional expenses and the cost of clearing the title may increase this
estimate considerably.
At December 31, 1995, the Company had advanced Tropical Group $50,000
under an unsecured note agreement. The note bears interest at 25% and is due
December 15, 1996.
(b) The Company is proceeding with the negotiations for the
acquisition of Interpak Holdings, Inc. (Interpak) from Helm, which currently
owns approximately 35% (25% after the private placement, see Note 17(a)). In
November and December 1995, the Board of Directors of the Company elected two
independent directors and created an acquisition committee. The committee
will undertake an independent analysis of the proposed transaction
utilizing the assistance of experts as it deems necessary and appropriate in
its discretion, and will negotiate at arms length with Helm in order to
determine if the acquisition can be completed. The discussions between the
Company and Helm are in the preliminary stages and no agreement in principal
has been reached. If an agreement is reached, the acquisition would be
subject to a number of conditions, including the Company arranging financing
to complete the acquisition and stockholder approval. The Company may be
required to undertake a debt or equity financing to have sufficient available
funds to pay any cash down payment.
It is expected that the purchase price will be paid with a combination
of cash, the assumption by the Company of certain Helm debentures and the
issuance to Helm of shares of the Company's common stock.
NOTE 17 - SUBSEQUENT EVENTS
(a) Subsequent to December 31, 1995, the Company completed a private
placement; whereby the Company offered for sale units consisting of 40,000
shares of the Company's common stock, priced at the average of the closing
price of the common stock during the ten trading days preceding the Board of
Directors' approval of the placement, and 20,000 common stock purchase
warrants for a total price of $55,000, per unit. The warrants are exercisable
beginning July 15, 1996 through January 15, 2000 at an exercise price of
$1.80 per share, the warrants may be called by the Company at $.05 per
warrant if during the three year period following the effectiveness of a
Registration Statement covering the shares and shares underlying the
warrants, the closing price of the Company's common stock equals or exceeds
$2.50 per share for at least thirty consecutive trading days.
Holders of the units have the right at the end of the two year period
following the effectiveness of a Registration Statement covering the shares,
to cause the Company to redeem the common stock contained in the units, but
not the common stock underlying the warrants, for $1.80 per share as defined
by the agreement, unless during such period the closing price of the
Company's common stock is at least $1.80 per share for any thirty consecutive
days.
F-23
<PAGE> 56
The Company received net proceeds totalling approximately $2,102,000
from the private placement which will be used for working capital purposes,
repayment of debt and to provide capital for two potential acquisitions (see
Note 16).
(b) On January 26, 1996, Chemtrusion entered into an exclusive
long-term contract with a non-related joint venture to provide custom
compounding of thermoplastics and related services. The agreement requires
Chemtrusion to construct a thermoplastics compounding plant in
Jeffersonville, Indiana. The estimated cost of the plant is expected to be
approximately $12,700,000. The agreement states that the joint venture
partners will provide the interim financing for the construction of the
plant until Chemtrusion can obtain permanent financing, at which time the
joint venture partners will guarantee such debt. The plant is expected to be
completed and on line by August 31, 1996.
Chemtrusion will operate the plant exclusively for the joint venture
under an initial term of five years, with the joint venture having an option
to renew the agreement for two additional five year terms. In accordance with
the agreement, Chemtrusion will bill the joint venture on a bi-monthly basis
for the plant's operating costs, including capital recovery and interest,
along with a management fee.
On expiration of the initial term or any renewal term or in the event
of the termination of the agreement by default, as defined, the joint venture
will have an option to purchase the plant at a price and on terms and
conditions, as defined in the agreement. In the event that the joint venture
does not renew the agreement at the end of the initial term or the end of any
renewal term or either party terminates the agreement, as defined,
Chemtrusion has the right to require the joint venture to purchase the plant
at a price and on the terms and conditions, as defined in the agreement.
As of February 27, 1996, Chemtrusion has acquired the land and has
begun constructing the plant.
F-24
<PAGE> 57 EXHIBIT 4.5
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF
(COLLECTIVELY THE "SECURITIES") HAVE BEEN ACQUIRED FOR INVESTMENT ONLY
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO INTERSYSTEMS, INC. THAT AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
INTERSYSTEMS, INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
TO PURCHASE 100,000
SHARES OF COMMON STOCK
Certify. No. ISI-EMP-1
This Warrant Certificate certifies that Herbert M. Pearlman, residing
at Gatefield Drive, Greenwich, CT 06830 or his registered assigns is the
registered Holder (the "Holder") of 100,000 Common Stock Purchase
Warrants (the "Warrants") to purchase shares of the common stock, $.01
par value (the "Common Stock") of INTERSYSTEMS, INC., a Delaware
corporation (the "Company"). The Warrants are being issued to the Holder
in exchange for his agreement to waive compensation owing to him under
his employment agreement with the Company.
1. EXERCISE OF WARRANT.
(A) Each Warrant enables the Holder, subject to the provisions
of this Warrant Certificate to purchase from the Company at any time and
from time to time commencing, subject to the vesting described below, on
the date hereof (the "Initial Exercise Date") one (1) fully paid and
non-assessable share of Common Stock ("Shares") upon due presentation and
surrender of this Warrant Certificate accompanied by payment of the
purchase price of $1.125 per Share (the "Exercise Price"); provided,_
however, that the Initial Exercise Date for the first 33,333 Warrants
shall be the date hereof, the Initial Exercise Date for the next 33,333
Warrants shall be on the first anniversary of the date hereof and the
Initial Exercise Date for the final 33,334 Warrants shall be on the
second anniversary of the date hereof. The Warrants shall expire on the
earlier of July 11, 2000 (the "Expiration Date"). Payment shall be made
in lawful money of the United States of America by certified check
payable to the Company at its principal office at 8790 Wallisville Road,
Houston, Texas 77029. As hereinafter provided, the Exercise Price and
number of Shares purchasable upon the exercise of the Warrants may be
subject to modification or adjustment upon the happening of certain
events.
(B) This Warrant Certificate is exercisable at any time on or
after the Initial Exercise Date in whole or in part by the Holder in
person or by attorney duly authorized in writing at the principal office
of the Company.
1
<PAGE> 58
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF
(COLLECTIVELY THE "SECURITIES") HAVE BEEN ACQUIRED FOR INVESTMENT ONLY
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO INTERSYSTEMS, INC. THAT AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
INTERSYSTEMS, INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
TO PURCHASE 50,000
SHARES OF COMMON STOCK
Certify. No. ISI-EMP-2
This Warrant Certificate certifies that David S. Lawi, residing at 3
Ramapo Trail, Harrison, New York or his registered assigns is the
registered Holder (the "Holder") of 50,000 Common Stock Purchase Warrants
(the "Warrants") to purchase shares of the common stock, $.01 par value
(the "Common Stock") of INTERSYSTEMS, INC., a Delaware corporation (the
"Company"). The Warrants are being issued to the Holder in exchange for
his agreement to waive compensation owing to him under his employment
agreement with the Company.
1. EXERCISE OF WARRANT.
(A) Each Warrant enables the Holder, subject to the provisions
of this Warrant Certificate to purchase from the Company at any time and
from time to time commencing, subject to the vesting described below, on
the date hereof (the "Initial Exercise Date") one (1) fully paid and
non-assessable share of Common Stock ("Shares") upon due presentation and
surrender of this Warrant Certificate accompanied by payment of the
purchase price of $1.125 per Share (the "Exercise Price"); provided,_
however, that the Initial Exercise Date for the first 16,667 Warrants
shall be the date hereof, the Initial Exercise Date for the next 16,667
Warrants shall be on the first anniversary of the date hereof and the
Initial Exercise Date for the final 16,666 Warrants shall be on the
second anniversary of the date hereof. The Warrants shall expire on the
earlier of July 11, 2000 (the "Expiration Date"). Payment shall be made
in lawful money of the United States of America by certified check
payable to the Company at its principal office at 8790 Wallisville Road,
Houston, Texas 77029. As hereinafter provided, the Exercise Price and
number of Shares purchasable upon the exercise of the Warrants may be
subject to modification or adjustment upon the happening of certain
events.
(B) This Warrant Certificate is exercisable at any time on or
after the Initial Exercise Date in whole or in part by the Holder in
person or by attorney duly authorized in writing at the principal office
of the Company.
2
<PAGE> 59
2. EXCHANGE, FRACTIONAL SHARES, TRANSFER.
(A) Upon surrender to the Company, this Warrant Certificate may
be exchanged for another Warrant Certificate or Warrant Certificates
evidencing a like aggregate number of Warrants. If this Warrant
Certificate shall be exercised in part, the Holder shall be entitled to
receive upon surrender hereof another Warrant Certificate or Warrant
Certificates evidencing the number of Warrants not exercised;
(B) Anything herein to the contrary notwithstanding, in no
event shall the Company be obligated to issue Warrant Certificates
evidencing other than a whole number of Warrants or issue certificates
evidencing other than a whole number of Shares upon the exercise of this
Warrant Certificate; provided, however, that the Company shall pay with
respect to any such fraction of a Share an amount of cash based upon the
current public market value (or book value, if there shall be no public
market value) for Shares purchasable upon exercise hereof. Market price
for the purpose of this Section 2 shall mean the last reported sale price
on the American Stock Exchange or such primary exchange on which the
Common Stock is traded.
(C) The Company may deem and treat the person in whose name
this Warrant Certificate is registered as the absolute true and lawful
owner hereof for all purposes whatsoever; and
(D) This Warrant Certificate may not be transferred except in
compliance with the provisions of the Act or applicable state securities
laws and in accordance with the provisions of Paragraph 8 hereof.
3. RIGHTS OF A HOLDER. No Holder shall be deemed to be the Holder
of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon the Holder any of
the rights of a shareholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders at any
meeting thereof or to give or withhold consent to any corporate action
(whether upon any reorganization, issuance of stock, reclassification or
conversion of stock, change of par value, consolidation, merger,
conveyance, or otherwise) or to receive notice of meetings or to receive
dividends or subscription rights or otherwise until a Warrant shall have
been exercised and the Common Stock purchasable upon the exercise thereof
shall have become issuable.
4. REGISTRATION OF TRANSFER. The Company shall maintain books for
the transfer and registration of Warrants. Upon the transfer of any
Warrants in accordance with the provisions of Section 2(D) hereof, (a
"Permitted Transfer"), the Company shall issue and register the Warrants
in the names of the new Holders. The Warrants shall be signed manually
by the Chairman, Chief Executive Officer, President or any Vice President
and the Secretary or Assistant Secretary of the Company. The Company
shall transfer, from time to time, any outstanding Warrants upon the
books to be maintained by the Company for such purpose upon surrender
thereof for transfer properly endorsed or accompanied by appropriate
instructions for transfer. Upon any Permitted Transfer, a new Warrant
Certificate shall be issued to the transferee and the surrendered
3
<PAGE> 60
Warrants shall be cancelled by the Company. Warrants may be exchanged at
the option of the Holder, when surrendered at the office of the Company,
for another Warrant, or other Warrants of different denominations, of
like tenor and representing in the aggregate the right to purchase a like
number of Shares. Subject to the terms of this Warrant Certificate, upon
such surrender and payment of the purchase price at any time after the
Initial Exercise Date, the Company shall issue and deliver with all
reasonable dispatch to or upon the written order of the Holder of such
Warrants and in such name or names as such Holder may designate, a
certificate or certificates for the number of full Shares so purchased
upon the exercise of such Warrants. Such certificate or certificates
shall be deemed to have been issued and any person so designated to be
named therein shall be deemed to have become the Holder of record of such
Shares as of the date of the surrender of such Warrants and payment of
the purchase price; provided, however, that if, at the date of surrender
and payment, the transfer books of the Shares shall be closed, the
certificates for the Shares shall be issuable as of the date on which
such books shall be opened and until such date the Company shall be under
no duty to deliver any certificate for such Shares; provided, further,
however, that such transfer books, unless otherwise required by law or
by applicable rule of any national securities exchange, shall not be
closed at any one time for a period longer than 20 days. The rights of
purchase represented by the Warrants shall be exercisable, at the
election of the Holders, either as an entirety or from time to time for
only part of the Shares at any time on or after the Initial Exercise
Date.
5. STAMP TAX. The Company will pay any documentary stamp taxes
attributable to the initial issuance of the Shares issuable upon the
exerciseof the Warrants; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any
transfer involved in the issuance or delivery of any certificates for
Shares in a name other than that of the Holder in respect of which such
Shares are issued, and in such case the Company shall not be required to
issue or deliver any certificate for Shares or any Warrant until the
person requesting the same has paid to the Company the amount of such tax
or has established to the Company's satisfaction that such tax has been
paid.
6. LOST, STOLEN OR MUTILATED CERTIFICATES. In case this Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company
may, in its discretion, issue and deliver in exchange and substitution
for and upon cancellation of the mutilated Warrant Certificate, or in
lieu of and substitution for the lost, stolen or destroyed Warrant
Certificate, a new Warrant Certificate of like tenor representing an
equivalent right or interest, but only upon receipt of evidence
satisfactory to the Company of such loss, theft or destruction and an
indemnity, if requested, also satisfactory to it.
7. RESERVED SHARES. The Company warrants that there have been
reserved, and covenants that at all times in the future it shall keep
reserved, out of the authorized and unissued Common Stock, a number of
Shares sufficient to provide for the exercise of the rights of purchase
represented by this Warrant Certificate. The Company agrees that all
Shares issuable upon exercise of the Warrants shall be, at the time of
delivery of the certificates for such Shares, validly issued and
4
<PAGE> 61
outstanding, fully paid and non-assessable and that the issuance of
such Shares will not give rise to preemptive rights in favor of existing
stockholders.
8. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF l933.
(A) The Holder of this Warrant Certificate, each transferee
hereof and any Holder and transferee of any Shares, by his acceptance
thereof, agrees that (a) no public distribution of Warrants or Shares
will be made in violation of the Act, and (b) during such period as the
delivery of a prospectus with respect to Warrants or Shares may be
required by the Act, no public distribution of Warrants or Shares will be
made in a manner or on terms different from those set forth in, or
without delivery of, a prospectus then meeting the requirements of
Section l0 of the Act and in compliance with applicable state securities
laws. The Holder of this Warrant Certificate and each transferee hereof
further agrees that if any distribution of any of the Warrants or Shares
is proposed to be made by them otherwise than by delivery of a prospectus
meeting the requirements of Section l0 of the Act, such action shall be
taken only after submission to the Company of an opinion of counsel,
reasonably satisfactory in form and substance to the Company's counsel,
to the effect that the proposed distribution will not be in violation of
the Act or of applicable state law. Furthermore, it shall be a condition
to the transfer of the Warrants that any transferee thereof deliver to
the Company his written agreement to accept and be bound by all of the
terms and conditions contained in this Warrant Certificate.
(B) This Warrant or the Shares or any other security issued or
issuable upon exercise of this Warrant may not be sold or otherwise
disposed of except as follows:
(1) To a person who, in the opinion of
counsel for the Holder reasonably acceptable to the Company, is a person
to whom this Warrant or Shares may legally be transferred without
registration and without the delivery of a current prospectus under the
Act with respect thereto and then only against receipt of an agreement of
such person to comply with the provisions of this Section (1) with
respect to any resale or other disposition of such securities which
agreement shall be satisfactory in form and substance to the Company and
its counsel; provided that the foregoing shall not apply to any such
Warrant, Shares or other security as to which such Holder shall have
received an opinion letter from counsel to the Company as to the
exemption thereof from the registration under the Act pursuant to Rule
144(k) under the Act; or
(2) To any person upon delivery of a
prospectus then meeting the requirements of the Act relating to such
securities and the offering thereof for such sale or disposition.
(C) Each certificate for Shares issued upon exercise of this
Warrant shall bear a legend relating to the non-registered status of such
Shares under the Act, unless at the time of exercise of this Warrant such
Shares are subject to a currently effective registration statement under
the Act.
5
<PAGE> 62
9. ADJUSTMENTS.
(A) In the event of a reorganization, recapitalization,
reclassification, stock split or exchange, stock dividend, combination of
shares, merger or consolidation in which the Company is the continuing
corporation or any other similar change in Common Stock of the Company,
the Board of Directors may, in its sole discretion, make such equitable,
proportionate adjustment, if any, as it deems appropriate in the number
of Shares covered by this Warrant Certificate and in the exercise price
hereunder, in order to preserve the Holder's proportionate interest in
the Company and to maintain the aggregate exercise price.
(B) In the event that the Company shall, at any time prior to
the exercise of this Warrant, (a) declare or pay to holders of Common
Stock a dividend payable in any security of the Company other than Common
Stock or securities convertible into common stock; (b) transfer its
property as an entirety or substantially as an entirety to any other
company; (c) make any distribution of its assets to holders of its Common
Stock as a liquidation or partial liquidation dividend or by way of
return of capital; or (d) undergo a merger or consolidation in which the
Company is not the continuing corporation; then, upon the subsequent
exercise of this Warrant, the Holder shall receive, in addition to or in
substitution for the shares of Common Stock to which it would otherwise
be entitled upon such exercise, such additional securities of the
Company, or such shares of the securities or property of the Company
resulting from such transfer, or such assets of the Company, or such
shares of the securities or property of the continuing corporation in the
event of such merger or consolidation, which it would have been entitled
to receive had it exercised this Warrant prior to the happening of any of
the foregoing events.
10. MISCELLANEOUS.
(A) LAW TO GOVERN. This Warrant shall be governed by and
construed in accordance with the substantive laws of the State of Texas,
without giving effect to conflict of laws principles.
(B) ENTIRE AGREEMENT. This Warrant Certificate constitutes and
expresses the entire understanding between the parties hereto with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions
whether express or implied, oral or written. Neither this Warrant
Certificate nor any portion or provision hereof may be changed, waived or
amended orally or in any manner other than by an agreement in writing
signed by the Holder and the Company.
(C) NOTICES. Except as otherwise provided in this Warrant
Certificate, all notices, requests, demands and other communications
required or permitted under this Warrant Certificate or by law shall be
in writing and shall be deemed to have been duly given, made and received
only when delivered against receipt or when deposited in the United
States mails, certified or registered mail, return receipt requested,
postage prepaid, addressed as follows:
6
<PAGE> 63
Company: InterSystems, Inc.
8790 Wallisville Road
Houston, Texas 77029
Attn: President
Holder: At the address shown for the Holder in the
registration book maintained by the Company.
(D) SEVERABILITY. If any provision of this Warrant Certificate
is prohibited by or is unlawful or unenforceable under any applicable law
of any jurisdiction, such provision shall, as to such jurisdiction be in
effect to the extent of such prohibition without invalidating the
remaining provisions hereof; provided, however, that any such prohibition
in any jurisdiction shall not invalidate such provision in any other
jurisdiction; and provided, further that where the provisions of any such
applicable law may be waived, that they hereby are waived by the Company
and the Holder to the full extent permitted by law and to the end that
this Warrant instrument shall be deemed to be a valid and binding
agreement in accordance with its terms.
IN WITNESS WHEREOF, InterSystems, Inc. has caused this Warrant
Certificate to be signed by its duly authorized officers as of the 11th
day of July, 1995.
INTERSYSTEMS, INC.
By: _________________________________
Name: Herbert M. Pearlman
Title: Chairman of the Board of
Directors
Attest:
____________________
David S. Lawi
Secretary
7
<PAGE> 64
PURCHASE FORM
To: InterSystems, Inc.
, l99___
The undersigned hereby irrevocably elects to exercise the
attached Warrant Certificate, Certificate No. ISI-EMP-_____, to the
extent of _________ Shares of Common Stock, $.0l par value per share
of INTERSYSTEMS, INC., and hereby makes payment of $________ in
payment of the aggregate exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name:___________________________________________________________
(Please typewrite or print in block letters)
Address: _______________________________________________________
_______________________________________________________
__________________________
By: ______________________
8
<PAGE> 65
MEMORANDUM
To:__David_Lawi
From:_Clare_Attura
Re:_ISI_Warrants_to_you_and_HMP_in_lieu_of_waived_compensation_
Date:_July_21,_1995
----------------
Attached_for_your_review_are_copies_of_the_warrant_certificates_for_
warrants_authorized_for_you_and_Herb_at_the_July_11_meeting_of_the_
Board_of_Directors.__Please_give_me_any_comments_you_may_have._
According_to_Dan,_as_long_as_these_warrants_are_issued_with_an_
exercise_price_not_less_than_market,_there_will_be_no_charge_to_
earnings.__ISI_closed_at_$1.125_on_July_11th.__This_should_avoid_the_
accounting_issues_raised_at_the_board_meeting.__
CJA
cc:_Dan_Murphy
____Mike_Epps
9
<PAGE> 66 EXHIBIT 4.6
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF
(COLLECTIVELY THE "SECURITIES") HAVE BEEN ACQUIRED FOR INVESTMENT ONLY
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO INTERSYSTEMS, INC. THAT AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
INTERSYSTEMS, INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
TO PURCHASE 00,000
SHARES OF COMMON STOCK
Cert. No. 95-ISI-1
This Warrant Certificate certifies that , residing at
or his registered assigns is the registered Holder (the "Holder") of
00,000 Common Stock Purchase Warrants (the "Warrants") to purchase shares
of the common stock, $.01 par value (the "Common Stock") of INTERSYSTEMS,
INC., a Delaware corporation (the "Company"). This Warrant is issued as
part of a Unit offered in a private placement made by the Company
pursuant to a Confidential Private Placement Memorandum dated December 1,
1995.
1. EXERCISE OF WARRANT; REDEMPTION OF WARRANT.
(A) Each Warrant enables the Holder, subject to the provisions
of this Warrant Certificate to purchase from the Company at any time and
from time to time commencing on the later of (i) July 15, 1996, or (ii)
the date that the shares of Common Stock underlying the Warrants are
approved for listing on the American Stock Exchange (the "Initial
Exercise Date") one (1) fully paid and non-assessable share of Common
Stock ("Shares") upon due presentation and surrender of this Warrant
Certificate accompanied by payment of the purchase price of $1.80 per
Share (the "Exercise Price"). The Warrant shall expire on January 15,
2000 (the "Expiration Date"). Payment shall be made in lawful money of
the United States of America by certified check payable to the Company at
its principal office at 8790 Wallisville Road, Houston, Texas 77029. As
hereinafter provided, the Exercise Price and number of Shares purchasable
upon the exercise of the Warrants may be subject to modification or
adjustment upon the happening of certain events.
(B) This Warrant Certificate is exercisable at any time on or
after the Initial Exercise Date in whole or in part by the Holder in
person or by attorney duly authorized in writing at the principal office
of the Company.
(C) The Warrants shall be redeemable, at the option of the
Company, at a price of $.05 per Warrant, upon not less than thirty (30)
days' written notice to the Holder at such time as (i) the closing sales
price of the Common Stock on the American Stock Exchange on each of 30
consecutive trading days is at least $2.50, and (ii) the shares issuable
1
<PAGE> 67
upon exercise of the Warrants are registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended
(hereinafter the "Act"). This redemption period shall end on the third
anniversary of the effective date of the aforementioned registration
statement.
2. EXCHANGE, FRACTIONAL SHARES, TRANSFER.
(A) Upon surrender to the Company, this Warrant Certificate may
be exchanged for another Warrant Certificate or Warrant Certificates
evidencing a like aggregate number of Warrants. If this Warrant
Certificate shall be exercised in part, the Holder shall be entitled to
receive upon surrender hereof another Warrant Certificate or Warrant
Certificates evidencing the number of Warrants not exercised;
(B) Anything herein to the contrary notwithstanding, in no
event shall the Company be obligated to issue Warrant Certificates
evidencing other than a whole number of Warrants or issue certificates
evidencing other than a whole number of Shares upon the exercise of this
Warrant Certificate; provided, however, that the Company shall pay with
respect to any such fraction of a Share an amount of cash based upon the
current public market value for Shares purchasable upon exercise hereof.
Market price for the purpose of this Section 2 shall mean the last
reported sale price on the American Stock Exchange or such primary
exchange on which the Common Stock is traded.
(C) The Company may deem and treat the person in whose name
this Warrant Certificate is registered as the absolute true and lawful
owner hereof for all purposes whatsoever; and
(D) This Warrant Certificate may not be transferred except in
compliance with the provisions of the Act or applicable state securities
laws and in accordance with the provisions of Paragraph 8 hereof.
3. RIGHTS OF A HOLDER. No Holder shall be deemed to be the Holder
of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon the Holder any of
the rights of a shareholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders at any
meeting thereof or to give or withhold consent to any corporate action
(whether upon any reorganization, issuance of stock, reclassification or
conversion of stock, change of par value, consolidation, merger,
conveyance, or otherwise) or to receive notice of meetings or to receive
dividends or subscription rights or otherwise until a Warrant shall have
been exercised and the Common Stock purchasable upon the exercise thereof
shall have become issuable.
4. REGISTRATION OF TRANSFER. The Company shall maintain books for
the transfer and registration of Warrants. Upon the transfer of any
Warrants in accordance with the provisions of Section 2(D) hereof, (a
"Permitted Transfer"), the Company shall issue and register the Warrants
in the names of the new Holders. The Warrants shall be signed manually
by the Chairman, Chief Executive Officer, President or any Vice President
and the Secretary or Assistant Secretary of the Company. The Company
shall transfer, from time to time, any outstanding Warrants upon the
books to be maintained by the Company for such purpose upon surrender
thereof for transfer properly endorsed or accompanied by appropriate
2
<PAGE> 68
instructions for transfer. Upon any Permitted Transfer, a new Warrant
Certificate shall be issued to the transferee and the surrendered
Warrants shall be cancelled by the Company. Warrants may be exchanged at
the option of the Holder, when surrendered at the office of the Company,
for another Warrant, or other Warrants of different denominations, of
like tenor and representing in the aggregate the right to purchase a like
number of Shares. Subject to the terms of this Warrant Certificate, upon
such surrender and payment of the purchase price at any time after the
Initial Exercise Date, the Company shall issue and deliver with all
reasonable dispatch to or upon the written order of the Holder of such
Warrants and in such name or names as such Holder may designate, a
certificate or certificates for the number of full Shares so purchased
upon the exercise of such Warrants. Such certificate or certificates
shall be deemed to have been issued and any person so designated to be
named therein shall be deemed to have become the Holder of record of such
Shares as of the date of the surrender of such Warrants and payment of
the purchase price; provided, however, that if, at the date of surrender
and payment, the transfer books of the Shares shall be closed, the
certificates for the Shares shall be issuable as of the date on which
such books shall be opened and until such date the Company shall be under
no duty to deliver any certificate for such Shares; provided, further,
however, that such transfer books, unless otherwise required by law or
by applicable rule of any national securities exchange, shall not be
closed at any one time for a period longer than 20 days. The rights of
purchase represented by the Warrants shall be exercisable, at the
election of the Holders, either as an entirety or from time to time for
only part of the Shares at any time on or after the Initial Exercise
Date.
5. STAMP TAX. The Company will pay any documentary stamp taxes
attributable to the initial issuance of the Shares issuable upon the
exercise of the Warrants; provided, however, that the Company shall not
be required to pay any tax or taxes which may be payable in respect of
any transfer involved in the issuance or delivery of any certificates for
Shares in a name other than that of the Holder in respect of which such
Shares are issued, and in such case the Company shall not be required to
issue or deliver any certificate for Shares or any Warrant until the
person requesting the same has paid to the Company the amount of such tax
or has established to the Company's satisfaction that such tax has been
paid.
6. LOST, STOLEN OR MUTILATED CERTIFICATES. In case this Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company
may, in its discretion, issue and deliver in exchange and substitution
for and upon cancellation of the mutilated Warrant Certificate, or in
lieu of and substitution for the lost, stolen or destroyed Warrant
Certificate, a new Warrant Certificate of like tenor representing an
equivalent right or interest, but only upon receipt of evidence
satisfactory to the Company of such loss, theft or destruction and an
indemnity, if requested, also satisfactory to it.
7. RESERVED SHARES. The Company warrants that there have been
reserved, and covenants that at all times in the future it shall keep
reserved, out of the authorized and unissued Common Stock, a number of
Shares sufficient to provide for the exercise of the rights of purchase
represented by this Warrant Certificate. The Company agrees that all
Shares issuable upon exercise of the Warrants shall be, at the time of
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<PAGE> 69
delivery of the certificates for such Shares, validly issued and
outstanding, fully paid and non-assessable and that the issuance of such
Shares will not give rise to preemptive rights in favor of existing
stockholders.
8. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF l933.
(A) The Holder of this Warrant Certificate, each transferee
hereof and any Holder and transferee of any Shares, by his acceptance
thereof, agrees that (a) the Warrants and any Shares have not been
registered under the Act or applicable state securities laws (the "State
Acts"), and therefore cannot be transferred or sold unless subsequently
registered under the Act and applicable State Acts, or an exemption from
registration is available, (b) no public distribution of Warrants or
Shares will be made in violation of the Act, and (c) during such period
as the delivery of a prospectus with respect to Warrants or Shares may be
required by the Act, no public distribution of Warrants or Shares will be
made in a manner or on terms different from those set forth in, or
without delivery of, a prospectus then meeting the requirements of
Section l0 of the Act and in compliance with applicable state securities
laws. The Holder of this Warrant Certificate and each transferee hereof
further agrees that if any distribution of any of the Warrants or Shares
is proposed to be made by them otherwise than by delivery of a prospectus
meeting the requirements of Section l0 of the Act, such action shall be
taken only after submission to the Company of an opinion of counsel,
reasonably satisfactory in form and substance to the Company's counsel,
to the effect that the proposed distribution will not be in violation of
the Act or of applicable state law. Furthermore, it shall be a condition
to the transfer of the Warrants that any transferee thereof deliver to
the Company his written agreement to accept and be bound by all of the
terms and conditions contained in this Warrant Certificate.
(B) This Warrant or the Shares or any other security issued or
issuable upon exercise of this Warrant may not be sold or otherwise
disposed of except as follows:
(1) To a person who, in the opinion of
counsel for the Holder reasonably acceptable to the Company, is a person
to whom this Warrant or Shares may legally be transferred without
registration and without the delivery of a current prospectus under the
Act with respect thereto and then only against receipt of an agreement of
such person to comply with the provisions of this Section (1) with
respect to any resale or other disposition of such securities which
agreement shall be satisfactory in form and substance to the Company and
its counsel; provided that the foregoing shall not apply to any such
Warrant, Shares or other security as to which such Holder shall have
received an opinion letter from counsel to the Company as to the
exemption thereof from the registration under the Act pursuant to Rule
144(k) under the Act; or
(2) To any person upon delivery of a
prospectus then meeting the requirements of the Act relating to such
securities and the offering thereof for such sale or disposition.
4
<PAGE> 70
(C) Each certificate for Shares issued upon exercise of this
Warrant shall bear a legend relating to the non-registered status of such
Shares under the Act, unless at the time of exercise of this Warrant such
Shares are subject to a currently effective registration statement under
the Act.
9. ANTI-DILUTION PROVISIONS.
(A) Dividends;_Reclassifications,_etc.
(i) In the event that the Company shall, at any time prior to the
exercise of this Warrant declare or pay to the holders of the Common
Stock a dividend payable in Common Stock or Convertible Securities (as
hereinafter defined) of the Company, then the Exercise Price shall be
subject to adjustment pursuant to subparagraph (C) of this Section 9.
(ii) If, at any time after the date of issuance hereof, the Company
shall subdivide its outstanding shares of Common Stock, combine the
outstanding shares of Common Stock into a smaller number of shares, or
issue by reclassification of its shares of Common Stock (including any
reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation) any shares, the Exercise Price
in effect at the time of the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that
the Holder of this Warrant exercising it after such time shall be
entitled to receive the total number and kind of shares which bear the
same proportion to the total immediately after such time as the
proportion he would have owned and have been entitled to receive
immediately prior to such time bore to the total immediately prior to
such time.
(iii) In the event that the Company shall, at any time prior to the
exercise of this Warrant, (a) declare or pay to holders of Common Stock a
dividend payable in any security of the Company other than Common Stock
or Convertible Securities; (b) transfer its property as an entirety or
substantially as an entirety to any other company; (c) make any
distribution of its assets to holders of its Common Stock as a
liquidation or partial liquidation dividend or by way of return of
capital; or (d) undergo a merger or consolidation in which the Company is
not the continuing corporation; then, upon the subsequent exercise of
this Warrant, the Holder shall receive, in addition to or in substitution
for the shares of Common Stock to which it would otherwise be entitled
upon such exercise, such additional securities of the Company, or such
shares of the securities or property of the Company resulting from such
transfer, or such assets of the Company, or such shares of the securities
or property of the continuing corporation in the event of such merger or
consolidation, which it would have been entitled to receive had it
exercised this Warrant prior to the happening of any of the foregoing
events.
(B) Notice. If, at any time while this Warrant is outstanding,
the Company shall pay any dividend payable in cash or in Common Stock,
shall offer to the holders of its Common Stock for subscription or
purchase by them any shares of stock of any class or any other rights, or
shall enter into an agreement to merge or consolidate with another
corporation, the Company shall cause notice thereof to be mailed to the
5
<PAGE> 71
registered Holder of this Warrant at its address appearing on the
registration books of the Company, at least l0 days prior to the record
date as of which holders of Common Stock shall participate in such
dividend, distribution or subscription or other rights or at least l0
days prior to the effective date of the merger or consolidation. Failure
to give notice as required by this Section, or any defect therein, shall
not affect the legality or validity of any dividend, distribution or
subscription or other right.
(C) Adjustments_to_Exercise_Price. If at any time after the
date of issuance hereof the Company shall grant or issue any shares of
Common Stock, or grant or issue any rights or options for the purchase
of, or stock or other Securities convertible into, Common Stock (such
convertible stock or securities being herein collectively referred to as
"Convertible Securities") other than:
(i) shares issued in a transaction described in subparagraph (D) of
this Section 9; or
(ii) shares issued, subdivided or combined in transactions described
in subsections (A)(ii) or (iii) of this Section 9;
for a consideration per share which is less than the Exercise Price, then
the Exercise Price in effect immediately prior to such issuance or sale
(the "Applicable Exercise Price") shall, and thereafter upon each
issuance or sale, the Applicable Exercise Price shall, simultaneously
with such issuance or sale, be adjusted, so that such Applicable Exercise
Price shall equal a price determined by multiplying the Applicable
Exercise Price by a fraction, the numerator of which shall be:
(A) the sum of (x) the total number of shares of Common Stock
outstanding immediately prior to such issuance plus (y) the number of
shares of Common Stock which the aggregate consideration received, as
determined in accordance with subparagraph (E) below for the issuance
or sale of such additional Common Stock or Convertible Securities
deemed to be an issuance of Common Stock as provided in subsection
(F) below, would purchase (including any consideration received by
the Company upon the issuance of any shares of Common Stock or
Convertible Securities since the date the Applicable Exercise Price
became effective not previously included in any computation resulting
in an adjustment pursuant to this subsection (C)) at the Applicable
Exercise Price; and the denominator of which shall be
(B) the total number of shares of Common Stock outstanding (or
deemed to be outstanding as provided in subsection (E)) immediately
after the issuance or sale of such additional shares.
If, however, the Applicable Exercise Price thus obtained would result in
the issuance of a lesser number of shares upon conversion than would be
issued at the initial Exercise Price specified in Section 1, the
Applicable Price shall be such initial Exercise Price.
Upon each adjustment of the Exercise Price pursuant to this
subsection (C) the total number of shares of Common Stock purchasable
upon the exercise of each Warrant shall be such number of shares
(calculated to the nearest tenth) purchasable at the Applicable Exercise
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<PAGE> 72
Price multiplied by a fraction, the numerator of which shall be the
Exercise Price in effect immediately prior to such adjustment and the
denominator of which shall be the Exercise Price in effect immediately
after such adjustment.
(D) Anything in this Section 9 to contrary notwithstanding, no
adjustment in the Exercise Price shall be made in connection with:
(i) the grant, issuance or exercise of any Convertible Securities
pursuant to the Company's qualified or non-qualified Employee Stock
Option Plans or any other bona fide employee benefit plan or
incentive arrangement, adopted by the Company's Board of Directors,
as may be amended from time to time, or under any other bona fide
employee benefit plan hereafter or incentive arrangement adopted by
the Company's Board of Directors; or
(ii) the issuance of any shares of Common Stock pursuant to the
grant or exercise of Convertible Securities outstanding as of the
date hereof including, without limitation, the exercise of any
Warrant or conversion of any Preferred Stock issued in the same
placement of securities to which this Warrant was issued by the
Company, whether or not outstanding on the issuance date hereof.
(E) For the purpose of subsection (C) above, the following
provisions shall also be applied:
(i) In case of the issuance or sale of additional shares of Common
Stock for cash, the consideration received by the Company therefor
shall be deemed to be the amount of cash received by the Company for
such shares, before deducting therefrom any commissions,
compensations or other expenses paid or incurred by the Company for
any underwriting of, or otherwise in connection with, the issuance or
sale of such shares.
(ii) In case of the issuance of Convertible Securities, the
consideration received by the Company therefore shall be deemed to be
the amount of cash, if any, received by the Company for the issuance
of such rights or Convertible Securities, plus the minimum amounts of
cash and fair value of other consideration, if any, payable to the
Company upon the exercise of such rights or options or payable to the
Company on conversion of such Convertible Securities.
(iii) In the case of the issuance of shares of Common Stock or
Convertible Securities for a consideration in whole or in part, other
than cash, the consideration other than cash shall be deemed to be
the fair market value thereof as reasonably determined in good faith
by the Board of Directors of the Company (irrespective of accounting
treatment thereof); provided, however, that if such consideration
consists of the cancellation of debt issued by the Company, the
consideration shall be deemed to be the amount the Company received
upon issuance of such debt (gross proceeds) plus accrued interest
and, in the case of original issue discount or zero coupon
indebtedness, accreted value to the date of such cancellation, but
not including any premium or discount at which the debt may then be
trading or which might otherwise be appropriate for such class of
debt.
7
<PAGE> 73
(iv) In case of the issuance of additional shares of Common Stock
upon the conversion or exchange of any obligations (other than
Convertible Securities), the amount of the consideration received by
the Company for such Common Stock shall be deemed to be the
consideration received by the Company for such obligations or shares
so converted or exchanged, before deducting from such consideration
so received by the Company any expenses or commissions or
compensations incurred or paid by the Company for any underwriting
of, or otherwise in connection with, the issuance or sale of such
obligations or shares, plus any consideration received by the Company
in connection with such conversion or exchange other than a payment
in adjustment of interest and dividends. If obligations or shares of
the same class or series of a class as the obligations or shares so
converted or exchanged have been originally issued for different
amounts of consideration, then the amount of consideration received
by the Company upon the original issuance of each of the obligations
or shares so converted or exchanged shall be deemed to be the average
amount of the consideration received by the Company upon the original
issuance of all such obligations or shares. The amount of
consideration received by the Company upon the original issuance of
the obligations or shares so converted or exchanged and the amount of
the consideration, if any, other than such obligations or shares,
received by the Company upon such conversion or exchange shall be
determined in the same manner as provided in Sections (1) and (3)
above with respect to the consideration received by the Company in
case of the issuance of additional shares of Common Stock or
Convertible Securities.
(v) In the case of the issuance of additional shares of Common Stock
or Convertible Securities as a dividend, the aggregate number of
shares of Common Stock or Convertible Securities issued in payment of
such dividend shall be deemed to have been issued at the close of
business on the record date fixed for the determination of
stockholders entitled to such dividend and shall be deemed to have
been issued without consideration; provided, however, that if the
Company, after fixing such record date, shall legally abandon its
plan to so issue Common Stock or said Convertible Securities as a
dividend, no adjustment of the Applicable Exercise Price shall be
required by reason of the fixing of such record date.
(F) For purposes of the adjustments provided for in subsection
(C) above, if at any time, the Company shall issue any Convertible
Securities, the Company shall be deemed to have issued at the time of the
issuance of such Convertible Securities the maximum number of shares of
Common Stock issuable upon conversion of the total amount of such
Convertible Securities.
(G) On the expiration, cancellation or redemption of any
Convertible Securities, the Exercise Price then in effect hereunder shall
forthwith be readjusted to such Exercise Price as would have been
obtained (a) had the adjustments made upon the issuance or sale of such
expired, cancelled or redeemed Convertible Securities been made upon the
basis of the issuance of only the number of shares of Common Stock
theretofore actually delivered upon the exercise or conversion of such
Convertible Securities (and the total consideration received therefor)
and (b) had all subsequent adjustments been made only on the basis of the
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<PAGE> 74
Exercise Price as readjusted under this subsection (G) for all
transactions (which would have affected such adjusted Exercise Price)
made after the issuance or sale of such Convertible Securities.
(H) Anything in this Section 9 to the contrary notwithstanding,
no adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such
Exercise Price; provided, however, that any adjustments which by reason
of this subsection (H) are not required to be made shall be carried
forward and taken into account in making subsequent adjustments. All
calculations under this Section 9 shall be made to the nearest cent or to
the nearest tenth of a share, as the case may be.
(I) Upon any adjustment of any Exercise Price, then and in each
such case the Company shall promptly deliver a notice to the registered
Holder of this Warrant, which notice shall state the Exercise Price
resulting from such adjustment and the increase or decrease, if any, in
the number of shares purchasable at such price upon the exercise hereof,
setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
10. CONSOLIDATION OR MERGER. The Company covenants and agrees that
it will not merge or consolidate with or into or sell or otherwise
transfer all or substantially all of its assets to any other corporation
or entity unless at the time of or prior to such transaction such other
corporation or other entity shall expressly assume all of the liabilities
and obligations of the Company under this Warrant and (without limiting
the generality of the foregoing) shall expressly agree that the Holder of
this Warrant shall thereafter have the right (subject to subsequent
adjustment as nearly equivalent as practicable to the adjustments
provided for in Section 9 of this Warrant) to receive upon the exercise
of this Warrant the number and kind of shares of stock and other
securities and property receivable upon such transaction by a Holder of
the number and kind of shares which would have been receivable upon the
exercise of this Warrant immediately prior to such transaction.
11. MISCELLANEOUS.
(A) LAW TO GOVERN. This Warrant shall be governed by and
construed in accordance with the substantive laws of the State of Texas,
without giving effect to conflict of laws principles.
(B) ENTIRE AGREEMENT. This Warrant Certificate constitutes and
expresses the entire understanding between the parties hereto with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions
whether express or implied, oral or written. Neither this Warrant
Certificate nor any portion or provision hereof may be changed, waived or
amended orally or in any manner other than by an agreement in writing
signed by the Holder and the Company.
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<PAGE> 75
(C) NOTICES. Except as otherwise provided in this Warrant
Certificate, all notices, requests, demands and other communications
required or permitted under this Warrant Certificate or by law shall be
in writing and shall be deemed to have been duly given, made and received
only when delivered against receipt or when deposited in the United
States mails, certified or registered mail, return receipt requested,
postage prepaid, addressed as follows:
Company: InterSystems, Inc.
8790 Wallisville Road
Houston, Texas 77029
Attn: President
Holder: At the address shown for the Holder in the
registration book maintained by the Company.
(D) SEVERABILITY. If any provision of this Warrant Certificate
is prohibited by or is unlawful or unenforceable under any applicable law
of any jurisdiction, such provision shall, as to such jurisdiction be in
effect to the extent of such prohibition without invalidating the
remaining provisions hereof; provided, however, that any such prohibition
in any jurisdiction shall not invalidate such provision in any other
jurisdiction; and provided, further that where the provisions of any such
applicable law may be waived, that they hereby are waived by the Company
and the Holder to the full extent permitted by law and to the end that
this Warrant instrument shall be deemed to be a valid and binding
agreement in accordance with its terms.
IN WITNESS WHEREOF, InterSystems, Inc. has caused this Warrant
Certificate to be signed by its duly authorized officers as of the 15th
day of January, 1996.
INTERSYSTEMS, INC.
By: _________________________________
Name: Herbert M. Pearlman
Title: Chairman of the Board of
Directors
Attest:
____________________
David S. Lawi
Secretary
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<PAGE> 76
PURCHASE FORM
To: InterSystems, Inc.
, l99___
The undersigned hereby irrevocably elects to exercise the
attached Warrant Certificate, Certificate No. 95-ISI-_______, to the
extent of _________ Shares of Common Stock, $.0l par value per share
of INTERSYSTEMS, INC., and hereby makes payment of $________ in
payment of the aggregate exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name:___________________________________________________________
(Please typewrite or print in block letters)
Address: _______________________________________________________
_______________________________________________________
__________________________
By: ______________________
11
<PAGE> 77 EXHIBIT 10.17
DEFINITIVE AGREEMENT FOR COMPOUNDING SERVICES
BETWEEN
MYTEX POLYMERS
as Purchaser
AND
CHEMTRUSION, INC.
as Supplier
<PAGE> 78
TABLE OF CONTENTS
ARTICLE I PAGE
Definitions
1.1 - Affiliates........................................................... 1
1.2 - Agreement............................................................ 1
1.3 - Budget............................................................... 1
1.4 - Confidential Information............................................. 2
1.5 - Construction Completion Date......................................... 2
1.6 - Construction Financing Debt Service.................................. 2
1.7 - Contract Year........................................................ 2
1.8 - Damages.............................................................. 2
1.9 - Default.............................................................. 2
1.10 - Defaulting Party.................................................... 2
1.11 - Finished Products................................................... 2
1.12 - Force Majeure....................................................... 2
1.13 - Notice Date......................................................... 2
1.14 - Notifying Party..................................................... 2
1.15 - Plans............................................................... 2
1.16 - Plant............................................................... 2
1.17 - Plant Site.......................................................... 2
1.18 - Production Charges.................................................. 2
1.19 - Purchaser........................................................... 3
1.20 - Purchaser Indemnified Parties....................................... 3
1.21 - Raw Materials....................................................... 3
1.22 - Supplier............................................................ 3
1.23 - Supplier Indemnified Parties........................................ 3
1.24 - Utility Facilities.................................................. 3
ARTICLE II
General Representations and Warranties
2.1 - General Representations and Warranties of Purchaser.................. 3
2.2 - General Representations and Warranties of Supplier................... 4
2.3 - General Representations and Warranties of the Parties................ 4
ARTICLE III
Plant Construction and Certification
3.1 - Plant Financing...................................................... 5
3.2 - Selection and Acquisition of the Plant Site.......................... 5
3.3 - Construction Completion Date......................................... 6
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<PAGE> 79
3.4 - Construction of the Plant............................................ 6
3.5 - Supplier's Representations and Warranties Concerning the Plant....... 6
3.6 - Inspection of the Plant Construction; Progress Approvals............. 7
3.7 - Change Orders........................................................ 8
3.8 - Certification of Plant.............................................. 10
3.9 - Construction Incentives and Penalties............................... 11
ARTICLE IV
Production of the Finished Products
4.1 - Production of the Finished Products................................. 11
4.2 - Payment............................................................. 11
4.3 - Inventory Imbalances................................................ 11
4.4 - Quality Control..................................................... 12
4.5 - Documentation....................................................... 12
4.6 - Conflicts of Interest and Ethics.................................... 12
4.7 - Access to Records................................................... 13
4.8 - Inspection of Raw Materials......................................... 13
4.9 - Safety and Health................................................... 14
4.10 - Environmental Regulations.......................................... 15
4.11 - Removal of Products and Waste...................................... 16
4.12 - Spill and Transportation Accident Notification..................... 16
4.13 - Taxes.............................................................. 17
4.14 - Plant Operations and Procedures.................................... 17
4.15 - Inspection Rights.................................................. 17
ARTICLE V
Independent Contractor
5 - Independent Contractor................................................ 18
ARTICLE VI
Indemnities
6.1 - Indemnification for Damages to Property............................. 18
6.2 - Indemnity for Injury to or Death of Persons......................... 19
6.3 - Third Party Indemnities............................................. 19
6.4 - Joint Negligence or Misconduct...................................... 20
6.5 - Costs 20
ARTICLE VII
Insurance
7 - Insurance............................................................. 20
ARTICLE VIII
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<PAGE> 80
Confidentiality
8.1 - Purchaser and Supplier Proprietary Information...................... 20
8.2 - Indemnification..................................................... 23
8.3 - Inventions and Copyrights........................................... 24
8.4 - Prohibition on Hiring Other Party's Employees....................... 24
8.5 - Limited License of Proprietary Information.......................... 25
8.6 - Surviving Obligations and Merger of
Secrecy and Restricted Use Obligations.................................. 25
ARTICLE IX
Term and Termination
9.1 - Term................................................................ 26
9.2 - Termination......................................................... 26
ARTICLE X
Purchase Option
10 - Purchase Option...................................................... 27
ARTICLE XI
Put Right
11 - Put Right............................................................ 28
ARTICLE XII
Plant Expansion
12 - Plant Expansion...................................................... 28
ARTICLE XIII
Warehousing/Distribution
13 - Warehousing/Distribution............................................. 28
ARTICLE XIV
Force Majeure
14 - Force Majeure........................................................ 29
ARTICLE XV
Miscellaneous
iii
<PAGE> 81
15.1 - Press Releases and Announcements................................... 29
15.2 - Entire Agreement................................................... 29
15.3 - Succession and Assignment.......................................... 29
15.4 - Counterparts....................................................... 29
15.5 - Headings........................................................... 30
15.6 - Notices............................................................ 30
15.7 - Governing Law...................................................... 31
15.8 - Amendments and Waivers............................................. 31
15.9 - Severability....................................................... 31
15.10 - Construction...................................................... 31
15.11 - Incorporation of Attachments...................................... 31
15.12 - Binding Arbitration............................................... 31
iv
<PAGE> 82
DEFINITIVE AGREEMENT FOR COMPOUNDING SERVICES
This DEFINITIVE AGREEMENT FOR COMPOUNDING SERVICES (the "Agreement")
is entered into as of the 26th day of January, 1996, by and among MYTEX
POLYMERS ("Purchaser"), a Delaware general partnership of affiliates of
Mitsubishi Chemical America and Exxon Chemical Company, a division of Exxon
Corporation, and CHEMTRUSION, INC., a Delaware corporation ("Supplier").
Purchaser and Supplier are collectively referred to herein as the "Parties"
and individually as a "Party".
WHEREAS, Supplier desires to purchase or lease real property (the
"Plant Site") at a mutually acceptable site in or around the
Jeffersonville, Indiana area and construct a facility acceptable to
Purchaser thereon (the Plant Site, such facility and all streets, roadways,
railways and Utility Facilities (as defined below) constructed in
conjunction with such facility being collectively referred to herein as the
"Plant") for the compounding, warehousing and distribution exclusively for
Purchaser of the products set forth on Attachment A hereto (collectively,
the "Finished Products");
WHEREAS, Purchaser desires Supplier to construct the Plant for such
purposes and desires to enter into this Agreement for the compounding of
the Finished Products;
NOW, THEREFORE, in consideration of the premises hereof and the
representations, warranties and covenants contained herein, the Parties
agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement, the following terms shall have the
respective meanings set forth below:
Section 1.1 Affiliates. "Affiliates" shall mean any corporation, partner,
partnership, joint venturer, joint venture, joint stock company, trust,
estate and/or association which either directly or indirectly possesses (i)
the ownership of or ability to direct the voting of, as the case may be, of
fifty percent (50%) or more of the equity interests, value or voting power
of a party or (ii) the power to direct or cause the direction of the
management and policies of a Party whether through the ownership of voting
securities or otherwise.
Section 1.2 Agreement. "Agreement" has the meaning set forth in the preamble
above.
Section 1.3 Budget. "Budget" shall mean all actual costs incurred (excluding
any allocations of overhead) by Supplier in the acquisition of the Plant
Site and for all labor and materials furnished and used to substantially
complete the construction of the Plant in accordance with this Agreement
and as set out in Attachment "C" hereto.
Section 1.4 Confidential Information. "Confidential Information" has the
meaning set forth in Section 8.1 below.
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Section 1.5 Construction Completion Date. "Construction Completion Date" has
the meaning set forth in Section 3.3 below.
Section 1.6 Construction Financing Debt Service. "Construction Financing
Debt Service" shall have the meaning set forth in Section 3.1 below.
Section 1.7 Contract Year. "Contract Year" means the calendar year
immediately following the commencement or any anniversary of the
commencement of Supplier's production of the Finished Products under this
Agreement.
Section 1.8 Damages. "Damages" has the meaning set forth in Section 6.3
below.
Section 1.9 Default. "Default" has the meaning set forth in Section 9.2(b)
and (c) below.
Section 1.10 Defaulting Party. "Defaulting Party" has the meaning set forth
in Section 9.2(b) below.
Section 1.11 Finished Products. "Finished Products" has the meaning set
forth in the preamble above.
Section 1.12 Force Majeure. "Force Majeure" has the meaning set forth in
Article XIV below.
Section 1.13 Notice Date. "Notice Date" has the meaning set forth in Section
15.12 below.
Section 1.14 Notifying Party. "Notifying Party" has the meaning set forth in
Section 9.2(b) below.
Section 1.15 Plans. "Plans" has the meaning set forth in Section 3.4(a)
below.
Section 1.16 Plant. "Plant" has the meaning set forth in the preamble above.
Section 1.17 Plant Site. "Plant Site" has the meaning set forth in the
preamble above.
Section 1.18 Production Charges. "Production Charges" has the meaning set
forth in Section 4.2 below.
Section 1.19 Purchaser. "Purchaser" has the meaning set forth in the
preamble above.
Section 1.20 Purchaser Indemnified Parties. "Purchaser Indemnified Parties"
has the meaning set forth in Section 6.3 below.
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Section 1.21 Raw Materials. "Raw Materials" means all items set forth on
Attachment B hereto required for the manufacture of the Finished Products.
Section 1.22 Supplier. "Supplier" has the meaning set forth in the preamble
above.
Section 1.23 Supplier Indemnified Parties. "Supplier Indemnified Parties"
has the meaning set forth in Section 6.3 below.
Section 1.24 Utility Facilities. "Utility Facilities" means all utility
equipment and facilities (including, but not limited to, water systems,
sewer and drainage systems, and gas and electric distribution facilities)
serving the Plant or any part thereof or required for the operation or use
of the Plant in the manner contemplated by this Agreement.
ARTICLE II
GENERAL REPRESENTATIONS AND WARRANTIES
Section 2.1 General Representations and Warranties of Purchaser. Purchaser
represents and warrants to Supplier that the statements contained in this
Section 2.1 are correct and complete as of the date of this Agreement and
will be correct and complete throughout the term hereof:
(a) Purchaser is a general partnership, duly organized,
validly existing, and in good standing under the laws of the
jurisdiction of its formation.
(b) Purchaser has full power and authority to execute and
deliver this Agreement and perform its obligations hereunder.
This Agreement has been duly executed and delivered by Purchaser
and constitutes the valid and legally binding obligation of
Purchaser, enforceable in accordance with its terms and
conditions. Except as specifically set forth herein, Purchaser
need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions
contemplated by this Agreement.
(c) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by Purchaser
will not (i) violate any statute, regulation, rule, judgment,
order, decree, stipulation, injunction, charge or other
restriction of any government, governmental agency, or court to
which Purchaser is subject, or any provision of its Partnership
Agreement, or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create
in any part the right to accelerate, terminate, modify, or
cancel, or require any notice under any contract, lease,
sublease, license, sublicense, franchise, permit, indenture,
agreement or mortgage for borrowed money, instrument of
indebtedness, security interest, or other arrangement to which
Purchaser is a party or by which it is bound or to which any of
its assets is subject.
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Section 2.2 General Representations and Warranties of Supplier. Supplier
represents and warrants to Purchaser that the statements contained in this
Section 2.2 are correct and complete as of the date of this Agreement and
will be correct and complete throughout the term hereof:
(a) Supplier is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction
of its incorporation.
(b) Supplier has full power and authority to execute and
deliver this Agreement and perform its obligations hereunder.
This Agreement has been duly executed and delivered by Supplier
and constitutes the valid and legally binding obligation of
Supplier, enforceable in accordance with its terms and
conditions. Except as specifically set forth herein, Supplier
need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions
contemplated by this Agreement.
(c) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by Supplier
will not (i) violate any statute, regulation, rule, judgment,
order, decree, stipulation, injunction, charge or other
restriction of any government, governmental agency, or court to
which Supplier is subject or any provision of its charter or
bylaws or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require
any notice under any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage
for borrowed money, instrument of indebtedness, security
interest, or other arrangement to which Supplier is a party or by
which it is bound or to which any of its assets is subject.
Section 2.3 General Representations and Warranties of the Parties.
Throughout the term of this Agreement,
(a) Each of the Parties will use all reasonable efforts to
take all actions and do all things necessary, proper, or
advisable to consummate and make effective the transactions
contemplated by this Agreement;
(b) Each Party shall give prompt written notice to the
other Party of any material development affecting the assets,
liabilities, business, financial condition, operations, results
of operations, or future prospects of the Plant or the ability of
a Party to consummate the transactions contemplated by this
Agreement; and
(c) In the event any further action is necessary to carry
out the purposes of this Agreement, the Parties will take such
further action (including the execution and delivery of such
further instruments and documents) as either Party may reasonably
request, all at the sole cost and expense of the requesting Party.
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ARTICLE III
PLANT CONSTRUCTION AND CERTIFICATION
Section 3.1 Plant Financing. The parties acknowledge and agree that Supplier
and Purchaser will work together to obtain financing of the capital costs
to be incurred in connection with the construction of the Plant (not to
exceed the Budget, as adjusted pursuant to change orders pursuant to
Section 3.7). The terms and conditions of such financing, including
payment terms and interest rates, shall be mutually acceptable to Supplier
and Purchaser. As used herein, the term "Construction Financing Debt
Service" shall mean the required payments under such financing, including
principal and interest, and Construction Financing Debt Service shall be a
component of the Base Fee payable to Supplier hereunder pursuant to Section
4.2 hereof. Purchaser will request its affiliates, Exxon Chemical Company
and Mitsubishi Chemical America, to provide assurances and guaranties of
Supplier's financing of the Plant in order for Supplier to obtain financing
on favorable terms and conditions. The parties acknowledge that as of the
date of execution of this Agreement Supplier has not yet consummated the
financing required to fund construction of the Plant, and that pending
consummation of such financing Purchaser will provide funding as Purchaser
deems reasonably necessary to proceed with construction to achieve
completion of the Plant within the schedule contemplated herein. Supplier
and Purchaser shall use all reasonable efforts to obtain such financing as
soon as possible, and immediately upon consummation of such financing,
Supplier shall repay Purchaser for all such advances from the proceeds of
such financing.
Section 3.2 Selection and Acquisition of the Plant Site. The Parties have
selected a mutually acceptable plant site in the Louisville, Kentucky area.
Supplier has taken action to purchase the site, described as an
approximately 16.4 acre plot, located in the Clark Maritime Centre, Clark
County, Indiana, on the northwest side of Port Road in Jeffersonville,
Indiana. Notwithstanding the fact that Purchaser took part in the
selection of the Plant Site, Supplier shall be solely responsible for any
and all liabilities which may arise from the ownership thereof.
Section 3.3 Construction Completion Date. The "Construction Completion Date"
shall be the date as of which Supplier has complied with all of its
obligations contained in this Article III. Supplier shall use all
reasonable efforts to have one of the production lines at the Plant
operational on or before July 1, 1996, and to have the other three
production lines at the Plant operational on or before August 31, 1996.
Section 3.4 Construction of the Plant. Supplier shall, at its sole cost and
expense, furnish or cause to be furnished all of the materials, provide or
cause to be provided all of the fixtures, equipment, and personal property,
and perform or cause to be performed all of the work required:
(a) to design, layout, construct, equip and complete the
Plant on the Plant Site in accordance with the plans and
specifications and within the Budget set forth on Attachment C
hereto, as the same may be amended from time to time with the
written consent of both Parties (the "Plans");
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(b) to place the Plant in position to be fully operational
for the compounding, warehousing and distribution of Finished
Products in accordance with the terms of this Agreement;
(c) to provide exclusive office space and meeting areas on
the Plant Site for up to 18 of Purchaser's employees and/or
authorized representatives; and
(d) to complete or provide all offsite improvements,
streets (including access streets and roads), roadways, railways
and Utility Facilities reasonably required for the intended use
of the Plant or any part thereof.
Section 3.5 Supplier's Representations and Warranties Concerning the Plant.
In addition to its other representations, warranties and agreements
contained in this Agreement, Supplier represents and warrants to Purchaser
and agrees as follows:
(a) Supplier shall pursue the completion of the Plant with
due diligence after the date hereof and shall use all reasonable
efforts to complete the same within the Budget on or before
August 31, 1996;
(b) The construction and completion of the Plant will be
accomplished in a good and workmanlike manner and to the
standards required by all applicable governmental authorities,
and as of the Construction Completion Date, shall be free from
liens (other than liens securing any financing obtained in
connection with the construction and completion of the Plant),
claims, or material defects of any kind or nature;
(c) The materials, equipment and labor used in the
construction and completion of the Plant and incorporated therein
shall in no material way differ from the descriptions,
requirements and features set forth or referred to in the Plans,
except to the extent otherwise agreed to in writing in advance by
Purchaser;
(d) During the construction and completion of the Plant,
Supplier shall furnish to Purchaser on a monthly basis copies of
current construction progress reports ("Progress Reports"),
prepared by the senior engineer and the general contractor
detailing the construction progress and expenditures on the Plant
to the dates of such reports;
(e) Supplier's construction and operation of the Plant
shall at all times comply in all material respects with all
applicable laws of federal, state and local governments
concerning the environment, public health and safety, and
employee health and safety, and Supplier shall obtain and be in
compliance in all material respects with all of the terms and
conditions of all permits, licenses, and other authorizations
which are required under all applicable federal, state and local laws
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relating to the environment, public health and safety, and
employee health and safety; and
(f) Supplier shall pay, at or before the time the payment
of the same shall be due, all assessments, bonds, and special
assessments imposed by any governmental authority constituting a
lien or encumbrance against the Plant or any part thereof at any
time.
Section 3.6 Inspection of the Plant Construction; Progress Approvals.
(a) At all times during the construction of the Plant,
Purchaser shall have appointed a representative ("Purchaser's
Representative"), who shall have the primary responsibility of
following and inspecting on behalf of Purchaser the progress of
the construction and completion of the Plant. Purchaser shall
identify the Purchaser's Representative to Supplier, and Supplier
shall be entitled to rely on decisions and directions from
Purchaser's Representative with respect to all matters relating
to the construction and completion of the Plant (provided that
the Purchaser's Representative shall not have the authority to
amend any term of this Agreement). Purchaser shall have the
right to change the Purchaser's representative from time to time,
and will consider in good faith any request by Supplier to
replace the Purchaser's Representative due to incompatibility or
other valid reasons specified by Supplier to Purchaser. At
Purchaser's request, the Purchaser's Representative will be
provided with construction office space at the Plant Site at
Supplier's cost during construction and completion of the Plant.
All other costs and expenses related to the Purchaser's
Representative shall be borne by the Purchaser. At all times
during the construction of the Plant, Purchaser's Representative
or any other authorized agent of Purchaser may enter upon and
inspect the same, at Purchaser's sole cost and expense, for the
limited purpose of determining whether the work performed or
being constructed conforms with the Plans and the terms of this
Agreement (including but not limited to Supplier's
representations, warranties and covenants contained in this
Article III relating to the environment, public health and safety
and employee health and safety). Supplier shall at all times
keep at the construction site a complete set of the Plans, all
shop drawings related to the construction of the Plant, and all
required permits, licenses and other governmental authorizations,
which Purchaser's Representative or its authorized agents may
examine at all reasonable times.
(b) The monthly Progress Reports required by Paragraph (d)
of Section 3.5 of this Agreement shall be delivered to
Purchaser's Representative, along with a cost estimate of the
capital costs incurred to date in connection with the work
completed as reflected in the Progress Reports (the "Capital Cost
Reports"). Purchaser's Representative shall have seven (7)
business days after submission of such Progress Reports to
approve or conditionally approve the progress on the construction
or completion of the Plant reflected therein. Purchaser's
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Representative shall indicate his approval or conditional
approval of the Progress Reports by executing same, indicating
any exceptions constituting a conditional approval in writing
attached thereto, and returning an executed copy of such Progress
Report to Supplier. Failure of Purchaser's Representative to
return an executed copy of any Progress Report within such seven
(7) business day period shall constitute approval of such
Progress Report. In the event of a conditional approval of a
Progress Report, the Parties shall have twenty (20) business days
following original submission of the Progress Report to agree to
such conditional approval. If the Parties are unable to agree to
such conditional approval within such time, the Parties shall
submit the dispute to arbitration in accordance with the
provisions of Section 15.12 hereof. Purchaser shall not be
entitled to assert that construction or completion that has been
approved by Purchaser's Representative pursuant to a Progress
Report does not comply with the Specifications or with the terms
and provisions of this Agreement.
(c) Purchaser's Representative or any other authorized
agent of Purchaser shall have the right upon three (3) business
days prior written notice during normal business hours to inspect
Supplier's records relating to Capital Cost Expenditures and
Capital Cost Reports and make extracts and copies thereof.
Section 3.7 Change Orders. Purchaser shall have the right, at any time or
times prior to the Construction Completion Date, to request that changes be
made in any of the specifications of the Plant and that additional
engineering, modification, or upgrading of the Plant be performed by
Supplier. No such change or additional work shall be performed until a
written change order has been executed by Supplier and Purchaser. Change
orders shall be subject to the following terms and conditions:
(a) Any change order requested by Purchaser shall be
submitted to Supplier in writing and shall contain sufficient
detail to enable Supplier to properly evaluate the scope and
nature of the requested change. Supplier shall accept, reject or
offer a proposed alternative to Purchaser's requested change
order in writing within seven (7) business days of receipt of
Purchaser's requested changes order.
(b) Supplier may, in its sole discretion, reject any change
order which would enlarge the scope of the work involved in the
construction of the Plant by a factor which would cause the
Budget to be increased by more than ten percent (10%), in which
event the Parties shall continue to perform their obligations as
described in this Agreement without modification by the rejected
change order.
(c) Should Supplier propose an alternative approach to
Purchaser's requested change order containing sufficient detail
to enable Purchaser to properly evaluate the scope and nature of
Supplier's proposed alternative, Purchaser shall
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accept or reject Supplier's proposed alternative in writing within seven (7)
business days of receipt of Supplier's proposed alternative.
(d) Any proposed change order or alternative shall contain
a detailed description of the anticipated scope of work (labor
and engineering) the quantity and quality of materials and
equipment required and the anticipated impact on the Construction
Completion Date.
(e) If as a result of change orders the design capacity of
the Plant is increased, the annual Management Fee shall be
increased in accordance with the terms of Article XII, "Plant
Expansion."
(f) Supplier shall not be obligated to approve change
orders which would cause the total cost of the Plant to exceed
the amount of financing obtained by Supplier to construct the
Plant unless Supplier is able to obtain additional financing on
terms and conditions acceptable to Supplier and Purchaser.
(g) Change orders shall set forth the delay, if any, in the
Construction Completion Date expected to result from such change
order, and the required date for the Construction Completion Date
shall be extended as mutually agreed to by Supplier and Purchaser
by such period. In addition, it is expressly recognized that a
series of change orders may result in a cumulative period of
delay in the Construction Completion Date that is greater than
the aggregate of the periods of delay actually set forth in the
individual change orders. In such event, an appropriate
adjustment to the Construction Completion Date, as mutually
determined by Supplier and Purchaser, will be made.
Section 3.8 Certification of Plant. No later than the Construction
Completion Date,
(a) Supplier shall have delivered to Purchaser a
certificate or certificates duly executed by the senior engineer
and the general contractor in charge of the construction of the
Plant, certifying that (i) the Plant has been constructed and
substantially completed in a good, workmanlike and substantial
manner, in conformity with good construction and engineering
practice, and in substantial accordance with the Plans, (ii) the
Plans are complete in all material respects, (iii) the Plans and
the Plant comply in all material respects with all applicable
laws, ordinances, rules, and regulations and (iv) all streets,
roads and railways necessary for access to or full utilization of
the Plant or any part thereof for its intended purpose and all
Utility Facilities have been substantially completed, and that
all necessary utility service for the Plant or any part thereof
is available and in operation.
(b) Supplier shall have delivered to Purchaser notices of
completion verifying that all construction included in the Plant
has been substantially
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completed, and the building permits and all authorizations and licenses
required in connection with the construction and operation of the Plant for
the purposes contemplated by this Agreement have been issued by the
municipality or governmental entity in which the Plant is located
and/or to which the Plant is subject and all other appropriate
federal, state or local government agencies;
(c) Supplier shall have delivered to Purchaser a statement
verifying the payment in full for all work, labor, services, and
materials used or employed in connection with the construction
and completion of the Plant, together with such supporting
documents (including executed mechanics' lien waivers and
evidences of payments) as Purchaser shall reasonably request;
provided, however, that Supplier may contest in good faith the
payment of any such items if Supplier has made adequate reserves
therefor; and
(d) Purchaser shall be reasonably satisfied with its
authorized representatives' visual observations and laboratory
test analyses of trial runs of Supplier's production of the
Finished Products as being on specification and providing at
least the minimum yield ratios, production rates, storage and
retrieval of material standards and operational efficiencies set
forth on Attachment D hereto.
3.9 Construction Incentives and Penalties. Supplier understands that
the Finished Products are marketed and sold by Purchaser to customers in
the automotive industry which will require that the Finished Products from
the Plant be qualified for use by such customers as constituent elements in
their automotive parts prior to the next ensuing model year. Accordingly,
the dates for completion and start-up of the production lines at the Plant
are of critical importance to Purchaser's business. To encourage Supplier
to complete and start-up each of the production lines at the Plant on time,
Purchaser agrees to the payment of the incentives for on-time completion of
the described facilities and Supplier agrees to the payment of the
penalties for late completion of the described facilities as set forth in
Schedule I attached hereto.
ARTICLE IV
PRODUCTION OF THE FINISHED PRODUCTS
After the Construction Closing Date, Supplier shall produce the
Finished Products and operate the Plant exclusively for the benefit of
Purchaser in accordance with the following terms and conditions:
Section 4.1 Production of the Finished Products. Purchaser shall provide the
Raw Materials to Supplier and Supplier shall convert the Raw Materials into
the Finished Products for the account of Purchaser in accordance with the
other terms and provisions set forth on Attachment E hereto. Title to the
Raw Materials and Finished Products shall remain in Purchaser at all times.
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Section 4.2 Payment. Supplier shall invoice Purchaser no more than twice
monthly for "Production Charges", meaning all compensation due to Supplier
by Purchaser for Supplier's compounding, quality control, packaging,
warehousing, transportation and handling of the Raw Materials and/or the
Finished Products, as applicable. Each month's Production Charges shall
contain components of a base fee (the "Base Fee"), which shall include the
monthly costs of operating the Plant (the "Operating Expenses") and capital
recovery and interest ("Supplier's Construction Financing Debt Service"),
and a management fee (the "Management Fee"), which shall be adjusted
upwards or downwards, all in accordance with the schedule of fees set forth
on Attachment E hereto. In addition, Supplier may be eligible for
performance bonuses in accordance with the terms of Attachment E hereto.
Section 4.3 Inventory Imbalances. Purchaser shall have the right from time
to time (but at least every calendar month) to certify the inventory
quantities of Purchaser's products and materials stored at the Plant.
Notwithstanding any exercise by Purchaser of its certification rights
provided in this Section 4.3, inventory imbalances will be determined by
Supplier and provided to Purchaser monthly and accumulated in a year-to-
date total and will be settled at any time when accumulated inventory
losses exceed $25,000 and at the end of each Contract Year. Any settlement
of inventory losses in any Contract Year under this Section 4.3 shall be
handled as a separate transaction from the Production Charges.
Section 4.4 Quality Control. Supplier shall establish and at all times
maintain a documented quality control system which addresses continuous
improvement of the quality of the Finished Products and overall operation.
At least every calendar month, Purchaser shall have the right to verify
the operation of Supplier's quality control system. In addition, in the
event Purchaser notifies Supplier of Purchaser's desire to achieve or have
Supplier achieve compliance with any specific quality system certification
or registration defined by Purchaser, Supplier shall take all reasonable
measures requested by Purchaser to enable the achievement of such
compliance; provided, however, that any capital costs required to comply
with such system certification or registration and any increase or decrease
in operating or manufacturing expenses related to ongoing compliance shall
be communicated to and approved by Purchaser as an increase or decrease to
the Base Fee as set forth on Attachment E.
Seection 4.5 Documentation. Supplier shall provide Purchaser with proof of
receipts and shipments of the Raw Materials and the Finished Products,
production and consumption documentation, inventory summaries and
production quality data in accordance with Purchaser's
Processing/Conversion Agreement Reporting Procedures as set forth on
Attachment F hereto.
Section 4.6 Conflicts of Interest and Ethics.
(a) Supplier shall establish and maintain appropriate
business standards, procedures, and controls to eliminate
conflicts of interest under this Agreement, including those
necessary to avoid any real or apparent impropriety or adverse
impact on the interests of Purchaser and its parent companies.
Supplier shall periodically provide Purchaser with current
summaries of Supplier's compliance
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with such business standards, procedures and controls including, without
limitation, those related to the activities of Supplier's employees, agents,
representatives, suppliers and subcontractors and third parties
in their relations with Purchaser's employees, agents, representatives,
suppliers, customers and subcontractors and third parties.
(b) All payments to Supplier under this Agreement will be received by
Supplier for its own account and Supplier is not authorized to offer, give,
or promise any part of such payments, directly or indirectly, to any
government official, political party or official thereof, or any candidate
for political office.
(c) Supplier shall exercise all reasonable care and diligence to prevent
any actions or conditions which could result in a conflict with Purchaser's
best interests. This obligation shall apply to the activities of the
employees, agents, subcontractors, suppliers and customers of Supplier in their
relations arising under this Agreement with the employees, agents,
subcontractors, suppliers and customers of Purchaser and the families of
such persons. Such efforts shall include, but not be limited to,
establishing precautions to prevent Supplier's employees, agents,
subcontractors and suppliers from making, receiving, providing, or offering
any substantial gifts, extravagant entertainment, payments, loans, or other
considerations to or from employees, agents, subcontractors, suppliers and
customers of Purchaser and the families of such persons.
(d) Supplier shall comply with all laws and lawful regulations applicable
to any activities carried out in the name of or on behalf of Purchaser under
the provisions of this Agreement.
(e) Supplier agrees that all financial settlements, billings, and reports
rendered to Purchaser as provided for in this Agreement will reflect properly
the facts about all activities and transactions handled for the account of
Purchaser, which data may be relied upon as being complete and accurate in
any further recordings and reportings made by Purchaser, for whatever purpose.
(f) Supplier shall notify Purchaser promptly upon discovering any instance
where Supplier has failed to comply with its obligations contained in this
Section 4.6.
Section 4.7 Access to Records. Purchaser shall have access at all reasonable
times to the Plant and all of Supplier's records, correspondence,
instructions, memoranda, and personnel located therein for the purpose of
reviewing the quality and quantity of Raw Materials and the Finished
Products received, stored, delivered, and processed for Purchaser. Upon
the expiration or termination of this Agreement, Purchaser shall have the
right to remove all such records, correspondence, instructions and
memoranda, and Supplier shall preserve all remaining documentation in its
possession for a period of at least three (3) years after the expiration or
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termination of this Agreement, provided that Purchaser shall reimburse
Supplier for all reasonable costs incurred in connection with maintaining
any documentation stored by Supplier for such three year period. Purchaser
shall preserve all documentation removed for a period of at least three (3)
years and shall make such documentation available for inspection by
Supplier and its authorized agents for any proper purpose.
Section 4.8 Inspection of Raw Materials. Supplier shall promptly inspect the
physical condition of Raw Materials upon receipt of and before unloading
such Raw Materials and shall reject and give Purchaser immediate notice of
defective or substandard Raw Materials evident from such physical
inspection. When directed by Purchaser, Supplier shall attempt to obtain
certificates of analysis of the Raw Materials and compare them to the
specifications for such Raw Materials provided by Purchaser. Supplier
shall give Purchaser immediate notice of defective or substandard Raw
Materials evident from such comparison and of Supplier's failure to receive
requested certificates of analysis. Supplier shall not make use of any Raw
Materials which require inspection and comparison to a certificate of
analysis unless a record of such inspection is on file at Supplier's
premises. Supplier's failure to give any required notice regarding Raw
Materials within thirty (30) days after the date of Supplier's receipt of
such Raw Materials shall constitute a waiver by Supplier of all claims with
respect to such Raw Materials. Supplier shall be liable for all damage to
Raw Materials while in Supplier's possession.
Section 4.9 Safety and Health.
(a) Supplier is responsible for all aspects of compliance
with the regulations promulgated under the U.S. Occupational
Safety and Health Act and any other applicable federal, state or
local laws relating to public health and safety or employee
health and safety. This obligation includes all training and
hazard communication as required in the OSHA Hazard Communication
Standard, 29 CFR 1910.1200.
(b) Purchaser shall provide sufficient information on the
Raw Materials or the Finished Products, including Material Safety
Data Sheets (MSDS), to enable Supplier to comply with its
obligations contained in this Agreement. Supplier shall
disseminate and post copies of the MSDS covering the Finished
Products and the Raw Materials, including warnings and safety and
health information concerning such products and materials and/or
the containers for such products and materials in a conspicuous
place in the Plant to which employees, agents, contractors and/or
customers of Supplier have open and frequent access, and shall
otherwise advise such employees, agents, contractors, or
customers by disseminating all information required by applicable
law (whether or not furnished by Purchaser) regarding the
possible hazards of, precautions and safe-handling procedures
utilized in dealing with the Raw Materials and the Finished
Products. Supplier further agrees to comply with the
requirements of the OSHA Hazard Communication Standard, 29 CFR
1910.1200, and all applicable state laws and regulations.
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(c) Supplier shall notify and advise its employees, agents,
contractors and customers that the data contained in the MSDS and
other safety and health information concerning the use and safe-
handling of the Raw Materials and the Finished Products represent
the minimum standards to be observed in dealing with such
materials and products as such are furnished by Purchaser without
any obligation to Supplier or its employees, agents, contractors
or customers. If Supplier fails to disseminate such warnings and
information, Supplier shall defend and indemnify Purchaser
against any and all liability arising out of, or in any way
connected with, such failure, including but not limited to
liability for injury, sickness, death and property damage, except
to the extent Purchaser contributed to such liability. Purchaser
will provide Supplier with reasonable notice and opportunity to
defend in the event any claim or demand is made on Purchaser as
to which such indemnity relates.
(d) Supplier shall also include a copy of the relevant MSDS
with the shipping papers for all hopper truck, rail car, package,
bulk and sample shipments. In addition, Supplier shall include
the MSDS with the Bill of Lading for all drum (or smaller
container) shipments of materials which have been identified as
"Hazardous Materials" under U.S. Department of Transportation
regulations.
Section 4.10 Environmental Regulations.
(a) The Plant and the services to be provided by Supplier
hereunder shall not knowingly conflict with any law, regulation
or ruling of an environmental nature of any federal, state,
county, municipal, or other government body. Supplier agrees to
provide suitable facilities for the storage and handling of the
Raw Materials and the Finished Products and to comply in all
material respects in the performance of this Agreement with all
governmental laws, rules, ordinances, and regulations. Supplier
further agrees to indemnify and hold Purchaser harmless from and
against all fines, charges, and/or assessments caused by or
resulting from such violation by Supplier unless such fine,
charge and/or assessment is caused by the negligence or willful
misconduct of Purchaser, its employees or agents.
(b) Purchaser reserves the right upon reasonable notice to
Supplier to send representatives to all sites covered under this
Agreement for the purpose of reviewing compliance with applicable
environmental regulations. Supplier shall, upon request from
Purchaser, provide access to copies of all governmental permits
relevant to this Agreement or the facilities used hereunder.
Purchaser may verify Supplier's compliance status with relevant
governmental agencies. Supplier shall also notify Purchaser of
any existing or new governmental investigations or regulatory
actions of which Supplier has knowledge and which involve
Purchaser, Supplier's ability to perform its obligations under
this Agreement, the Raw Materials or the Finished Products.
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(c) Supplier shall be responsible for filing all reports
required under Sections 311, 312 and 313 of Title III of the
Superfund Amendment and Reauthorization Act (SARA), and any
similar state or local regulations relating to the Plant or
Suppliers activities in connection with the operation of the
Plant.
(d) Supplier shall notify Purchaser of any allegations made
by any person relating to the health or environmental effects of
the Raw Materials or the Finished Products as described under
Section 8(c) of the U.S. Toxic Substances Control Act.
(e) In the event any governmental body shall require the
installation of facilities or fixtures, or require changes to
Supplier's normal operating procedures in regard to the
environmental impact of the storage and handling of the Raw
Materials and the Finished Products, Supplier shall notify
Purchaser in writing of the necessity and cost of such
installation of facilities or fixtures, or changes in operating
procedures, and Supplier shall work in good faith to provide such
installation or changes, and the compensation hereunder shall be
adjusted to reflect the cost of such installation or changes, and
Supplier shall not be obligated to operate in violation of any
such law, regulation, ordinance, or ruling.
Section 4.11 Removal of Products and Waste.
(a) Purchaser agrees promptly upon the expiration or
termination of this Agreement, and as necessary from time to time
during the term of this Agreement, to remove all of its Raw
Materials and Finished Products from the Plant.
(b) In the event any waste is created from the conversion,
processing, or storage of the Raw Materials or the Finished
Products on the Plant Site, then Supplier shall accept
responsibility as the generator of this waste under any local,
state or federal laws, including the U.S. Resource Conservation
and Recovery Act (RCRA). Prior to awarding any contract for the
removal of this waste, Supplier shall notify Purchaser of the
contractor, cost, method and site of disposal of such waste, all
of which shall be subject to the prior written consent of
Purchaser which consent shall not be unreasonably withheld. All
wastes generated in conjunction with this Agreement must be
physically segregated and inventoried from other wastes generated
by Supplier.
Section 4.12 Spill and Transportation Accident Notification.
(a) Supplier shall immediately notify Purchaser upon
discovering any leakage or spill of the Raw Materials or the
Finished Products when such leak or spill is not totally
contained, recovered, and prevented from reaching the air, soil
or water. Supplier is responsible for reporting all reportable
incidents under the
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U.S. Comprehensive Environmental Response, Compensation and Liability Act,
and under any applicable state or local laws.
(b) Supplier shall immediately notify Purchaser upon
knowledge of any transportation or other accident involving a
spill or release of the Raw Materials or the Finished Products.
This notification must be made by telephone through either direct
contact with Purchaser or, if a transportation accident, through
the CHEMTREC system (800-424-9300).
Section 4.13 Taxes.
(a) Purchaser shall reimburse Supplier for any taxes,
excises, or other charges which Supplier may be required to pay
any government authority (federal, state or local) upon the
production, transportation, delivery, use, possession or storage
of the Raw Materials or the Finished Products, but not taxes
upon, or measured by, the income of Supplier. Purchaser shall
provide Supplier, upon request, with properly completed exemption
certificates for any tax from which Purchaser claims an
exemption.
(b) Notwithstanding the above, Purchaser shall render all
of its property stored or retained at the Plant to the
appropriate government authorities for the purpose of determining
any personal property tax that may be assessed against such
property. Purchaser shall pay any personal property tax assessed
against such property directly to the appropriate government
authorities.
Section 4.14 Plant Operations and Procedures. Notwithstanding any other
provision of this Agreement to the contrary, Supplier shall follow the
guidelines mutually agreed upon by Supplier and Purchaser for the
compounding of the Finished Products, including quality control, use of
technology, reporting, recordkeeping, maintenance, technical support,
administration, monitoring, analysis, staffing and materials management.
Section 4.15 Inspection Rights. At any time or from time to time during the
term of this Agreement, Purchaser or an authorized agent of Purchaser may
enter upon and inspect the Plant and Supplier's operation thereof for the
purpose of determining whether Supplier is in compliance with the terms and
conditions of this Agreement. If at any time Purchaser's inspection
reveals that the operation of the Plant is not being carried out
substantially in accordance with the terms and conditions of this
Agreement, and Purchaser gives written notice to Supplier specifying the
particular deviation, deficiency, or omission, then Supplier shall promptly
take such reasonable steps as may be necessary to correct such deviation,
deficiency or omission, provided, however, that neither the exercise of
Purchaser's inspection rights hereunder, the failure to exercise such
rights, the giving by Purchaser of any direction or request or notice
relating to the operation of the Plant, nor the failure to give any such
direction, request, or notice, shall relieve Supplier of its responsibility
to comply with its obligations under this Agreement.
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ARTICLE V
INDEPENDENT CONTRACTOR
For the purpose of this Agreement, Supplier is and shall be deemed to
be an independent contractor and not an agent, employee or partner of or
joint venturer with Purchaser. Purchaser shall not have any authority to
supervise, control, or appraise the work of the employees, representatives,
or subcontractors of Supplier hereunder. The construction and operation of
the Plant shall be under the exclusive supervision and control of Supplier,
and Purchaser shall have no right to supervise or control such construction
or operation, shall have no responsibility for such matters, and shall not
be subject to any claim or demand arising from such matters.
ARTICLE VI
INDEMNITIES
Section 6.1 Indemnification for Damages to Property.
(a) Supplier shall be responsible for all Finished Products
at Plant Site and Supplier shall be responsible for all Raw
Materials (i) delivered to Supplier by Purchaser, (ii) procured
by Supplier from third parties or (iii) provided by Supplier,
which are intended to be incorporated in the compounding,
warehousing and distribution of the Finished Products while such
Raw Materials are at the Plant Site. Supplier shall compensate
Purchaser for any direct loss of or damage to the aforesaid Raw
Materials and Finished Products which are Purchaser's property,
regardless of whether Purchaser and/or others may be wholly,
concurrently or partially negligent or otherwise at fault, except
if such loss or damage results from Purchaser's gross negligence
or willful misconduct. To the extent that Purchaser may have
property at the Plant Site other than Finished Products and Raw
Materials ("Purchaser's Miscellaneous Property") Purchaser shall
hold Supplier free and harmless from liability to Purchaser
resulting from loss or damage to Purchaser's Miscellaneous
Property located at the Plant Site, regardless of whether
Supplier and/or others may be wholly, concurrently or partially
negligent or otherwise at fault, except if such loss or damage
results from Supplier's gross negligence or willful misconduct.
(b) Supplier shall hold Purchaser free and harmless from
liability to Supplier resulting from loss of or damage to
Supplier's property located at the Plant Site, regardless of
whether Purchaser and/or others may be wholly, concurrently or
partially negligent or otherwise at fault, except if such loss or
damage results from Purchaser's gross negligence or willful
misconduct.
Section 6.2 Indemnity for Injury to or Death of Persons.
(a) Supplier agrees to defend, protect, indemnify and hold
Purchaser free and harmless from and against any and all losses,
costs (including, without
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limitation, the cost of suit and reasonable attorneys' fees and expenses),
claims, causes of action, and liabilities arising in favor of Supplier, its
employees, agents, officers, invitees, subcontractors (or their
servants), or representatives, or any survivor of any of the
foregoing, on account of injury to or death of any such parties
in connection with the construction, ownership or operation of
the Plant pursuant to this Agreement, regardless of whether
Purchaser and/or others may be wholly, concurrently, partially,
or solely negligent or otherwise at fault.
(b) Purchaser agrees to defend, protect, indemnify and hold
Supplier free and harmless from and against any and all losses,
costs (including, without limitation, the cost of suit and
reasonable attorneys' fees and expenses), claims, causes of
action, and liabilities arising in favor of Purchaser, its
employees, agents, officers, invitees, subcontractors (or their
servants), or representatives, or any survivor of any of the
foregoing, on account of injury to or death of any such parties
in connection with the construction, ownership or operation of
the Plant pursuant to this Agreement, regardless of whether
Supplier and/or others may be wholly, concurrently, partially, or
solely negligent or otherwise at fault.
Section 6.3 Third Party Indemnities. Except as set forth in Sections 6.1 and
6.2, Purchaser shall indemnify, defend and save harmless Supplier and its
owned, controlled, affiliated, subsidiary, associated, interrelated, and
operated companies and the stockholders, directors, officers, agents,
employees and representatives of each of them (collectively, the "Supplier
Indemnified Parties") from and against any and all claims, demands, causes
of action, expenses, costs, damages, losses, liabilities, attorneys' fees
and court costs (collectively, "Damages") brought by any and all persons
which at any time may be asserted against or suffered by any of the
Supplier Indemnified Parties for personal injury or death or for loss of or
damage to property arising out of the negligence or willful misconduct of
Purchaser, its officers, employees, agents or representatives under this
Agreement. Except as set forth in Sections 6.1 and 6.2, Supplier shall
indemnify, defend and save harmless Purchaser, its Affiliates and their
owned, controlled, affiliated, subsidiary, associated, interrelated, and
operated companies and the stockholders, directors, officers, agents,
employees and representatives of each of them (collectively, the "Purchaser
Indemnified Parties") from and against any and all Damages brought by any
and all persons which at any time may be asserted against or suffered by
any of the Purchaser Indemnified Parties for personal injury or death or
for loss of or damage to property arising out of the negligence or willful
misconduct of Supplier, its officers, employees, agents or representatives
under this Agreement.
Section 6.4 Joint Negligence or Misconduct. With respect to any
indemnification pursuant to Section 6.3, where personal injury, death, or
loss of or damage to property arises from the joint negligence or
misconduct of Supplier and Purchaser, each party's duty of indemnification
hereunder shall be in proportion to its allocable share of such joint
negligence or misconduct.
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Section 6.5 Costs. Should it become necessary for either Party to engage in
legal proceedings for the purpose of resisting, adjusting or compromising
any claims or demands arising out of the subject matter of this Agreement
or for the purpose of enforcing this Agreement, or for the purpose of
recovering damages due to breach of this Agreement, such Party shall be
entitled, if they prevail in such action, to reimbursement from the other
Party for costs, attorneys' fees, and any other reasonable expenses
incurred in connection with such legal proceedings.
ARTICLE VII
INSURANCE
Supplier shall procure and maintain its normal and customary insurance
covering the Plant, its operation thereof and such other matters and in
such minimum amounts as set forth on Attachment G hereto. All such
policies shall be issued by a company or companies reasonably satisfactory
to Purchaser, shall name Purchaser as an additional insured, if applicable,
and shall specify that such policies may not be canceled or amended without
thirty (30) days prior written notice to Purchaser.
ARTICLE VIII
CONFIDENTIALITY
Section 8.1 Purchaser and Supplier Proprietary Information.
(a) "Purchaser Proprietary Information" means all business
and technical information and materials made available, directly
or indirectly, to Supplier by Purchaser under this Agreement or
acquired or developed by Supplier in connection with Supplier's
performing under this Agreement and which do not incorporate
Supplier Proprietary Information. As between Supplier and
Purchaser, Supplier agrees that Purchaser will own all Purchaser
Proprietary Information. Supplier agrees to use Purchaser
Proprietary Information solely as needed to produce products for
Purchaser, and Supplier will not otherwise use Purchaser
Proprietary Information for the benefit of any party other than
Purchaser.
(b) "Supplier Proprietary Information" means all business
and technical information and materials which relate to equipment
configurations and operating systems which Supplier represents
are unique to Supplier, which are acquired or developed by
Supplier at locations other than the Plant, and which do not
incorporate Purchaser Proprietary Information. As between
Supplier and Purchaser, Purchaser agrees that Supplier will own
all Supplier Proprietary Information. Purchaser agrees to use
Supplier Proprietary Information solely as needed in connection
with Supplier's production of products for Purchaser, and
Purchaser will not otherwise use Supplier Proprietary Information
for the benefit of any party other than Supplier.
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Purchaser expressly agrees that Supplier's operating cost
data and other financial records for locations other than the
Plant received by Purchaser during the period from January 1,
1995 until the effective date of this Agreement and equipment
configurations and operating systems which Supplier represents
are unique to Supplier and which are incorporated into and used
in the Plant shall be deemed Supplier Proprietary Information.
(c) Each party further agrees that it will provide its
Proprietary Information in tangible form or if provided orally or
visually, Proprietary Information will be identified as Supplier
Proprietary or Purchaser Proprietary Information by the
disclosing party at first disclosure, followed by written
confirmation provided to the receiving party within thirty (30)
days of first disclosure.
(d) After the effective date of this Agreement, without the
express written acceptance by Purchaser, Supplier will not (i)
provide to Purchaser, (ii) use in the Plant, or (iii) use in any
processes or incorporate into any products or services provided
for Purchaser under this Agreement, any other materials and
information which Purchaser does not have a right to freely use,
copy, modify and disclose to others without payment or accounting
to Supplier or any third party except Supplier Proprietary
Information.
If Supplier desires to offer proprietary information other
than Supplier Proprietary Information to Purchaser, Supplier
shall provide Purchaser with a nonconfidential summary of such
information, and the additional terms and conditions for
disclosure to and use by Purchaser, sufficient to enable
Purchaser to determine whether to accept same.
(e) Supplier and Purchaser each as recipient ("Receiving
Party") of Proprietary Information of the other Party
("Disclosing Party") agrees and represents it will maintain
Proprietary Information of Disclosing Party in strict confidence.
Receiving Party also agrees that it will maintain the following
minimum safeguards with regard to Proprietary Information of
Disclosing Party:
(i) Only those employees of Receiving Party who need
to receive the Proprietary Information of Disclosing Party to
carry out the purpose of this Agreement shall have access to
Disclosing Party's Proprietary Information,
(ii) Receiving Party shall ensure that all of its
employees receiving the Proprietary Information of Disclosing
Party are aware of the obligations established by this Agreement,
(iii) All of the employees of Receiving Party with
access to Proprietary Information of Disclosing Party shall be
under contract of employment
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or other written agreement with Receiving Party effective to establish on
such employees confidentiality and use restrictions no less restrictive than
those set forth herein, and
(iv) All documents and other materials incorporating
any portion of the Proprietary Information of Disclosing Party
shall be maintained in a manner no less restrictive than
Receiving Party maintains its own proprietary materials.
(f) Neither Supplier nor Purchaser as Receiving party shall
have any obligation to the other Party as to information and
materials which:
(i) At the time of disclosure are in the public domain
or which, after disclosure, enter the public domain except as a
result of a breach of this agreement or any other obligation of
confidentiality,
(ii) Are provided by a third party, except where the
third party is subject to a confidentiality obligation to
maintain such information and materials in confidence, or
(iii) Are independently developed for a Party by
its employees who do not have access to the Proprietary
Information of the other Party.
(g) Except as otherwise contemplated by Section 4.7 hereof,
at the earlier of Disclosing Party's request or termination of
this Agreement, Receiving Party shall return to Disclosing Party
all documentation and other materials furnished to it
incorporating any aspect of Proprietary Information of Disclosing
Party and shall destroy any notes, data, or other documentation
and materials Receiving Party may have created incorporating any
aspect of Proprietary Information of Disclosing Party.
(h) Should Purchaser provide Supplier with any
noncommercially available samples ("Samples"), Supplier agrees:
(i) it will not analyze the Samples without written
authorization to do so,
(ii) it will hold the Samples in strict confidence, and
(iii) return or destroy any remaining portion of
the Samples upon the earlier of Purchaser's request or
termination this Agreement.
Section 8.2 Indemnification.
Article 6 notwithstanding,
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(a) As to claims or actions based upon Supplier's use of
Purchaser Proprietary Information or upon specifications and
formulations provided directly by Purchaser to Supplier for raw
materials, processes, and products, Purchaser shall defend,
indemnify and hold Supplier harmless from any cost, expense, loss
or damage arising from any claim or action alleging that
Supplier's use or possession of such Purchaser Proprietary
Information or specified raw materials, processes or information
provided to Supplier, infringes a third party's patent or
copyright or misappropriates a third party's trade secret or
confidential information. Consistent with the foregoing,
Supplier may be represented by counsel of Supplier's selection at
Supplier's expense. Purchaser agrees that Purchaser will not
settle or otherwise compromise any such claim or action in any
manner which restrains or enjoins any of Supplier's operations or
obligates Supplier to pay monies, grant a license or otherwise
part with any thing of value without Supplier's express written
consent.
(b) Supplier shall defend, indemnify and hold Purchaser
harmless from any cost, expense, loss or damage arising from any
claim or suit alleging that Purchaser's use or possession of
Supplier Proprietary Information or Purchaser's use, possession
or sale of raw materials, processes or products or information
provided to Purchaser by Supplier, infringes a third party's
patent or copyright or misappropriates a third party's trade
secret or confidential information. Consistent with the
foregoing, Purchaser may be represented by counsel of Purchaser's
selection at Purchaser's expense. Supplier agrees that Supplier
will not settle or otherwise compromise any such claim or action
in any manner which restrains or enjoins any of Purchaser's
operations or obligates Purchaser to pay monies, grant license or
otherwise part with any thing of value without Purchaser's
express written consent.
Section 8.3 Inventions and Copyrights.
(a) Supplier agrees and represents it will promptly
disclose to Purchaser all inventions, discoveries, data, software
and improvements (whether patentable or not) conceived or made by
Supplier's personnel at the Plant, either alone or jointly with
others, which relate to product specifications or formulations
("Developments"). Supplier hereby assigns and will require its
personnel to assign to Purchaser or its designee all such
Developments. Supplier also will require its personnel to
execute papers and provide other reasonable assistance requested
by Purchaser in connection with the assignment, prosecution, or
enforcement of any patents or patent applications covering any
such Development.
(b) Supplier hereby assigns and agrees to assign, to
Purchaser the sole ownership of the copyright to written
materials, drawings, databases, software and other works created
by Supplier's personnel at the Plant which relate to product
specifications or formulations ("Works"). At the request and expense of
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Purchaser, Supplier and its employees and agents will
take all steps necessary to perfect such assignment and to
protect such Works for Purchaser.
(c) Except for legends or notices which identify Purchaser
Proprietary Information, Supplier agrees it will not place any
other restrictive legends or notices on any Purchaser Proprietary
Information, Samples, Developments or Works. Purchaser is hereby
authorized to nullify, obliterate or otherwise remove any
restrictive legend or notice on any such materials which is
inconsistent with the provisions of this Agreement.
(d) Supplier understands that Purchaser may elect to
provide excerpts, summaries or copies of Purchaser Proprietary
Information, Samples, Developments and Works to Purchaser's
affiliates and potential and actual customers. Supplier hereby
agrees not to unreasonably withhold its consent to the use by
Purchaser of Supplier's name as the source of information
contained in or provided in connection with such excerpts,
summaries or copies.
Section 8.4 Prohibition on Hiring Other Party's Employees. In order to
further insure the maintenance of confidential and proprietary information
of each Party, the Parties agree that, so long as this Agreement is in
effect and for a period of two years thereafter, neither Party shall
directly or indirectly solicit or induce, or attempt to solicit or induce,
any employee, current or future, of the other Party to leave the employment
of the other Party for any reason whatsoever. In addition, neither Party
will employ, directly or indirectly, any former employee of the other Party
at any time prior to the expiration of two years after the termination of
employment of such employee with the other Party, except with the express
prior written consent of the other Party; provided, however, that Purchaser
shall have the right to employ any or all of Supplier's employees (Facility
Manager and below) then working at the Plant upon exercising its option to
purchase the Plant as set out in Article X below or upon Supplier's
exercise of its put right as set out in Article XI below.
Section 8.5 Limited License of Proprietary Information.
(a) Upon any exercise of the purchase option pursuant to
Article X hereof, or upon Supplier's exercise of its put right as
set out in Article XI below, Supplier shall grant to Purchaser a
perpetual, non-transferrable, non-exclusive, royalty-free,
limited license to use all Supplier Proprietary Information
incorporated into the Plant. Purchaser shall only be entitled to
use such Supplier Proprietary Information in connection with
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its operation of the Plant, and not in connection with the operation of any
other facility or for any other purpose. Notwithstanding the non-
transferability of the license, Purchaser may transfer such license to any
affiliate of Purchaser which controls the operations of the Plant, or to a
subsequent owner of the Plant, or to an entity which controls operations of
the Plant, so long as such transferee uses such Supplier Proprietary
Information in connection with its operation of the Plant, and not in
connection with the operation of any other facility or for any other purpose.
(b) Purchaser grants to Supplier a perpetual, non-transferrable,
non-exclusive, royalty-free, limited license to use equipment configurations
and operating systems, which were first developed at the Plant and are
Purchaser Proprietary Information, at facilities other than the Plant which
are owned and operated by Supplier. Notwithstanding the non-transferability
of this license, Supplier may transfer such license to any affiliate of
Supplier which controls operations of a facility owned by Supplier or such
affiliate, or to the subsequent owner of any such facility, or to an entity
which controls operations of such facility, so long as such transferee
uses such Purchaser Proprietary Information in connection with operation of
such facility and not in connection with the operation of any other facility
or for any other purpose.
Section 8.6 Surviving Obligations and Merger of Secrecy and Restricted Use
Obligations.
(a) Supplier and Purchaser agree that the provisions of this Article VIII
supersede and cancel the Confidentiality Agreement dated effective January 1,
1995 between Supplier and Purchaser (the "1/1/95 Secrecy Agreement").
Supplier agrees to maintain Purchaser's "Confidential Information" (as
defined by the 1/1/95 Secrecy Agreement and received from Purchaser after
1/1/95 and prior to the effective date of this Agreement) as Purchaser
Proprietary Information under this Agreement. Purchaser agrees to maintain
Supplier's "Confidential Information" (as defined by the 1/1/95 Secrecy
Agreement and received from Purchaser after 1/1/95 and prior to the effective
date of this Agreement) as Purchaser Proprietary Information under this
Agreement.
(b) Supplier's and Purchaser's obligations under this Article VIII shall
survive expiration or termination of this Agreement and shall continue for a
period of ten (10) years; provided, however, where Purchaser is subject to a
confidentiality obligation as to any third party information which is
provided to Supplier as a part of Purchaser Proprietary Information,
Supplier's obligation shall survive for a period of time coterminous with
Purchaser's obligation to such third party, provided that Purchaser gives
Supplier written notice of such terms.
ARTICLE IX
TERM AND TERMINATION
Section 9.1 Term. This Agreement shall continue in full force and effect
until the expiration of five (5) Contract Years (the "Primary Term");
provided, however, that Purchaser shall have the option to renew this
Agreement for up to two (2) additional terms of five (5) years each (each a
"Renewal Term") by providing written notice thereof to Supplier not later
than one hundred and eighty (180) days prior to the expiration of the then
existing term of this Agreement.
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Section 9.2 Termination. This Agreement may be terminated as follows:
(a) Supplier and Purchaser may terminate this Agreement by
mutual written consent at any time; and
(b) Either Party (the "Notifying Party") may terminate this
Agreement by giving written notice to the other Party (the
"Defaulting Party") upon a Default by the Defaulting Party. As
used herein, "Default" shall mean the failure of a Party to make
any payments within ten (10) business days of the due date
thereof or to substantially perform any of its other material
obligations hereunder or a material breach by such Party of any
of its representations, warranties or covenants contained in this
Agreement, where such failure or breach (other than a failure to
pay) continues for a period of forty (45) days after written
notice thereof from the Notifying Party to the Defaulting Party
(unless such failure or breach cannot reasonably be cured within
forty-five (45) days and the Defaulting Party shall have
commenced to cure such failure or breach within said forty-five
(45) days and continues to diligently pursue the curing of the
same until such time as such failure or breach is cured). In the
event that the Parties disagree as to whether a Default has
occurred hereunder, the Parties shall submit the dispute to
arbitration pursuant to the provisions of Section 15.12 hereof,
and the Notifying Party shall not have the right to terminate
this Agreement prior to resolution of such dispute. Upon the
determination pursuant to such arbitration that a Default has
occurred, the Defaulting Party shall have the right to cure the
Default within thirty (30) days from the date of such
determination (or begin taking steps to cure the Default and
thereafter diligently pursue the cure of such Default if such
Default cannot be cured within such period) and to pay the actual
costs of the Notifying Party directly arising from such Default,
and if the Defaulting Party takes such actions within such time,
the Default shall be deemed cured and the Notifying Party shall
not have the right to Terminate this Agreement pursuant to this
paragraph; and
(c) Purchaser may terminate this Agreement at any time
following occurrence and prior to the end of the next calendar
quarter for any of the following Defaults by Supplier, none of
which shall be subject to arbitration prior to such termination
by giving written notice to the Supplier prior to the end of the
calendar quarter following occurrence,
(i) commencing January 1, 1997, the failure or
inability of Supplier to produce at least [confidential - filed
separately with SEC] of on-specification Finished Product per
month in accordance with the criteria set forth in Attachment E
during at least two (2) months during any calendar quarter,
provided that Supplier's monthly stated requirements for each
such month shall have exceeded [confidential - filed separately
with SEC], such requirements have been provided to Supplier not
less than 30 days prior to the beginning of each such monthly
period, adequate raw materials have been available to Supplier, and
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<PAGE> 107
Purchaser has not otherwise caused or significantly contributed to
Supplier's failure or inability to produce the required quantities; or
(ii) "Supplier Caused Returned Pounds" of Finished
Product (as contemplated in Schedule E) during a calendar quarter
being greater than either [confidential - filed separately with
SEC] or [confidential - filed separately with SEC] of the total
pounds of Finished Product shipped during such calendar quarter;
or
(iii) it is determined by a regulatory or
governmental agency that the management or operation of the Plant
by Supplier is in violation of applicable law, including, but not
limited to, safety, health and/or environmental law, and such
agency orders or requires the suspension of production and/or
shipping for a period in excess of [confidential - filed
separately with SEC] days.
ARTICLE X
PURCHASE OPTION
For and in consideration of Ten and No/100 Dollars ($10.00) and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by Supplier, Supplier hereby grants to Purchaser the
right to purchase the Plant and the Plant Site (a) upon expiration of the
Primary Term or any Renewal Term hereof, provided that Purchaser shall give
Supplier at least one hundred and twenty (120) days written notice prior to
such expiration of its exercise of this option, or (b) in the event of any
termination of this Agreement by Purchaser pursuant to Paragraphs (b) or
(c) of Section 9.2, for the price and upon the terms and conditions set
forth on Attachment H hereto, so long as Purchaser is not in Default of its
payment obligations hereunder.
ARTICLE XI
PUT RIGHT
In the event that (a) Purchaser does not renew this Agreement at the
end of Primary Term or at the end of any Renewal Term, or (b) either party
terminates this Agreement pursuant to Paragraph (b) or (c) of Section 9.2,
then Supplier shall have the right, but not the obligation, and in the case
of (a) above upon written notice to Purchaser at least sixty (60) days
prior to such expiration, to require Purchaser (or, at Purchaser's
election, an affiliate of Purchaser) to purchase the Plant and the Plant
Site for the price and on the terms and conditions set forth in Attachment
H hereto.
ARTICLE XII
PLANT EXPANSION
In anticipation that, during the term hereof, Purchaser will desire
the capacity of the Plant to be expanded, Supplier agrees to undertake a
renovation, improvement and/or expansion of the Plant at its sole cost and
expense upon the request of Purchaser and upon Purchaser's agreement
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<PAGE> 108
to take the additional quantity of the Finished Products resulting from such
renovation, improvement and/or expansion and pay the additional
compensation as required herein. Such renovation, improvement and/or
expansion shall be carried out by Supplier under the same general terms and
conditions as those relating to the construction of the Plant as set out in
Article III hereof. Upon the undertaking of such renovation, improvement
and/or expansion, the Parties shall revise Attachment E hereto to reflect
an increase in the compensation paid to Supplier by Purchaser under this
Agreement, such increase in the Base Fee to relate to the capital costs
(and related increase in Construction Financing Debt Service) incurred by
Supplier in connection with, and the increase in monthly operating costs
related to, such renovation, improvement or expansion, and the increase in
the Management Fee as set out in Attachment E.
ARTICLE XIII
WAREHOUSING/DISTRIBUTION
Supplier agrees to provide warehousing facilities on the Plant Site
for the Raw Materials and the Finished Products and to provide distribution
services for the Finished Products, all in accordance with all requirements
and procedures promulgated by the U.S. Department of Transportation.
ARTICLE XIV
FORCE MAJEURE
No delay or failure in performance by either Party shall constitute a
default hereunder or give rise to any claim for damages, penalties or to
terminate this Agreement if, and to the extent, such delay or failure is
caused by a Force Majeure. Unless such Force Majeure substantially
frustrates the performance of this Agreement, the Force Majeure shall not
operate to excuse, but only to delay, performance.
As used herein, a "Force Majeure" is an occurrence beyond the
reasonable control and without the fault or negligence of the party
affected, including, but not limited to, acts of God or the public enemy;
expropriation or confiscation of facilities; changes in applicable law;
war, rebellion, civil disturbance, sabotage or riots; floods or severe
weather (or, only with respect to construction delays, adverse weather
causing such delays); fires, explosions, or other catastrophes; strikes or
any other concerted acts of workers; disruptions in transportation;
shortages of materials; curtailment or termination of sources or supplies
of power or energy; breakage or malfunction of machinery; and other similar
occurrences.
A claim of Force Majeure shall not relieve Supplier of its obligation
to reimburse Purchaser for the value of any loss of any Raw Materials
and/or Finished Products.
ARTICLE XV
MISCELLANEOUS
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Section 15.1 Press Releases and Announcements. No Party shall issue any press
release or announcement relating to the subject matter of this Agreement
without the prior written approval of the other Party except as required by
applicable law or securities exchange rules.
Section 15.2 Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties with
respect to the subject matter hereof and supersedes any prior
understandings, agreements, or representations by or among the Parties,
written or oral, that may have related in any way to the subject matter
hereof.
Section 15.3 Succession and Assignment. No Party may assign either this
Agreement or any of its rights, interests, or obligations hereunder without
the prior written approval of the other Party.
Section 15.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
Section 15.5 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning
or interpretation of this Agreement.
Secton 15.6 Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and
then two business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
If to Supplier: Chemtrusion, Inc.
7115 Clinton Drive
Houston, Texas 77020
Attn: Scott Owens, President
Telephone: (713) 675-1616
Facsimile: (713) 675-8479
With a copy to: N.L. Stevens, III
Gardere Wynne Sewell & Riggs
333 Clay, Suite 800
Houston, Texas 77002
Telephone: (713) 308-5774
Facsimile: (713) 308-5807
If to Purchaser: Mytex Polymers
1501 Baytown East Freeway, Suite 107
Baytown, Texas 77521
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<PAGE> 110
Attn: General Manager
Telephone: (713) 425-4939
Facsimile: (713) 425-4940
With a copy to: Mr. Michael R. Rooke
Cochran, Rooke & Craft, L.L.P.
2200 Post Oak Boulevard, Suite 700
Houston, Texas 77056
Telephone: 713/621-6600
Facsimile: 713/621-8562
Any Party may give any notice, request, demand, claim, or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any Party
may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other
Party notice in the manner herein set forth.
Section 15.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Texas (without regard
to the conflicts of laws provisions thereof).
Section 15.8 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
both Parties. No waiver by either Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not,
shall be deemed to extend to any prior or subsequent default,
misrepresentation, or breach of warranty or covenant hereunder or affect in
any way any rights arising by virtue of any prior or subsequent such
occurrence.
Section 15.9 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction. If the final judgment
of a court of competent jurisdiction declares that any term or provision
hereof is invalid or unenforceable, the Parties agree that the court making
the determination of invalidity or unenforceability shall have the power to
reduce the scope, duration, or area of the term or provision, to delete
specific words or phrases, or to replace any invalid or unenforceable term
or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as
so modified after the expiration of the time within which the judgment may
be appealed.
Section 15.10 Construction. The language used in this Agreement will be
deemed to be the language chosen by the Parties to express their mutual
intent, and no rule of strict
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construction shall be applied against either Party. Any reference to any
federal, state, local or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. The Parties intend that each representation,
warranty, and covenant contained herein shall have independent significance.
If either Party has breached any representation, warranty, or covenant
relating to the same subject matter as any other representation, warranty or
covenant (regardless of the relative levels of specificity) which the Party
has not breached, it shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
Section 15.11 Incorporation of Attachments. The Attachments identified in this
Agreement are incorporated herein by reference and made a part hereof.
Section 15.12 Binding Arbitration. Except as otherwise expressly provided in
this Agreement, any controversy or claim arising out of or relating to this
Agreement, or the alleged breach of this Agreement, which cannot be
resolved between the parties shall be settled by a panel ("Panel") of three
(3) arbitrators to be selected by agreement of the parties. Any
arbitration proceedings hereunder shall be held in Houston, Texas, or such
other location in the United States as the parties may agree. The dispute
shall be settled by the Panel within sixty (60) days from the date of the
selection of the Panel. If Supplier and Purchaser cannot agree upon one or
more of the arbitrators which will make up the Panel, then Supplier and/or
Purchaser may apply to the Senior Judge of the Souther District of Texas,
who shall appoint such arbitrator or arbitrators. Each arbitrator shall
not have been employed or retained by or otherwise associated with any
party or any affiliate of any party during the two-year period prior to his
appointment as arbitrator, and shall either be (i) a licensed engineer or
have at least ten years experience working in the petrochemical industry,
or (ii) an attorney licensed for at least ten years with substantial
experience in commercial law.
The party requesting arbitration ("Requesting Party") shall deliver a
written notice of arbitration ("Notice") to the other party ("Responding
Party") which shall contain no more than three (3) issues to be decided by
the Panel. The Responding party shall have ten (10) days from receipt of
Notice to respond ("Response") in writing by delivery to the Requesting
Party of such Response which may contain no more than three (3) additional
issues to be decided by the Panel. No issue other than those contained in
the Notice and the Response shall be considered or decided by the panel in
the arbitration proceeding.
In selecting the Panel, each party shall within ten (10) days of the
date of Notice submit to the other a list of not more than five (5)
potential arbitrators together with a current resume or similar summary of
each potential arbitrators background and experience. The Panel shall be
selected by the parties no later than ten (10) days after receipt of the
respective lists of potential arbitrators. The cost and expense of the
Panel shall be borne and paid equally by the parties.
The Panel shall have the authority to place reasonable limits upon the
scope of discovery in connection with any proceeding taking into account
the complexity of the issues and the sixty (60) day time limitation to
conclude the proceedings. The Panel shall not have the authority to
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<PAGE> 112
award special, incidental, consequential, exemplary and/or punitive damages
nor to issue injunctions.
Each of the parties hereby specifically reserves the right to such
injunctive relief against the other from any court of proper injunction
without the necessity of arbitration.
All decisions of the Panel shall be in writing and made by a majority
of the Panel. All proceedings in Arbitration shall be confidential. The
award rendered by such arbitrators shall be final and binding on the
parties. Notwithstanding the foregoing, however, any judgment upon any
award rendered may be entered in any court or other authority having
jurisdiction over the parties or application may be made to such court or
authority for a judicial acceptance of the award and for an order of
enforcement as the case may be. The parties hereby submit to the
jurisdiction of any state or federal court sitting in Harris County, Texas
for purposes of enforcement of the findings of such arbitrators. The
parties agree that no party shall have any right to commence or maintain
any suit or legal proceeding concerning any dispute hereunder except for
injunctive relief, other than a suit for enforcement of the arbitration
provisions contained in this Section 15.12, until the dispute has been
determined in accordance with the arbitration procedure provided for
herein, and then only for enforcement of the award rendered under such
arbitration.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
SUPPLIER:
CHEMTRUSION, INC.
By: s/Scott E. Owens
Name: Scott E. Owens
Title: President
PURCHASER:
MYTEX POLYMERS
By: s/Mike Gallagher
Name: Mike Gallagher
Title: General Manager
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<PAGE> 113
Attachments
Attachment A Descriptions of the Finished Products
Attachment B Descriptions of the Raw Materials
Attachment C Construction Plans, Specifications and Budget
Attachment D Minimum Plant Performance Standards
Attachment E Quantities, Conversion Ratios, Other Terms and
Production Charges
Attachment F Processing/Conversion Agreement Reporting Procedures
Attachment G Insurance
Attachment H Option to Purchase and Put to Sell Plant and Plant Site
Attachment I Construction Incentives and Penalties
<PAGE> 114
DEFINITIVE AGREEMENT ATTACHMENT A
DESCRIPTIONS OF THE FINISHED PRODUCTS
SECTION A.1 Concept of Product Families
Purchaser's slate of commercial finished products consists of
Polypropylene-based compounds. For the purposes of insuring proper
equipment selection / design, effective work systems, and achievable goals
for key performance indices, the intended finished products slate must be
considered. The concept of dividing the gradeslate into "product families"
has been employed as a tool. Grades within a family share similar
technical difficulty, color criticality, and customer requirements, and
therefore production rates and converting efficiencies (yield). The
families will be utilized in the formal, annual gradeslate reviews
described in Attachment E.1.
SECTION A.2 Product Families Defined
Six product families can be used to represent the Purchaser's slate of
products. The first family has been divided into three sub-families to
provide additional distinction. The families (as defined) are referenced
in other parts of this agreement.
FAMILY 1 High rate, high yield grades characterized by easy talc filler
feed and incorporation, and limited color criticality (natural or
via masterbatch). Three sub-families exist.
* 1a No or low talc filler (< 10%),; natural or color via
masterbatch.
* 1b Increased filler level (>10%, but <13%); natural or color
via masterbatch.
* 1c High filler level (>13), but all of easier to feed (high
bulk density) talc; natural or color via masterbatch.
FAMILY 2 High rate, moderate yield grades characterized by easy talc
filler feed and incorporation (< or = 13% for low bulk density
talc, high bulk density level unlimited); more critical color
(via free pigment) or other requirements than Family 1.
FAMILY 3 Lower rate, moderate yield grades characterized by more difficult
talc filler feed and incorporation (>14% low bulk density talc);
natural or color via masterbatch.
FAMILY 4 Lower rate, lower yield grades characterized by more difficult
talc filler feed and incorporation (>14% low bulk density talc);
more critical color (via free pigment) or other requirements
than Family 3.
FAMILY 5 High rate, high yield with other filler(s) (glass and / or mica);
natural or color via masterbatch.
<PAGE> 115
FAMILY 6 Products with special processing characteristics or Purchaser's
customer requirements. Rates and yields vary by product.
Overall organizational support effort is higher than Families 1
through 5.
<PAGE> 116
DEFINITIVE AGREEMENT ATTACHMENT B
DESCRIPTIONS OF THE RAW MATERIALS
SECTION B.1 Raw Material Formulations
Purchaser product formulations will be provided via a document and
data controlled system. All formulations will include the name of the raw
material and its respective target level in parts per hundred (and min/max
range where applicable). The base grade formulation (Polymers and Fillers
- -- see Section B.2) will necessarily sum to 100 parts. Additive and
Pigment / Concentrate loading parts are additive to the base grade's 100
parts. Guidelines for recycling same grade and color inventory is handled
outside the formulation system.
SECTION B.2 Raw Material Categories Description
Polymers and Fillers -- The combination of specific polymers and
fillers provides for the physical performance of the compound, and
thus those materials which are ultimately produced from it (i.e.
molded parts). Polymers represent the "meltable" portion of the base
formula. Primary polymers in Purchaser gradeslate include
polypropylene (impact copolymer, homopolymer, and random copolymer),
polyethylene (LLDPE and HDPE), and synthetic rubbers. Fillers are
added to modify the polymer blend performance by enhancing compound
stiffness. They can also improve durability.
Additives -- A wide array of additives are utilized to assure the
long-term performance of the compound. The automotive applications
focus of Purchaser requires that products store and perform in
potentially "polymer hostile" environments for many years. Other
additives may be included to enhance pigment/filler dispersion, modify
polymer molecular structure, compatibilize polymer and filler, and
improve downstream processing (mold release, static dissipation,
etc.). It is possible for different additive packages to be used with
the same polymer/filler (base grade) blends.
Pigments -- Through and through color of molded products is made
possible via the incorporation of various organic and inorganic
pigments to the compound. Critical color applications requiring
exacting color control and adjustment are supported via the addition
of Supplier formulated, multi-component, free pigment recipes. Less
rigorous applications (where part is generally either hidden or
painted) are often met via a color masterbatch or concentrate (pigment
predispersed with polymer carrier). One base grade can be produced in
many different colors.
SECTION B.3 Raw Material Forms
Effective storage, handling and feeding of raw materials requires
knowledge of their delivered form.
Polymers and Fillers
<PAGE> 117
Polyolefin resins (PE and PP) are generally supplied as pellets. On a
few grades, the granular form of these materials may be supplied. The use
of a small quantity of granular PE or PP has been identified as beneficial
for free pigment preblend preparation. Generally, the materials will be
packaged in rectangular or octagonal boxes (>1000lb. per box) until
consumption rates exceed 80klb to 100klb per month, at which point bulk
delivery via hopper cars is preferred. Note that target turnaround for a
rail car is less than 60 days.
Rubber is also generally provided in a pelletized form. Particularly
sticky varieties have their pellets dusted with a compatible agent to
minimize agglomeration cold flow. The material is supplied via palletized
bags (nominally 50lb. or 55lb.). Recently developed rubber replacements
(polyolefin plastomers) are pelletized and in the same type of box as the
resins. Bulk delivery forms are possible with some grades.
Fillers vary widely by their type. Talcs are fine particles and can
therefore be difficult to handle. They are primarily supplied in 50lb.
bags. The volume of the bag varies widely with the grade's bulk density.
Mica is also a powder, although somewhat coarser than the talcs. It also
is supplied in bags. Glass fibers have a more defined, rod like shape
being short (uniform lengths of chopped glass strands, typically 6mm to
10mm in length). Package types for glass fibers can vary from bags, to
boxes, with bulk bags possible.
Additives
The majority of additives are powders, granules, flake or bead.
Several of Purchaser raw materials are only available in liquid form;
however, liquid injection equipment is not required -- liquid volumes are
small enough to wet out other materials during preblend preparation.
Additives are generally supplied in bags or lined fiber drums.
Pigments
A combination of organic and inorganic pigments will comprise the
pigment inventory. These materials are of powder form, and come in lined
fiber drums. Dyes, liquids, prills, etc. are not envisioned.
Masterbatches are pelletized and are available in bags or lined fiber
drums.
SECTION B.4 Raw Material Traceability
The Purchaser quality assurance system dictates that finished product
units be traceable to the raw material units used to produce them. Raw
material supplier labelling provides lot and/or package number information
for this purpose.
<PAGE> 118
DEFINITIVE AGREEMENT ATTACHMENT C
CONSTRUCTION PLANS, SPECIFICATIONS, AND BUDGET
[confidential - filed separately with SEC]
<PAGE> 119
DEFINITIVE AGREEMENT ATTACHMENT D
MINIMUM PLANT PERFORMANCE STANDARDS
SECTION D.1 Performance Standards (General)
Purchaser and Supplier have agreed that certain performance standards
are prerequisites to successful commercial compound production from the
plant. Two types of standards are addressed -- plant systems validation
and grade specific performance.
SECTION D.2 Plant Systems Validation
Listed below are statements of performance minimums for various plant
systems. Purchaser and Supplier shall work together to validate that each
system listed meets or exceeds the stated minimum.
(a) Written Quality System -- Quality Assurance Documentation "manuals"
describing the plant quality systems are in place. These manuals are
to be organized to encompass elements according to the ISO 9002:1994
(and QS9002) Standard.
(b) Testing Lab -- The testing lab is equipped and procedures have been
written to perform testing necessary for the start-up gradeslate.
Procedures involving calibration and use control samples are in place.
(c) Raw Material Receipt -- Physical receipt and unloading of package
goods and bulk materials has been demonstrated. Material inspection,
including validation of C of A against spec is performed. Materials
have been properly stored in the warehouse and the inventory system
promptly updated.
(d) Raw Material Staging -- An area exists for staging of raw materials
for a planned production run. Inventory location updates for staged
materials have been made.
(e) Preblend Preparation and Feed Set-up -- Ability to validate correct
preblend formulation and LIW feeder calibration and setpoint control
has been demonstrated.
(f) Contamination Prevention -- Potential sources of contamination have
been addressed via design and / or procedures. Metal detection and
separation systems have been tested and validated to function
properly.
(g) Packaging and Labelling -- Ability to properly package and label
product has been demonstrated (non-bulk loadout).
(h) Post-production Staging -- An area exists for staging of packaged
production following a planned production run while product evaluation
and grading is in progress. Inventory location updates for staged
materials can been made.
<PAGE> 120
SECTION D.2 Plant Systems Validation (cont.)
(i) Finished Product Inventory -- Ability to properly store graded
production material in the warehouse and promptly update the inventory
system has been demonstrated.
(j) QC Reporting -- Ability to complete required quality testing and
communicate to Purchaser per defined reporting procedures has been
demonstrated.
(k) Consumption Reporting -- Ability to communicate information to
Purchaser regarding production run inventory transactions (raw
material consumption and finished goods production) per defined
reporting procedures has been demonstrated.
(l) Product Shipment -- Ability to properly stage and load truckload
shipments has been demonstrated. Ability to pneumatically transfer
product to the respective railcar and hopper truck loadout stations
has been demonstrated. Ability to properly complete shipment
associated paperwork and system transactions has been confirmed.
SECTION D.3 Grade Specific Performance
The following page addresses product specific performance criteria.
Grades were selected to represent the full range of Purchaser products and
involve all four plant production lines. Production rate, converting
efficiency, and overall quality parameter minimums are specified for each
grade / line combination.
[confidential - filed separately with SEC]
<PAGE> 121
DEFINITIVE AGREEMENT ATTACHMENT E
QUANTITIES, CONVERSION RATIOS, OTHER TERMS
AND PRODUCTION CHARGES
SECTION E.1 PRODUCTION VOLUMES AND YIELD RATIOS
The Purchaser's business receives optimum benefit from the Plant when
prime production quantities and overall yield ratios are maximized. The
varied grade slate and run lengths directly affect both areas. Based on
shared knowledge of the product formulations, equipment design and
capability, prior experience, and improvement expectations, the Purchaser
and Supplier shall meet formally at least once per calendar year to review
the plant gradeslate, including but not limited to the following
parameters: grade, product family, production volume, intended production
line(s), historical and anticipated yields, and special customer
sensitivities/requirements.
[confidential - filed separately with SEC]
<PAGE> 122
DEFINITIVE AGREEMENT ATTACHMENT F
PROCESSING / CONVERSION AGREEMENT REPORTING PROCEDURES
Regular, structured communication between Supplier and Purchaser is
required to support Purchaser's business.
The communications chart below documents the major steps within and
between organizations in support of the planning, production, inventory,
quality and order handling/shipping processes. Key interfaces are
identified, along with specific communications vehicles that support them.
Those communications documents denoted by a * will be used in the
determination of the reporting timeliness milestone described in Attachment
E.3. The communications chart shall be updated as required to reflect new
or modified processes.
<PAGE> 123
DEFINITIVE AGREEMENT ATTACHMENT G
INSURANCE
TYPE MINIMUM LIMITS
Property [confidential - filed separately with SEC]
Business Interruption
Boiler & Machinery
Coverage includes fire, windstorm, hurricane, hail,
riot, theft, etc., and all other direct physical loss.
General Liability $2,000,000 Aggregate
$1,000,000 Each Occurrence
$1,000,000 Products
$1,000,000 Personal & Adv.
Crime $500,000 Empl. Dishonesty
$500,000 Forgery
$500,000 Computer Fraud
Includes Employee Dishonesty, Depositors Forgery and Computer Fraud
Electronic Equipment [confidential - filed separately
with SEC]
Covers computer systems owned or leased in the
event of direct physical loss or breakdown.
Auto $2,000,000 Bodily Injury
$1,000,000 Uninsured Motorist
$2,000,000 Hired & Non-Owned Automobiles
Including coverage for Owned, Hired and Non-Owned Automobiles
Commercial Umbrella $10,000,000
Excess Liability coverage for underlying liability policies.
Warehouse Legal [confidential - filed separately with SEC]
Workers Compensation $1,000,000 Bodily Injury Including Disease
Statutory Benefits
<PAGE> 124
CLASSIFICATION [confidential - filed separately with SEC]
Plastics Manufacturing
Warehouse
Clerical
Fiduciary Liability $1,000,000 Annual Aggregate
<PAGE> 125
DEFINITIVE AGREEMENT ATTACHMENT H
OPTION TO PURCHASE AND PUT TO SELL PLANT AND PLANT SITE
This Option to Purchase and Put to Sell Plant and Plant Site (this
"Contract") is made this 26th day of January, 1996, at Houston, Harris
County, Texas, by CHEMTRUSION, INC., a Delaware corporation
("Chemtrusion"), and MYTEX POLYMERS, a Delaware general partnership of
affiliates of Mitsubishi Chemical American and Exxon Chemical Company, a
division of Exxon Corporation ("Mytex"). Chemtrusion and Mytex are
collectively referred to herein as the "Parties" and individually as a
"Party."
RECITALS
WHEREAS, Chemtrusion is the owner of certain real property located in
Jeffersonville, Indiana, more particularly described on Exhibit "A" hereto
(the "Land"); and
WHEREAS, Chemtrusion has constructed, or, at the time of entering into
this Contract, is in the process of constructing and equipping a facility
(the "Plant") on the Land to compound, warehouse and distribute Mytex
products;
WHEREAS, Mytex desires to have the exclusive right and option to
purchase the Property (as hereinafter defined), under specific terms and
conditions;
WHEREAS, Chemtrusion desires to have the exclusive right to sell the
Property (as hereinafter defined) to Mytex under specific terms and
conditions; and
WHEREAS, Chemtrusion and Mytex have entered into a Definitive
Agreement for Compounding Services (the "Definitive Agreement") of even
date herewith;
NOW THEREFORE, in consideration of the premises hereof and the
representations, warranties and covenants contained herein, the Parties
agree as follows:
AGREEMENT
1 Grant of Option and Put. For the consideration expressed in
Section 3 of this Contract and subject to the terms and conditions
hereafter set out, Chemtrusion hereby grants to Mytex, its successors and
assigns, the exclusive right and option ("Option") to purchase the Property
(as hereinafter defined) and Chemtrusion is hereby granted the right to put
("Put") the Property to Mytex, the Property to include the following:
(a) the Land, the Plant and all other buildings, structures,
facilities, and amenities now or hereafter located on the
Land ("Improvements");
(b) all right, title and interest in and to all fixtures and
building materials of every kind and nature, now or
hereafter situated in, on or about or affixed or attached to
the Land and/or Improvements ("Fixtures");
<PAGE> 126
(c) all tenements, hereditaments, easements, rights-of-way,
uses, rights, privileges, and appurtenances now or hereafter
belonging or in any way appertaining to the Land and/or
Improvements, including, without limitation, any right,
title, interest, claim, or demand in, to or under any
agreement granting, conveying, or creating, for the benefit
of the Land or Improvements, any easement, right, or license
in any way affecting other property, and in, to and under
any streets, ways, alleys, vaults, gores, or strips of land
adjoining the Land or any part thereof, and all claims and
demands at law and in equity, in possession or expectancy,
relating to the Land and/or Improvements;
(d) all of Chemtrusion's personal property, fixtures, and
equipment such as furniture, furnishings, pipes, ducts,
conduits, dynamos, motors, engines, compressors, generators,
boilers, stokers, furnaces, pumps, tanks, elevators,
escalators, switchboards, security systems, sprinkler
systems, fire prevention and extinguishing apparatus, all
refrigerating, air-conditioning, heating, plumbing,
ventilating, gas, steam, electrical, and lighting fittings
and fixtures, and all building materials, equipment, and
goods now or hereafter delivered to the Land and intended to
be installed in the Improvements, and all other machinery,
fixtures, tools, implements, apparatus, appliances,
compounding equipment, mixers, vats, storage vessels,
laboratory equipment, forklifts, trailers, computers,
software, mechanical equipment, goods, facilities, and other
personal property of every kind and character whatsoever,
together with all renewals, replacements, and substitutions
thereof and therefor, and all additions and accessions
thereto, now or hereafter located or situated in or upon or
affixed or attached to or used in connection with the
operation of all or any portion of the Land and/or
Improvements (excluding Chemtrusion's off-site assets which
are also used in connection with Chemtrusion's business
other than the operations of the Plant) (collectively, the
"Personal Property"); and
(e) all of Chemtrusion's rights under all agreements, contracts,
permits, licenses, bonds, public improvement agreements, and
plans and specifications relating to the construction and/or
operation of the Plant or of the Improvements including,
without limitation, all contracts with all general
contractors, subcontractors, laborers, materialmen,
engineers, and architects subject to Section 8.4 of the
Definitive Agreement.
The Land, Improvements, Fixtures, Personal Property, and all other
properties, rights, and interests hereinabove described are collectively
called the "Property".
2
<PAGE> 127
2. Option and Put Period. The Option and Put granted in Section 1
above shall commence as of the date hereof and shall expire if not
exercised within the time limits set forth in Sections 6 and 7 hereof (the
"Option/Put Period").
3. Option Consideration. The Option and Put are granted in
consideration of and as an integral part of the consideration contained in
the Definitive Agreement, the receipt and sufficiency of which are hereby
acknowledged by Chemtrusion and Mytex.
4. Date and Place of Closing. The closing of the purchase and sale
herein contemplated (the "Closing") shall take place at the offices of
Cochran, Rooke & Craft, L.L.P., 2200 Post Oak Boulevard, Suite 700,
Houston, Texas, or at such other location as the Parties may mutually
determine, commencing at 9:00 a.m. local time (i) in the case of an
exercise of the Option or Put upon expiration of the Definitive Agreement,
on the last business day of the term of the Definitive Agreement, and (ii)
in the case of an exercise of the Option or Put upon termination of the
Definitive Agreement upon the default of either Party, on the first
business day following the expiration of 30 days after notice of exercise
of the Option or Put is given in accordance with the terms hereof, or on
such other date as the Parties may mutually determine.
5. Purchase Price. The total purchase price consideration (the
"Purchase Price") to be paid by Mytex to Chemtrusion for the Property shall
be as follows:
[confidential - filed separately with SEC]
6. Exercise of Option. Mytex may exercise the Option (a) in the
event Mytex does not renew the Definitive Agreement at the end of the
Primary Term or any Renewal Term, upon giving Chemtrusion written notice at
least 120 days prior to the expiration of such Primary Term or Renewal
Term, or (b) upon termination of the Definitive Agreement by Mytex pursuant
to Paragraph (b) or (c) of Section 9.2 of the Definitive Agreement upon
giving Chemtrusion written notice thereof within 14 days of such
termination.
7. Exercise of Put. Chemtrusion may exercise the Put (a) in the
event Mytex does not renew the Definitive Agreement at the end of the
Primary Term or any Renewal Term, upon giving Mytex written notice at least
sixty (60) days prior to the expiration of such Primary Term or Renewal
Term, or (b) upon termination of the Definitive Agreement by either Party
pursuant to Section 9.2(b) or (c) of the Definitive Agreement upon giving
Mytex written notice thereof within 21 days after such termination.
8. Automatic Termination. In the event Mytex fails to exercise the
Option in accordance with the terms hereof within the Option/Put Period,
the Option and all rights of Mytex hereunder shall automatically and
immediately terminate without notice. In the event Chemtrusion fails to
exercise the Put in accordance to the terms hereof within the Option/Put
Period, the Put and all rights of Chemtrusion hereunder shall automatically
and immediately terminate without notice.
3
<PAGE> 128
9. Representations and Warranties of Chemtrusion. Chemtrusion
represents and warrants to Mytex that, as of the date of this Contract and
as of the Closing, the following are true and correct:
(a) Chemtrusion at Closing will convey the Land, Fixtures and
Improvements to Mytex by special warranty deed, subject to
no matters other than the Permitted Encumbrances (as defined
below);
(b) There are no pending attachments, executions, assignments
for the benefit of creditors, or voluntary or involuntary
proceedings in bankruptcy or under any debtor relief laws,
or for the appointment of a receiver, conservator, or
similar person, against or affecting the Property, and, to
the best of Chemtrusion's knowledge and belief, there are no
reasonable grounds for same;
(c) Except for those listed on Exhibit "B" attached hereto (the
"Permitted Encumbrances"), as of Closing there will be no
outstanding debts, liabilities, or obligations arising from
the construction, ownership, or operation of the Property,
and Chemtrusion has paid all taxes, charges, and assessments
against the Property and/or imposed upon Chemtrusion
relating to the Property and all costs, fees and expenses
incurred in connection with the Property, then due, and no
creditor, claimant, or obligee is entitled to enforce a
claim or lien against the Property or any part thereof, and
with regard to those matters described on Exhibit "B"
attached hereto, there are no breaches or defaults under any
of same which could reasonably be expected to adversely
affect the Property or Chemtrusion's performance of its
obligations hereunder;
(d) Chemtrusion is a Delaware corporation, duly formed and
organized and validly existing under the laws of the State
of Delaware;
(e) Chemtrusion has no knowledge that there are any toxic,
explosive, or otherwise dangerous materials concealed within
or buried beneath the Land or that any of the same have ever
been removed from the Land, other than in compliance with
the Definitive Agreement.
9A. Representations and Warranties of Mytex. Mytex represents and
warrants to Chemtrusion that, as of the date of this Contract and as of the
Closing, the following are true and correct:
(a) Mytex is a Delaware general partnership of affiliates of
Mitsubishi Chemical America and Exxon Chemical Company, and
Mytex is duly organized as a general partnership under the
laws of the state of Delaware
4
<PAGE> 129
and the partners in Mytex are corporations duly formed and organized and
validly existing under the laws of their jurisdictions of incorporation;
(b) Mytex has the power and authority to purchase the Property
under this Contract and to assume the obligations required
to be assumed by Mytex hereunder, and all partnership action
required to authorize the execution, delivery and
performance of this Contract has been taken prior to the
date hereof; and
(c) Upon the Closing of the Option or the Put pursuant to the
terms hereof, Chemtrusion shall have no further obligations
or liabilities with respect to the operations or ownership
of the Property from and after such Closing, and shall have
no further obligations or liabilities under the Plant Loan
or the Contractual Obligations.
10. Items to be Delivered at Closing.
At Closing, Chemtrusion shall deliver to Mytex each of the
following items:
(a) a Special Warranty Deed in form and content reasonably
satisfactory to Mytex, duly executed and acknowledged by
Chemtrusion, conveying to Mytex the Land, Fixtures and
Improvements, subject only to the Permitted Encumbrances;
(b) a Bill of Sale in form and content reasonably satisfactory
to Mytex, duly executed and acknowledged by Chemtrusion,
conveying to Mytex full title to the Personal Property,
subject only to the Permitted Encumbrances;
(c) copies of all books, records, files, documents, maps,
surveys, reports, test results, contracts, letters, and
other papers in the possession and control of Chemtrusion
which relate in any way to the Property or any part thereof,
or the ownership, construction, operation, management,
maintenance or use thereof;
(d) an Assignment and Assumption Agreement in form and content
reasonably satisfactory to Mytex and Chemtrusion, duly
executed and acknowledged by Chemtrusion, assigning to Mytex
all benefits under, and pursuant to which Mytex will assume
all liability associated with, Chemtrusion's agreements,
contracts, permits, licenses, bonds, public improvement
agreements, and plans and specifications relating to the
construction of the Improvements and the development,
management, maintenance, and operation thereof;
5
<PAGE> 130
(e) a current certificate issued by a company reasonably
acceptable to Mytex showing all Uniform Commercial Code
filings, chattel mortgages, assignments, pledges, or other
encumbrances that have been filed against the Property or
any part thereof in the jurisdictions in which the Plant is
located and a certification by Chemtrusion that each such
filing relates only to Permitted Encumbrances;
(f) a certificate in form and content reasonably satisfactory to
Mytex, duly executed by Chemtrusion, confirming that, as of
the date of Closing, all of the warranties and
representations set forth in Section 9 above are true and
correct;
(g) a certificate in form and content reasonably satisfactory to
Mytex, duly executed by Chemtrusion, confirming that
Chemtrusion has the power and authority to sell the Property
pursuant to this Contract and that the person or persons
executing all documents required for the Closing on behalf
of Chemtrusion have full right, power and authority to do
so;
(h) a Non-Foreign Person Affidavit in form and content
satisfactory to Mytex, duly executed and acknowledged by
Chemtrusion; and
(i) all original building permits, sewer permits, zoning
designations, construction contracts, invoices and receipts
relating to the construction of the Improvements, and all
other agreements, contracts, permits, licenses, bonds, plans
and specifications, change orders, authorizations, and
approvals in any way relating to or affecting the Property
or the use or operation thereof then in Chemtrusion's
possession or control.
At Closing, Mytex shall (i) pay the Option Price or Put Price, as
appropriate to Chemtrusion, (ii) execute and deliver to Chemtrusion the
Assignment and Assumption Agreement described in paragraph (d) above; (iii)
deliver to Chemtrusion a certificate in form and content reasonably
satisfactory to Chemtrusion, duly executed by Mytex, confirming that, as of
the date of the Closing, all of the warranties and representations set
forth in Section 9A are true and correct; and (iv) to the extent
applicable, execute and deliver an assumption agreement reasonably
satisfactory to Chemtrusion with respect to the remaining principal balance
of the Plant Loan.
11. Defaults; Remedies.
(a) Defaults. A party shall be deemed to be in default hereunder
if any of the warranties or representations herein made by such party
are untrue or if either party shall fail to meet, comply with, or
perform any covenant, agreement, obligation, or undertaking to be
performed by such party hereunder within the time limits and in the
manner required herein.
<PAGE> 131
(b) Remedies. In the event of a default hereunder, either party
may enforce specific performance of this Contract against the other,
seek damages resulting from such default, or pursue any other rights
or remedies available to it at law or in equity, and no right, remedy,
or recourse herein conferred upon or reserved to such party is
intended to be exclusive of any other right, remedy, or recourse which
such party may be entitled to exercise against the other, and each and
every such right, remedy, and recourse shall be cumulative and shall
be in addition to all others given hereunder, or now or hereafter
existing at law or in equity or by statute. No delay or omission by
either party in exercising any right, remedy, or recourse upon the
occurrence of any breach or default hereunder shall impair any such
right, remedy, or recourse, or any other right, remedy or recourse of
such party, or be construed as a waiver of any such breach or default,
or right, remedy, or recourse, or any acquiescence in any such breach
or default, and such party may exercise every right, remedy and
recourse available to it from time to time and as often as may be
deemed expedient, and resort to any such rights, remedies or recourse
shall not prevent the concurrent or subsequent pursuit by such party
of any other appropriate right, remedy, or recourse against the other.
12. Real Estate Commission. Mytex and Chemtrusion each represent and
warrant to the other that no broker, real estate agent, or any other party
entitled to receive a fee or commission as a result of the purchase and
sale herein contemplated, has been or will be involved in any manner with
the purchase and sale herein contemplated, and should any broker, agent, or
other party claim a fee or commission in respect of the purchase and sale
herein contemplated, such claim and all costs incurred in connection
therewith and all litigation relating thereto shall be handled by and be
the sole expense and responsibility of the party whose actions form the
basis of the claim, and each party hereto agrees to indemnify the other
party hereto for such claims.
13. Notices. Unless otherwise provided herein, any notice, tender,
or delivery to be given hereunder by either Party to the other Party may be
effected by personal delivery in writing or by registered or certified
mail, postage prepaid, return receipt requested, and shall be deemed
received as of actual receipt. Mailed notices shall be addressed as set
forth below, but each Party may change its address by written notice in
accordance with this Paragraph 12.
To Chemtrusion: Chemtrusion, Inc.
7115 Clinton Drive
Houston, Texas 77020
Attn: Scott Owens, President
Telephone: (713) 675-1616
Facsimile: (713) 675-8479
7
<PAGE> 132
With a copy to: N.L. Stevens, III
Gardere Wynne Sewell & Riggs
333 Clay, Suite 800
Houston, Texas 77002
Telephone: (713) 308-5774
Facsimile: (713) 308-5807
To Mytex: Mytex Polymers
1501 Baytown East Freeway
Suite 107
Baytown, Texas 77521-1349
Attn: General Manager
Telephone: (713) 425-4939
Facsimile: (713) 425-4940
With a copy to: Mr. Michael R. Rooke
Cochran, Rooke & Craft, L.L.P.
2200 Post Oak Blvd., Suite 700
Houston, Texas 77056
Telephone: (713) 621-6600
Facsimile: (713) 621-8562
14. Entire Agreement; Exhibits. This Contract and the Exhibits
hereto and the Definitive Agreement contain the entire agreement between
the Parties relating to the subject matters hereof. Any oral
representations or modifications concerning this Contract shall be of no
force or effect, excepting a subsequent modification in writing signed by
the party to be charged. The Exhibits hereto are fully incorporated herein
by reference.
15. Jurisdiction and Invalid Provisions. This Contract shall be
governed by the internal laws of the State of Texas (without regard to the
conflicts of laws principles thereof). If any provision of this Contract
is held to be illegal, invalid, or unenforceable under any present or
future laws, (a) such provision shall be severed herefrom and this Contract
shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part of this Contract, (b)
the remaining provisions hereof shall remain in full force and effect and
shall not be affected by the illegal, invalid, or unenforceable provision
or by its severance from this Contract, and (c) in lieu of any such
illegal, invalid, or unenforceable provision, there shall be added
automatically as a part of this Contract, a provision as similar in terms
to such illegal, invalid, or unenforceable provision as possible without
causing either the added provision or any other provision of this Contract
to be illegal, invalid or unenforceable.
16. Parties Bound. Neither Chemtrusion nor Mytex shall be entitled
to assign this Contract or any of its rights, titles or interests hereunder
to any other party, provided, however, that this Contract
8
<PAGE> 133
may be assigned by either party to any of such party's affiliates or to any
successor or assign of all or substantially all of such party's business or
assets, and this Contract shall be binding upon and inure to the benefit of
Chemtrusion and Mytex, their respective heirs, personal representatives and
successors and permitted assigns.
17. No Merger. The representations, warranties, agreements, and
undertakings of Chemtrusion and Mytex herein contained shall survive the
Closing for a period of two (2) years from the date thereof and shall not
be merged therein.
18. Memorandum of Contract. At any time prior to the Closing, at
Mytex's option and expense, a Memorandum of this Contract, in form and
content reasonably satisfactory to Mytex, shall be executed and
acknowledged by Chemtrusion and Mytex and shall be recorded in the
appropriate records of the County in which the Property is located.
19. Headings. The headings of the sections herein are for
convenience only and shall not affect the meanings or interpretations of
the contents hereof.
20. Time. Time shall be of the essence in all things pertaining to
the performance of this Agreement.
21. Attorneys' Fees. In the event of any controversy, claim or
dispute between the Parties arising out of or relating to this Agreement or
the breach thereof, the prevailing Party shall be entitled, in addition to
such other relief as may be granted, to a reasonable sum as and for
attorneys' fees in such litigation, which shall be determined by the court
in such litigation or in a separate action brought for that purpose.
22. Terms. Any capitalized term not defined herein shall have the
meaning assigned to such term in the Definitive Agreement.
CHEMTRUSION, INC.
By:
Name:
Title:
MYTEX POLYMERS
By:
Name:
Title:
9
<PAGE> 134
THE STATE OF TEXAS
COUNTY OF HARRIS
This instrument was acknowledged before me on this ____ day of
____________, 1995, by ___________________________,
_________________________ of Chemtrusion, Inc., a ____________ corporation,
for and on behalf of said corporation.
[S E A L]
Notary Public in the
State of Texas
Printed Name of Notary:_______________________
My commission expires: _______________________
THE STATE OF TEXAS
COUNTY OF HARRIS
This instrument was acknowledged before me on this ____ day of
_____________, 1995, by _____________________________,
_________________________ of Mytex Polymers, a Texas joint venture, for and
on behalf of said joint venture.
[S E A L]
Notary Public in the
State of Texas
Printed Name of Notary:_______________________
My commission expires: _______________________
10
<PAGE> 135
EXHIBIT "A"
PROPERTY DESCRIPTION
CHEMTRUSION TRACT
A part of Survey No. 14 of the Illinois Grant in Utica Township of Clark
County, Indiana, bounded as follows:
Commencing at a brass-capped stone monument in the southeast line of Survey
No. 14 which marks the north corner of Survey No. 6 and the West corner of
Survey No. 7, thence the following courses:
South 54 deg. 18 min. 32 sec. West, 1129.56 feet with the line between
Surveys No. 6 and No. 14 to a point in the northeast line of Port Road
a private roadway.
North 35 deg. 36 min. 31 sec. West, 1516.82 feet with said northeast line
of Port Road.
South 54 deg. 23 min. 29 sec. West, 97.61 feet to an iron pin which marks
the True Point of Beginning.
Thence the following courses of the boundary:
South 54 deg. 23 min. 29 sec. West, 1220.03 feet to an iron pin, thence
southwardly 402.85 feet along a curve to the left having a radius of
463.00 feet and which is subtended by a long chord bearing
South 08 deg. 02 min. 19 sec. West, 390.26 feet to an iron pin;
North 32 deg. 42 min. 14 sec. West, 147.67 feet to an iron pin; thence
northwardly 766.12 feet along a curve to the right having a radius of
587.27 feet and which is subtended by a long chord bearing
North 03 deg. 54 min. 48 sec. East, 712.94 feet to an iron pin;
North 42 deg. 35 min. 56 sec. East, 107.58 feet to an iron pin; thence
northeastwardly 346.20 feet along a curve to the left having a radius
of 697.27 feet and which is subtended by a long chord bearing
North 27 deg. 03 min. 43 sec. East, 342.65 feet to an iron pin;
North 54 deg. 23 min. 29 sec. East, 620.63 feet to an iron pin;
South 35 deg. 24 min. 10 sec. East, 594.33 feet to the Place of Beginning
and containing 16.356 acres of land, more or less.
ACCESS EASEMENT NO. 1
Also, an access and utility easement in and to the following-described real
estate, to wit:
Commencing at the Point of Beginning of the hereinabove described 16.356
acre tract, thence the following courses:
<PAGE> 136
North 35 deg. 24 min. 10 sec. West, 49.00 feet with the northeasterly line
of said tract to the True Point of Beginning of this easement
Thence the courses of the boundary:
North 35 deg. 24 min. 10 sec. West, 80.00 feet;
North 54 deg. 23 min. 29 sec. East, 47.14 feet to a point in the westerly
line of Port Road, a private road;
South 35 deg. 36 min. 31 sec. East, 80.00 feet with said westerly line of
Port Road;
South 54 deg. 23 min. 29 sec. West, 47.43 feet to the Point of Beginning
and containing 0.087 acres of land, more or less.
ACCESS EASEMENT NO. 2
Also, an access and utility easement in and to the following-described real
estate, to wit:
Commencing at the Point of Beginning of the hereinabove described 16.356
acre tract, thence the following courses:
North 35 deg. 24 min. 10 sec. West, 448.33 feet with the northeasterly line
of said tract to the True Point of Beginning of this easement.
Thence the courses of the boundary:
North 35 deg. 24 min. 10 sec. West, 80.00 feet.
North 54 deg. 23 min. 29 sec. East, 45.71 feet to a point in the westerly
line of Port Road, a private road;
South 35 deg. 36 min. 31 sec. East, 80.00 feet with said westerly line of
Port Road;
South 54 deg. 23 min. 29 sec. West, 46.00 feet to the Point of Beginning
and containing 0.084 acres of land, more or less.
RAIL ACCESS EASEMENT
Also, a railroad access easement in and to the following described real
estate, to wit:
Commencing at the Point of Beginning of the hereinabove described 16.356
acre tract, thence the following courses:
South 54 deg. 23 min. 29 sec. West, 1220.03 feet with the southeasterly
line of said tract to an iron pin; thence southwardly 402.85 feet
along a curve to the left having a radius of 463.00 feet and which is
subtended by a long chord bearing
South 08 deg. 02 min. 19 sec. West, 390.26 feet to an iron pin which marks
the True Point of Beginning of this easement.
Thence the courses of the boundary:
<PAGE> 137
Southeastwardly 133.42 feet along a curve to the left having a radius of
463.00 feet and which is subtended by a long chord bearing
South 25 deg. 08 min. 35 sec. East, 132.90 feet; thence southeastwardly
97.31 feet along a curve to the right having a radius of 779.49 feet
and which is subtended by a long chord bearing
South 29 deg. 48 min. 58 sec. East, 97.25 feet;
South 26 deg. 10 min. 29 sec. East, 34.68 feet; thence southeastwardly
65.73 feet along a curve to the left having a radius of 447.73 feet
and which is subtended by a long chord bearing
South 29 deg. 26 min. 36 sec. East, 65.67 feet;
South 56 deg. 21 min. 05 sec. West, 30.00 feet; thence northwestwardly
70.13 feet along a curve to the right having a radius of 477.73 feet
and which is subtended by a long chord bearing
North 29 deg. 26 min. 36 sec. West, 70.07 feet;
North 26 deg. 10 min. 29 sec. West, 34.68 feet; thence northwestwardly
93.56 feet along a curve to the left having a radius of 749.49 feet
and which is subtended by a long chord bearing
North 29 deg. 48 min. 58 sec. West, 93.50 feet, thence northwestwardly
224.24 feet along a curve to the right having a radius of 493.00 feet
and which is subtended by a long chord bearing
North 20 deg. 22 min. 06 sec. West, 222.31 feet to a point in the
southwesterly line of the above-described 16.356 acre tract;
South 32 deg. 42 min. 14 sec. East, 85.01 feet with said line to the Point
of Beginning and containing 0.262 acres of land, more or less.
<PAGE> 138
EXHIBIT "B"
PERMITTED ENCUMBRANCES
1. The encumbrances and exceptions to title set forth in the Owner's
Policy of Title Insurance issued to Chemtrusion at the closing of the
purchase of the Land; and
2. The liens securing the Plant Loan; and
3. The liens arising by operation of law securing payment of sums related
to the ownership, operation or improvements of the Plant which are not
yet due and payable; and
4. Easements, rights-of-way and other encumbrances granted in the
ordinary course of business which do not materially interfere with
access to, egress from, or the use or the operation of the Property;
and
5. The liens and encumbrances set forth in the deed pursuant to which
Chemtrusion acquired the Land from the Indiana Port Commission.
<PAGE> 139
DEFINITIVE AGREEMENT ATTACHMENT I
CONSTRUCTION INCENTIVES AND PENALTIES
An on-time start-up is crucial to Purchaser in two respects:
(a) Next model year product qualification submissions are due early in
3Q96. In order for these products to be commercially supplied from
the new plant, the initial qualification submissions must also be
generated there as well. At least one line must be in a position to
produce these submissions in July, 1996.
(b) Rematrixing of existing toll processor volumes to the new plant
requires careful planning and advanced communication with affected
grades' customers. Once communicated to the customers, adherence to a
rematrixing schedule becomes business critical. Start-up delays can
quickly jeopardize existing business.
The table below defines how Supplier incentives and penalties will be
administered.
ON / BEFORE PENALTY PER
EVENT TARGET DATE INCENTIVE DAY LATE
START-UP [confidential] Line 7/01/96 [confidential - filed separately
with SEC]
START-UP [confidential] Line 8/15/96
START-UP [confidential] Line 8/15/96
START-UP [confidential] Line 8/31/96
MEET PERFORMANCE STDS 8/31/96 --- ---
PER ATTACH. D (see note) Triggers Start Mgt. Fee
NOTE: Performance standards include Plant Systems Validation (D.2) and
Grade Specific Parameters Demonstration (D.3).
<PAGE> 140 EXHIBIT 22.1
List_of_Subsidiaries_with_Active_Business_Operations
Name_of_Corporation Jurisdiction_of_
Incorporation
Chemtrusion, Inc. Delaware
InterSystems, Inc. Nebraska
Tropical Systems, Inc. Florida
<PAGE> 141 EXHIBIT 23.1
Consent of Independent
Certified Public Accountants
InterSystems, Inc.
Houston, Texas
We hereby consent to the incorporation by reference in the
Prospectuses constituting a part of the Registration Statement
No. 33-42985 on Form S-3 and Registration Statements No. 33-71582
and 33-71584, originally filed on Form S-1; and Registration
Statement No. 33-42731, originally filed on Form S-2, which have
been post effectively amended on Form S-3 of our report dated
February 27, 1996, relating to the consolidated financial
statements appearing in the Company's Annual Report on Form 10
KSB for the year ended December 31, 1995.
BDO Seidman, LLP
Houston, Texas
March 29, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE> 142 FINANCIAL DATA SCHEDULE
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 6
<SECURITIES> 0
<RECEIVABLES> 2,568
<ALLOWANCES> 0
<INVENTORY> 2,140
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0
0
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</TABLE>
