SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the Fiscal Year Ended September 30, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the Transition Period From to
Commission File No. 0-16293
LANXIDE CORPORATION
(Exact name of Small Business Issuer in its charter)
Delaware 51-0270253
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1300 Marrows Road
P.O. Box 6077
Newark, DE 19714-6077
(Address of principal executive offices) (Zip Code)
(302) 456-6200
Issuer's telephone number, including area code
-------------------
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each Class
-------------------
Common Stock, par value $.01 per share
Series A Preferred Stock, par value $.01 per share
Securities registered pursuant to Section 12(g) of the Exchange Act"
NONE
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Check whether the Issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
[ X ] Yes [ ] No
Check if there is no disclosure of delinquent filers pursuant to item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this From 10-KSB. [ X ]
Issuer's revenues for its most recent fiscal year were $16,122,000.
The aggregate market value of the voting stock held by non affiliates at
December 12, 1998, valued by reference to the bid price of such stock was
$331,400.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
The number of shares of Common Stock outstanding as of December 1, 1998 was:
1,325,598.
THIS FORM 10-KSB CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO THE
FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF LANXIDE CORPORATION,
INCLUDING STATEMENTS UNDER ITEM 1. FINANCIAL STATEMENTS AND ITEM 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. THESE
FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO ASSURANCE
CAN BE GIVEN THAT ANY SUCH MATTERS WILL BE REALIZED. FACTORS THAT MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES:
(I) COMPETITIVE CONDITIONS IN THE INDUSTRIES IN WHICH LANXIDE OPERATES; (II)
ABILITY TO FURTHER COMMERCIALIZE ONE OR MORE OF THE TECHNOLOGIES OF LANXIDE;
(III) GENERAL ECONOMIC CONDITIONS THAT ARE LESS FAVORABLE THAN EXPECTED AND (IV)
ABILITY TO SECURE ADEQUATE FUNDING.
<PAGE>
LANXIDE CORPORATION
TABLE OF CONTENTS
Number
Item 1. Business
Item 2. Property
Item 3. Legal Proceedings
Item 4. Submission of matters to a vote of security holders
Item 5. Market for Registrant's Common Equity and related stockholder
matters
Item 6. Management's discussion and analysis of results of operation
and financial condition
Item 7. Financial statements and supplementary data
Item 8. Changes in and disagreements with Accountants on Accounting
and financial disclosure.
Item 9. Directors, executive officers, promoters and control persons,
compliance with Section 16(a) of the Exchange Act
Item 10. Executive compensation
Item 11. Security ownership of certain beneficial owners and management
Item 12. Certain relationships and related transactions
Item 13. Exhibits, Lists and reports on Form 8K.
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ITEM 1. BUSINESS
Introduction
The Company is engaged in the development and commercialization of products
based upon a variety of material process technologies which represent novel
approaches to the fabrication of ceramic-reinforced composite products. The
Company's patented technology has enabled it to engineer a new class of
high-performance materials, LANXIDE(TM) composites, which offer superior
combinations of properties tailored to meet specific customer needs. LANXIDE(TM)
composites combine many of the features of ceramic metals, and polymers. Its
technologies include a ceramic composite material process known as DIMOX(TM)
directed metal oxidation, a metallic composite material process known as
PRIMEX(TM) pressureless metal infiltration, a ceramic polymer material known as
CERASET(TM), and a process for making ceramic coated graphite. LANXIDE(TM)
composites provide new class of structural materials which exhibit combinations
of strength, damage tolerance, shape versatility, hardness, lighter weight,
stiffness, chemical stability and temperature tolerance previously unavailable
in a single class of materials. The Company has developed proprietary processes
enabling the creation of LANXIDE(TM) composites in a wide range of sizes and
complex shapes and possessing a broad spectrum of performance characteristics.
The Company believes that products made from LANXIDE(TM) composites provide
substantial cost/performance improvements over materials traditionally used in
numerous industrial and commercial applications. The Company has developed
electronic components, optical components, automotive engine and brake
components, sporting goods components, heat exchangers, refractory components,
armor, industrial pump and cyclone components, components for gas turbine
engines, rocket engine components and certain other aerospace components, some
of which are currently being produced by the Company or its affiliates and
licensees in limited quantities.
Based initially on a series of discoveries relating to metals oxidation, the
Company has developed a unique process technology for engineering a broad
spectrum of ceramic/metal composites. The LANXIDE(TM) process technology relies
on relatively low cost processing equipment, metals of commodity purity and
relatively low temperature requirements. Advantages of the LANXIDE(TM) process
technology include ease of component fabrication, the ability to combine a wide
range of materials to tailor properties for specific applications, the ability
to make complex shaped parts that require little machining, and the ability to
make large parts. The Company believes that the simplicity and manageability of
this process technology provides the basis for commercial scale production of
components made of LANXIDE(TM) composites.
In 1993, to complement the extensive materials base generated internally, the
Company acquired substantially all of the assets and patents associated with
CERASET(TM) ceramer (ceramic-backboned polymer), ceramic paper and GEMINI(TM)
microcomposite technologies from Hercules, Inc. These chemically-derived
materials and processes provide additional advantages for the Company's
reinforced metals and reinforced ceramics processes, and extend the Company's
advanced materials portfolio into the rapidly expanding area of high-performance
polymer composites, adhesives, sealants and coatings.
The Company believes that the market opportunities for the Company's products
extend broadly across the basic processing, automotive, aerospace and defense,
electronics, machine tool, mining, chemical, glass, paper, textile, cement, rail
transport and sporting equipment industries. Since 1983, in excess of
$275,000,000 has been expended for the research, development and
commercialization of the Company's technology. Such amounts have been funded
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through equity issuances, borrowings, joint venture partners, including Alcan
Aluminium, Ltd. (Alcan) , E. I. DuPont de Nemours & Company (DuPont) and
Kanematsu Corporation (Kanematsu), and the U.S. Government. Prior to 1995, the
Company's business strategy was to develop and commercialize its technology and
products exclusively through individual subsidiary businesses and selective
market-focused joint ventures and partnerships utilizing its own resources,
those of world-class industrial partners, and contract funding from the U.S.
Government. In furtherance of such strategy, from 1983 through 1995, the Company
structured 11 affiliated businesses in a series of commercialization ventures.
The Company's affiliated partners included Alcan, DuPont, Kanematsu and Nihon
Cement Co., Ltd. (Nihon Cement). Due to changes in certain partners' business
strategies, Alcan, Dupont and Kanematsu are no longer business partners with the
Company.
Primarily as a result of continuing expenses and increasing capital requirements
from its business ventures, the Company took steps in March 1995 to reduce
demands for capital and to shore up its cash reserves, including the reduction
of its work force, the discontinuance of two of its commercial ventures, the
sale of one of its subsidiaries and the sale of majority interests in three of
its other subsidiaries. In addition, the Company embarked on a program to
license its technology in certain specific market sectors by product and
geography, in exchange for license fees and continuing royalties. Since
implementing such licensing strategy, the Company consummated license agreements
with A.P. Green Industries, Inc. (A.P. Green), Waupaca Foundry, Inc. (Waupaca),
Sturm Ruger & Company (Sturm Ruger), Brembo S.p.A. (Brembo), AKN Corporation
(AKN), Nihon Cement Co., Ltd. (Nihon), AlliedSignal, Inc. (AlliedSignal), two
subsidiaries of Commodore Environmental Services, Inc.
(Commodore), and M3 Technologies, Inc. (M3).
Recent Developments
Termination of Employees
ON JANUARY 6, 1999 THE COMPANY CLOSED ITS PLANT FACILITY AND TERMINATED
SUBSTANTIALLY ALL OF ITS EMPLOYEES DUE TO A LIQUIDITY SHORTFALL. UNLESS THE
COMPANY IS ABLE TO SELL ADDITIONAL LICENSES, EQUIPMENT OR LINES OF BUSINESS IN
THE IMMEDIATE FUTURE, THE COMPANY MAY FILE FOR BANKRUPTCY. THE BOARD OF
DIRECTORS AND MANAGEMENT ARE CURRENTLY CONSIDERING THESE OPTIONS.
On February 3, 1998, the Company terminated substantially of its employees, as
well as those of three of its subsidiaries located at the Company's Newark,
Delaware offices, as a result of its inability to secure adequate funding to
continue its operations. The Company subsequently hired back approximately 30
employees and has restructured its operations.
Assignment of Option; Sale of Subsidiaries
DuPont entered into an agreement with PNC Bank (PNC), pursuant to which DuPont
agreed to guarantee the Company's obligations to PNC under a Revolving Credit
and Term Note, dated February 24, 1993, in the original principal amount of
$5,970,000 (the PNC Bank Loan). In consideration for DuPont's guarantee, the
Company and DuPont had entered into a Loan Guarantee Letter Agreement, dated
December 15, 1992 (as amended, the Guarantee Agreement), pursuant to which the
Company granted to DuPont, as collateral, an option (the Option) to acquire all
of the outstanding common equity securities of Lanxide Armor Products, Inc.
(LAP) and Lanxide Electronic Components, Inc. (LEC). DuPont's exercise of the
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Option would release the Company from all obligations and liabilities under the
PNC Bank Loan. Under the terms of the Guarantee Agreement, the Option would
become exercisable by DuPont upon the Company's notification to DuPont of the
Company's inability to meet its obligations under the PNC Bank Loan.
In a letter agreement entered into between the Company and DuPont, dated
February 6, 1998, the Company notified DuPont that the Company would not meet
its obligations under the PNC Bank Loan. Accordingly, the Company consented to
DuPont's assignment of its right to exercise the Option to DHB Capital Group,
Inc. (DHB) and DuPont agreed to repay the Bank all amounts owed by the Company
to the Bank under the PNC Bank Loan.
Concurrent with the assignment of the Option by DuPont to DHB, the Company
entered into a Transfer Agreement, dated as of February 6, 1998 (the Transfer
Agreement), by and among the Company, DHB, LAP, LEC and Lanxide Technology
Company, L.P. (LTC), pursuant to which DHB elected to exercise the Option and,
accordingly, the Company transferred to DHB all of the outstanding common equity
securities of LEC and LAP. Pursuant to the Transfer Agreement, LEC and LAP have
each amended their existing license agreements with LTC to provide royalties to
LTC on future sales by LEC and LAP relating to the Company's technologies.
Termination of Voting Agreement; Resignation of Directors and Officers
On July 3, 1997, Commodore assumed effective control of the Company pursuant to
a Voting Agreement among the Company and certain of its stockholders (the Voting
Agreement) which was executed in connection with certain transactions
contemplated by a Securities Purchase Agreement, dated July 3, 1997, between the
Company and Commodore (Securities Purchase Agreement). Pursuant to the Voting
Agreement, stockholders of the Company who owned 664,329 shares of common stock
or 50.1% of the outstanding common stock, granted proxies to the members of the
Board of Directors of Commodore (the Proxyholders) to vote all shares of common
stock held by each such stockholder until December 31, 1998.
Under the Securities Purchase Agreement, the Company sold 10,000 shares of
Series G Preferred Stock (Series G Stock) on July 3, 1997 and an additional
10,000 shares of Series G Stock on July 28, 1997 to Commodore. The aggregate
purchase price for the 20,000 shares of Series G Stock was $2.0 million. In
addition, pursuant to the Securities Purchase Agreement, on July 3, 1997, the
Company issued to Commodore a warrant to purchase 250,000 shares of Series F
Preferred Stock ( Series F Stock) at an exercise price of $100 per share.
Pursuant to the terms of the agreement, the warrant could be exercised, in part,
by the exchange of the shares of Series G Stock acquired pursuant to the
Securities Purchase Agreement for a like number of shares of Series F Stock.
The Series G Stock was not convertible and was not entitled to vote or to
receive dividends. The Series G Stock could be redeemed by the Company after
December 31, 1998 to the extent such shares had not been used to exercise the
warrant. The terms of the Series F Stock included, among other things, (a) the
right to convert into shares of Common Stock at a rate, subject to adjustment,
of 13.5 shares of Common Stock for each share of Series F Stock; (b) a mandatory
conversion by the holders upon certain events, including the sale by the Company
of at least $10 million of Company securities in a public offering or a private
placement prior to the time that Commodore exercises at least $10 million of the
warrant; and (c) the right to elect four of the seven members of the Board of
Directors of the Company. The Company claimed an exemption from registration of
the foregoing transaction under the Securities Act of 1933, as amended, (the
Securities Act) pursuant to Section 4(2) of the Securities Act.
<PAGE>
In accordance with the Securities Purchase Agreement, the Board of Directors of
the Company increased the number of members on the Company's Board of Directors
to seven and elected Messrs. Michael Fullwood and William Toller to fill the
newly created directorships. In addition, the Board of Directors of the Company
appointed Mr. Toller to the position of Vice Chairman and Senior Executive
Officer of the Company and Mr. Fullwood to the position of Senior Vice
President, Chief Financial and Administrative Officer and General Counsel of the
Company.
On February 3, 1998, COES terminated the Voting Agreement and accordance with
its terms, Messrs. Fullwood and Toller resigned from their respective positions
as directors and officers of the Company. In connection with the termination of
the Voting Agreement, COES notified the Company that it would not purchase
additional securities contemplated by the Securities Purchase Agreement. On
February 6, 1998, Paul E. Hannesson, chairman of the Board of Directors of the
Company and COES, resigned from his position on the Company's Board of
Directors. Messrs. Stephen A. Weiss and J. Frederick Van Vranken, Jr. resigned
from their positions on the Company's Board of Directors on February 11 and 12,
1998, respectively. On March 5, 1998 Michael J. Hollins was appointed to serve
on the Board of Directors, which currently consists of three directors: Messrs.
Bentley J. Blum, Marc S. Newkirk and Michael J. Hollins.
Transactions with Commodore Environmental Services, Inc.
On March 5, 1998 the Company entered into a series of transactions with
Commodore and certain of its subsidiaries pursuant to which, among other things,
Commodore paid $500,000 cash and its subsidiaries agreed to cancel $4,500,000 in
indebtedness plus accrued interest of $300,000 owned by subsidiaries of Lanxide
(which was guaranteed by Lanxide) in exchange for the issuance of a
royalty-bearing license to use CERASET (TM) on a worldwide basis, excluding
Japan (the "License"), which grants Commodore certain business and technology
rights that do not conflict with the rights of Lanxide's other licenses or
future licenses in the fields for metal matrix composites and ceramic matrix
composites.
In connection with the issuance of the License, Lanxide and Commodore amended
the Securities Purchase Agreement, such that (i) Lanxide and Commodore each
agreed to exchange all of the issued and outstanding shares of Series G
Preferred stock, which are held by Commodore, for an equal number of Series H
Preferred Stock of Lanxide (Series H Preferred Stock); (ii) Commodore's right to
purchase additional shares of Series G Preferred Stock pursuant to the terms of
the original purchase agreement was cancelled; (iii) Lanxide issued warrants to
Commodore for the purchase of up to 270,000 shares of Lanxide's common stock, at
an exercise price of $7.41 per share; and (iv) Commodore's right to purchase
250,000 shares of Series F Preferred Stock pursuant to the existing warrant was
cancelled. The Series H Preferred Stock does not pay dividends and is not
convertible, however, it carries a liquidation preference of $2,000,000. In
addition, holders of the Series H Preferred Stock may utilize such securities to
satisfy the exercise price of the warrants described in item (iii) above based
on the liquidation value of the preferred stock.
<PAGE>
Loan from Lanxide K.K.
On December 29, 1997, Lanxide K.K., a 65% owned Japanese subsidiary, agreed to
loan $1.8 million to the Company (the Lanxide K.K. Loan). The Company received
$1.3 million on December 29, 1997 and an additional $0.5 million on January 12,
1998. The Lanxide K.K. Loan was to mature on January 31, 1998 and bore interest
at the rate of 6% per annum. Upon an event of default under the Lanxide K.K.
Loan, the Company was required to transfer to Lanxide K.K. its 10% ownership in
DuPont Lanxide Composites, Inc. (DLC). The loan came due and the Company
negotiated an assignment and transfer with Lanxide K.K. on April 1, 1998 to
settle the outstanding balance. As a result of the settlement, the Company's
interest in DLC was transferred to Lanxide K.K. on June 23, 1998 in full
satisfaction of the Lanxide K.K. Loan.
Restructuring of Lanxide K.K.
The operations of Lanxide K.K. have been discontinued. By an agreement on April
1, 1998, between the Company and Kanematsu (the then minority owner of Lanxide
K.K.), the net assets of Lanxide K.K. have been distributed to the owners, 65%
to Lanxide and 35% to Kanematsu. The Company distribution from Lanxide K.K. has
in turn been paid over to Kanematsu as a payment against the Company's loan from
Kanematsu . Distribution rights to sell electronic components in Japan using
Lanxide technology have been sold by Lanxide K.K. to Lanxide Electronic
Components, Inc., a subsidiary of DHB. The proceeds from that sale have also
been distributed proportionately to Kanematsu and the Company, again with the
Company's distribution being further applied to its balance on the Kanematsu
loan. While there is the potential for some further economic benefit to the
Company under certain circumstances from the further sale of the former
distribution rights of Lanxide K.K., the former subsidiary is inactive, and the
Company no longer owns any stock in Lanxide K.K. In that connection, the Company
has taken back all of the rights to its technology in Japan, with the exception
of previously licensed rights to Nihon, AKN Celanx K.K., LEC, LAP and DLC.
Restructuring of Loan with Kanematsu Corporation
The Company and KG have agreed to restructure the $10 million loan from
Kanematsu (Capital Loan) to the Company that had been scheduled to mature in
December 1998. Under the new agreement, payments have been applied to the loan
balance from the sale of certain equipment, the conversion of part of the loan
to an equipment installment loan dated April 10, 1998 and amended July 10, 1998
(Installment Note), and the disposition of Lanxide K.K. described above. The new
payment schedule for the loan requires principal and interest payments over a
seven-year period commencing April 1, 1999. During the moratorium of principal
payments in effect until that date, the Company is required to make nine
payments of $5,000 each toward interest on the loan. The interest rate on the
loan was reduced as of July 1, 1998 from LIBOR plus 2% to the Japanese Yen Long
Term Prime Rate of the Industrial Bank of Japan plus 1%. As noted above and as
part of the restructuring of the Kanematsu loan, the Company has agreed to sell
certain equipment and apply the proceeds from such sales to reduce the loan
principal. The Installment Note was in the initial amount of $1.9 million and
will mature over an eight-year period commencing May 10, 1998. The interest rate
on the Installment Note is LIBOR plus 2%.
New and amended License Agreements
On November 1, 1997 the Company issued a royalty bearing license to Nihon Cement
to use and sell Ceraset TM Polyureasilazane Polymers in Japan.
<PAGE>
On March 5, 1998 as noted above, the Company issued a royalty bearing license to
Commodore to use Ceraset TM on a worldwide basis excluding Japan which grants
certain business and technology rights that do not conflict with the rights of
Lanxide's other licenses or future licenses in the fields for metal matrix
composites and ceramic matrix composites.
On August 11, 1998, the Company issued two licenses to AlliedSignal in the field
of friction materials. One license is for a worldwide territory, outside Japan,
and the other license is for the territory of Japan. Simultaneous with the
issuance of the licenses to AlliedSignal, Lanxide K.K. sold its 10% interest in
DLC to AlliedSignal, whereby by prior agreement 65% of the proceeds were applied
to reduce the Capital Loan from Kanematsu. The combination of these related
transactions resulted in revenues of $1.1 million for the Company.
On September 18, 1998, the Company amended its licenses agreement with M3
Technologies, Inc. (M3) to clarify and slightly expand the field of
manufacturing activities licensed to M3. The expansion included semi-conductor
production equipment. The Company received a license fee, which is included in
licensing and royalty revenue. In addition the Company will receive various
royalties on sales for the additional fields granted to M3 in the license.
Subsequent Events
On November 17, 1998 the Company sold its ownership interest in Alanx Wear
Solutions, Inc. (Alanx) to Allied Resource Corporation (ARC) for $80,000. ARC
owned 90% of the common stock of Alanx and 100% of its convertible preferred
stock. The Company's 10% portion in the common stock of Alanx was non-strategic
to the Company and had little prospect of producing income to the Company in the
future.
On January 6, 1999 the Company closed its plant facility and terminated
substantially all of its employees due to a liquidity shortfall. Unless the
Company is able to sell additional licenses, equipment or lines of business in
the immediate future, the Company may file for bankruptcy. The board of
directors and management are currently considering these options.
Business Strategy
The market opportunities for the Company's products extend broadly across the
basic processing, automotive, aerospace and defense, electronics, machine tool,
mining, chemical, glass, paper, textile, cement, rail transport and sports
equipment industries. Prior to March 1995, the Company's business strategy was
to develop and commercialize its technology and products exclusively through
individual subsidiary businesses and selective market-focused joint ventures and
partnerships utilizing its own resources, those of world-class industrial
partners, and contract funding from the U.S. Government. In furtherance thereof,
the Company structured 11 affiliates in a series of commercialization ventures.
Due to, among other things, (i) the needs of the Company and its ventures for
further funding and (ii) an increase in the number of products developed and
demonstrated using the LANXIDE(TM) technology, the Company revised its business
strategy during fiscal 1995 and embarked on a program to license its technology
in certain areas by product and geographic territory and entered into a number
of transactions relating to the sale of certain Company assets and equity
interests of the Company.
<PAGE>
The Company expects that this revised strategy will enable a greater number of
products utilizing LANXIDE(TM) technology to be commercialized in the near-term.
Although the Company will, subject to the availability of capital, continue to
commercialize products using the LANXIDE(TM) technology through its own efforts,
the Company intends to continue to seek advantageous licensing arrangements with
third parties which have the ability to commercialize products in those areas
where there are significant barriers to entry (i.e., substantial up-front costs
or the need for a substantial industry presence) or where LANXIDE(TM) technology
provides only a portion of the necessary solution. The Company believes that
such licensing arrangements will benefit the Company through the
commercialization of the LANXIDE(TM) technology in product areas into which the
Company could not otherwise expand at this time. The Company believes that
benefits from licensing include:
o Accelerated adoption and recognition of its materials and
technology.
o Allocation of available capital to those products which the
Company is best able to commercialize.
o Immediate cash flow from licensing arrangements.
The Company is engaged in discussions with a number of industrial entities in
the United States, Europe and Asia regarding the potential licensing of the
Company's technology to such entities for up-front fees and ongoing royalty
interests.
Technology, Patents and Trademarks
The Company's patented technologies include reinforced metals made by the
PRIMEX(TM) pressureless metal infiltration process and the PRIMEX CAST(TM)
foundry process, reinforced ceramics made by the DIMOX(TM) directed metal
oxidation process, and reinforced polymers or reinforced ceramics made using
CERASET(TM) ceramers.
The Company's PRIMEX(TM) reinforced metal technology offers features such as
size and shape versatility; as formed, high tolerance dimensional capabilities;
low processing costs; and engineerable properties. Reinforced metals are
produced using the PRIMEX(TM) pressureless metal infiltration process, which
occurs spontaneously in a controlled atmosphere above the melting point of a
matrix alloy which is employed. The alloy infiltrates preformed configurations
of reinforcing materials without pressure or vacuum. Either continuous or
discontinuous reinforcements are accommodated, and a wide range of volume
fractions of reinforcement can be produced. Near-net or net shaped components
with reinforcement volume fractions of 30% to 80% are made by forming the filler
into a shaped preform which is then infiltrated. Examples of composites produced
are aluminum reinforced with aluminum oxide, aluminum nitride, and silicon
carbide. Components containing from 5% to 40% by volume of reinforcement can be
produced by conducting the infiltration process with excess aluminum, dispersing
the filler uniformly into the excess aluminum by stirring, and then using
conventional casting techniques to form composite articles.
The Company's DIMOX(TM) reinforced ceramic technology is based upon a unique,
patented approach to the creation of composites by the use of a directed
oxidation mechanism. The process grows ceramic matrix composite, via an
oxidation reaction between a molten metal and an adjacent oxidant. The technique
is generic and applies to numerous ceramic/metal systems, including oxides,
nitrides, carbides and borides of metals such as aluminum, silicon, titanium,
zirconium and hafnium.
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A key feature of the DIMOX(TM) reinforced ceramic technology is that reinforcing
materials (such as fibers, particles or platelets) can be placed into the path
of the oxidation reaction so that they are captured in the developing ceramic
matrix. Through appropriate choices of parent metal, oxidant, reinforcing
material and processing conditions, the properties of the resulting composite
can be engineered for specific performance requirements. Growth of the ceramic
matrix into shaped preforms of reinforcing material produces components to final
or near-final shape, since essentially no shrinkage occurs during the process.
Simple or complex parts can be produced in a range of sizes from small to very
large.
In 1993, the Company extended its technology base by acquiring innovative,
patented CERASET(TM) ceramer, ceramic paper and ceramic microcomposite
technologies from Hercules Inc. These technologies are synergistic with the
Company's reinforced metals and reinforced ceramics processes. They have also
provided a proprietary basis for extension of the Company's endeavors into
polymer and reinforced polymer components, coatings, sealants and adhesives,
monolithic ceramics and ceramic and reinforced ceramic coatings.
CERASET(TM) ceramers are a unique family of low viscosity liquid, thermosettable
ceramic-backboned, polyureasilazane-based polymers. These polymers have
exceptional thermal stability, corrosion resistance and rigidity. As
temperatures are increased from 400(degree)C to 1400(degree)C, the polymers
progressively condense and cross-link as polymers, ultimately converting to
ceramic compounds, such as silicon nitride, silicon carbide or aluminum nitride,
depending on the specific polymer and processing conditions. Certain CERASET(TM)
ceramers, when applied as fluids and then thermoset, exhibit strong adhesion to
both metals and ceramic materials. This characteristic makes the polymers
especially well-suited for making polymer matrix composites or for applications
as binders for metal or ceramic particulate processing. The polymers can be used
to prepare parts that are both strong and rigid by mixing a ceramic powder into
the liquid polymer, forming the desired shape and then thermosetting the shape
to achieve required strength.
Certain CERASET(TM) ceramers can also be combined with certain traditional
organic polymers (urethane, epoxies, acrylics, etc.) to produce CERASET(TM)
hybrid polymers, applicable to both composites and coatings. With only limited
additions of certain CERASET(TM) polymers, properties such as temperature
stability, corrosion resistance, moisture resistance, wear resistance, strength,
toughness and stiffness of the base polymers can be improved in many instances,
while retaining advantageous processing characteristics. The hybrid polymeric
materials can be reinforced with ceramic or metallic constituents, further
enhancing performance such as strength, rigidity, thermal conductivity, flame
retardancy and wear resistance. CERASET(TM) ceramers can also be used to
fabricate monolithic ceramics or ceramic matrix composites to near-net shape, to
act as binders for preforms used in the DIMOX(TM) and PRIMEX(TM) composite
formation processes, to produce high performance powders and fibers, and to act
as adhesives for both low- and high-temperature applications.
As of September 30, 1998, the Company had 329 issued patents in the United
States, none of which expires prior to 2004, with 30 additional patents pending,
and 1,166 patents issued in 42 foreign countries, none of which expires prior to
2000, with 255 additional patents pending. As is typical with most research and
development efforts, improvements to the technology contained in the Company's
early patents have been made and patented, and continue to be made and patented,
to provide the Company with continuing patent protection for its technology. In
addition, the Company believes that certain of its know-how and proprietary
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information is legally protected as trade secret information, and the Company
intends to maintain the confidential and proprietary nature of its trade secrets
and to protect future proprietary developments. The Company's core technology
patents cover its DIMOX(TM) reinforced ceramics, PRIMEX(TM) reinforced metals
and CERASET(TM) inorganic polymers, including broad claims to both processes and
materials.
The Company maintains one registered trademark. The Company's registered
trademark is LANXIDE(R). The Company and its affiliates also have rights in the
following unregistered trademarks: DIMOX(TM), DIMOX HT(TM), PRIMEX(TM), PRIMEX
CAST(TM), PRIMEXCOOL(TM), 2K+(TM), CERASET(TM), CERASET SN(TM), CG896(TM) and
CG273(TM).
The Company's patents are generally held within LTC, a wholly owned subsidiary
of the Company.
Product Development and Engineering
To support the Company's continuing efforts to increase its technology base and
to commercialize products, the Company maintains extensive product development
and engineering (PD&E) facilities and a sophisticated PD&E team. With emphasis
on product development and process engineering, the Company's PD&E activities
are fast-paced and dynamic.
A comprehensive, in-depth understanding of the DIMOX(TM) and PRIMEX(TM)
processes has been established as a result of a combination of government and
internally funded programs. Presently, materials development activities of the
Company focus on the development of new composite systems and basic
microstructure-process-property relationships. This development generates the
basis for the Company's expanding patent portfolio and provides technical
information in support of licensing, product development, and commercialization
efforts.
Product development activities of the Company are all market driven, and include
materials development, applications engineering, prototype production and
process engineering. A major component of this effort is the development of
light-weight, high-performance automotive components, such as brake components
(including rotors, drums, calipers, caliper pistons and brake pad backing
plates), connecting rods, piston pins, valve seats, bearing caps and other
engine and transmission components.
The Company has developed a ceramic reinforced aluminum castable composite that
has attractive performance and cost for applications such as train brakes and
automotive brake rotors and drums.
The Company conducts its PD&E activities in state-of-the-art laboratories, which
include such specialized facilities as analytical laboratories, a dynamic
testing laboratory and a physical properties testing laboratory. The Company's
PD&E activities occupy approximately 15,000 square feet in the Marrows Road
facility and approximately 12,000 square feet in the Forge Drive facility. See
"Item 2 - Property."
Products
<PAGE>
The following products are manufactured by the Company and its affiliates:
Ceramic-Reinforced Aluminum Ingot and Concentrate: Castable ceramic-reinforced
aluminum ingot and concentrate for production of high stiffness, low expansion,
lightweight, wear-resistant components using investment casting, sand casting,
die casting and permanent mold casting processes. Current applications include
rail and automotive brake rotors, semiconductor wafer chucks, robot arms,
photolithographic stages, avionics chassis and satellite components.
Ceramers: Ceramic-backboned thermosetting polymers for production of chemically
stable, temperature-resistant, wear resistant, uv-resistant, moisture-resistant,
non-stick and fire retardant coatings, adhesives, encapsulants, binders, fibers
and molded components.
Ceramic-Coated Graphite Components: Ceramic-coated graphite components for
fiberglass manufacturing; glass container manufacturing, paper manufacturing,
crucibles, and molten metal processing.
The following products are licensed by the Company for manufacture by
affiliates:
Lanxide ThermoComposites, Inc.
Steel refractories
The following products are licensed by the Company for manufacture by the
following non-affiliates:
Alanx Wear Solutions, Inc. (subsequent to November 17, 1998)
Wear parts
AlliedSignal, Inc.
Friction materials
AlliedSignal Composites, Inc.
Ceramic engine components, rocket engine components, reinforced heat
exchanger components, gas turbine and aerospace structural components.
AKN Corporation
Brake system components
Alcan Aluminium Corporation
Components for use in manufacturing primary aluminum.
A.P. Green Industries, Inc.
Industrial refractories
Brembo S.p.A.
Brake system components for motor vehicles
Celanx KK
Precision equipment
Commodore Applied Technologies, Inc.
Process reactor vessels
Commodore Polymer Technologies, Inc.
Certain CERASET TM polymer applications
<PAGE>
Lanxide Armor Products, Inc.
Ballistic armor
Lanxide Electronic Components, Inc.
Electronic thermal management components
Lanxide K.K.
Selected products for the Japanese market
M3 Technologies, Inc.
Semiconductor manufacturing equipment Optical components Laboratory
test equipment components Metrology components Medical diagnostic
equipment components Robot components Automation equipment components
Nihon Cement Co., Ltd.
Reinforced aluminum ingot
Ceraset TM polymer
Sturm, Ruger & Company, Inc.
Firearms components
Sports equipment components
Competition and Market Segments
The materials industry has been characterized by extensive research and
development efforts and new developments in advanced materials technology are
expected to continue at a rapid pace. The markets to which the Company's
technology and products apply are diverse in character. Market drivers differ
widely. Competition varies from market to market, both in terms of competing
entities and competing technology. Furthermore, time and resources necessary to
penetrate any market segment vary widely.
The Company's long-term success will depend, in part, upon its ability to
maintain a competitive position for its LANXIDE(TM) composites with respect to
other materials, including materials which may be developed in the future. A
number of domestic and foreign companies are actively engaged in the research
and development of advanced materials technology and many of these companies
have substantially greater financial resources and production and marketing
capabilities than the Company. In most of its target markets, the Company will
encounter competition from metal, plastic, ceramic and other materials
producers, as well as from the manufacturers of components made of these
materials. Although the Company possesses proprietary rights to its
technologies, which are commercially viable, several large multinational
corporations conduct large-scale research and development programs in the
composite materials field.
At the same time, the Company believes it has no broadscale competitor. For
example, the materials technology the Company is promoting in the ballistic
armor industry is completely different from such technology in the auto
industry, the electronics industry, the aircraft industry or the semiconductor
equipment industry. Similarly, the competing companies are generally not common
among any of those same industries. Barriers to entry in the Company's markets
vary from moderate to high, and foreign competition varies from meaningful to
non-existent, depending upon which market opportunities are being discussed.
Since the Company's technology is anticipated to be applicable in dozens of more
<PAGE>
markets (it has already been adopted in more than a dozen), it is difficult to
consider each market separately, let alone any one in depth, or to generalize
regarding their character, which is diverse. Because of this broad diversity in
competition, the Company does not characterize its competitors as primarily
advanced materials companies, composites producers, ceramics producers or
commodity metals producers.
While no competitor has to date been identified which competes broadly across
the product areas for which the Company's technology applies, the Company and
its licensees compete with a broad array of both large and small competitors in
specific market niches. Examples of such direct competitors include: B.F.
Goodrich (turbine engine parts), S.E.P. (turbine engine parts), Coors Ceramics
(wear parts and armor), Alcan Aluminium Limited and its affiliates (aluminum
composite ingot), Sumitomo Metals (electronic heat sinks), Kyocera (wear parts)
and Ube (coatings). In addition, some of the Company's suppliers are competitors
and some of the Company's competitors are also customers of the Company,
although in different product areas than those they supply to or buy from the
Company. Corporations with which the Company has collaborative development
relationships may also be conducting independent research and development
efforts in areas which are or some day may be competitive with the business of
the Company.
Sales and Marketing
The Company and its licensees manufacture limited quantities of many products,
some of which are manufactured at commercially viable production levels. The
Company competes in markets where both ceramic and non-ceramic products are
currently in use and where competitors have established marketing capabilities.
Commercial acceptance of the Company's products depends in part on the ability
of the marketing and sales forces of the Company and its licensees to
demonstrate effectively the advantages of LANXIDE(TM) products over more
traditional products. Products of the Company's technology are marketed by the
individual commercial business units which comprise the Company's affiliates and
licensees, which have their own sales and marketing staffs. The Company
additionally undertakes market development activities based at its headquarters,
aimed at identifying new opportunities which fall outside of the activities of
its existing business and that of its licenses. Such efforts are directed at
providing the basis either for further license activity or for additional
product manufacture by the Company.
Employees
Prior to January 6, 1999, the Company had employed 32 full-time employees. All
employees were provided with a standard benefits package consisting of
hospital/medical, life, disability and dental insurance, as well as educational
assistance. Employees also had access to certain savings/option plans. See "Item
10 - Executive Compensation -- Existing Company Plans." None of the Company's
employees were covered by collective bargaining agreements. The Company
considered its relationship with its employees to be good.
Regulatory Matters
The Company generates small quantities of used solvents and chemicals
categorized by Federal and/or state governments as hazardous waste in its
research and development and manufacturing operations. Disposal of such waste is
regulated by state and Federal regulations. The Company is currently engaged,
<PAGE>
and expects to engage in the future, in collaborative development and other
agreements with foreign entities. The Company must comply with Federal
regulations regarding import and export of raw materials, finished products and
technology. Although regulatory constraints in the environmental, import and
export areas do not currently pose material impediments to the Company's
operations, any substantial change in these or other regulations could have a
material adverse effect on the Company's business.
ITEM 2. PROPERTY
The Company operates from two adjacent buildings in Newark, Delaware. The
facilities include offices, laboratories, and manufacturing space. Approximately
58% of the buildings are rented to third parties with various leases that expire
between May 2000 and March 2001.
Marrows Road Facility
The Company has a lease on this facility until March, 2016, plus renewal options
for five years each. The annual lease payment is $976,000, subject to an
adjustment for inflation every five years. The Marrows Road Lease requires the
Company to comply with certain financial covenants and limits the Company's
ability, among other things, (i) to assume additional indebtedness, (ii) to
become a guarantor of contingent obligations, and (iii) to make restricted
payments (as defined therein) including the declaration of dividends on the
Company's Common Stock.
Forge Drive Facility
The Company leases this facility from an affiliate of Bentley J. Blum, a
director and principal stockholder of the Company. The lease is through December
31, 2008 for $275,000 per year with a $10,000 increase on January 1st, 1999 and
a $15,000 increase on January 1, 2004. The Company has an option to extend the
lease for another ten-year period commencing on January 1, 2009. The Company has
the right of first refusal with respect to the purchase of this property.
ITEM 3. LEGAL PROCEEDINGS
There are a number of pending legal actions from vendors regarding claims on
past due obligations. In addition, there are five legal actions from vendors
regarding claims for past due obligations of approximately $150,000. The Company
is also subject to certain purchase price adjustments related to the transaction
with DHB (See item 1). As of September 30, 1998, the Company has recorded an
accrual of $150,000 related to potential liabilities for these matters. In the
opinion of management none of the claims are expected to have a material impact
on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
None.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded in the over-the-counter market and
quoted on the OTC Bulletin Board under the symbol "LNXI" since November 14,
1995. As of December 1, 1998, the Company had approximately 106 holders of
record of the Company's Common Stock. The following table sets forth, for the
periods indicated, the reported high and low bid prices per share of the
<PAGE>
Company's Common Stock, from and after November 14, 1995, as quoted by the OTC
Bulletin Board. Such prices reflect inter-dealer quotations without retail
markup, markdown or commission and may not necessarily represent actual
transactions. The trading market for the Common Stock is extremely limited and
sporadic.
Common Stock
Year ended September 30, 1997 High Low
----------------------------- ------ ------
First quarter................................... $15.00 $10.00
Second quarter.................................. 11.00 7.50
Third quarter................................... 8.00 5.50
Fourth quarter.................................. 9.00 5.00
Year ended September 30, 1998
First quarter................................... $8.00 $5.00
Second quarter.................................. 6.00 .25
Third quarter................................... 2.00 .75
Fourth quarter................................ 1.00 .625
Year ended September 30, 1999
First quarter( to December 2, 1998)............. $0.56 .25
Dividends
The Company has never paid dividends on the Company's Common Stock and does not
intend to pay dividends in the foreseeable future. The Company's ability to
declare and pay dividends on the Company's Common Stock is limited by (i) the
Lease Agreement, dated March 28, 1996, between QRS 12-16, Inc. and the Company,
limiting the Company's ability to make restricted payments, which term includes
dividends on the Company's Common Stock; and (ii) the terms of the Company's
Series A Preferred Stock, the Series F Preferred Stock and the Series G
Preferred Stock.
Recent Sales and cancellation of Unregistered Securities
On July 3 and July 28, 1997, the Company sold certain securities to Commodore
pursuant to the term of the Security Purchase Agreement as described in Item 1.
On March 5, 1998 the Company entered into a series of transactions with
Commodore whereby it cancelled the Series F and G preferred stock and issued
Commodore 20,000 shares of non voting Series H Preferred stock with a redemption
value of $2,000,000 (See Item 1).
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following is a discussion of the consolidated financial condition and
results of operations of the Company for the years ended September 30, 1998 and
1997, as well as certain factors that may affect the Company's prospective
financial condition. This section should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto included in this 10-KSB.
Overview
On January 6, 1999 the Company closed its plant facility and terminated
substantially all of its employees due to a liquidity shortfall. Unless the
Company is able to sell additional licenses, equipment or lines of business in
the immediate future, the Company may file for bankruptcy. The board of
directors and management are currently considering these options.
The Company's revenues consist mainly of technology licensing revenue and sales
to outside customers and, to a lesser degree, contract funding.
The Company operates principally in the United States and to some degree through
its former subsidiary in Japan up to June 1998.
Since its founding in 1983, the Company, Alcan, DuPont, the U.S. Government,
Kanematsu and other business partners have expended significant funds on
research and development of the Company's technology and related patent
strategy. The funds provided for such expenditures have been expensed by the
Company and, accordingly, are not reflected as assets on the Company's
consolidated balance sheet. However, the Company believes that these
expenditures have added significant value to the LANXIDE(TM) technology and to
the Company. As a result of the successful development of its technology, the
Company had generally been able to retain an ownership interest in the various
commercial ventures in exchange for licensing its technology to such ventures.
This year the Company has sold its interests in such ventures.
The Company has conducted a review of its operating and computer systems to
identify the areas which could be affected by the "Year 2000" issue. The Company
presently believes that the Year 2000 problem will not pose significant
operational problems for the Company's computer systems. The Company is small
and has flexible procedures that are not dependent on complex automatic data
collection and processing. All time and date sensitive internal systems and
components have been inventoried and ranked for mission critical importance.
Critical known non-compliant systems have been identified and replaced with
systems known to be compliant. No critical system is non-compliant except for
the phone system which will be replaced in 1999. Excluding internal payroll
costs, the estimated incremental costs of compliance with Year 2000 is less than
$50,000. In addition the Company has been in contact with its suppliers and
other third parties to determine the extent to which they maybe vulnerable to
Year 2000 issues. As this assessment progresses, matters may come to the
Company's attention which could give rise to the need for remedial measures
which have not yet been identified. As a contingency, the Company may replace
the suppliers and third party vendors who can not demonstrate to the Company
that their products and services will be Year 2000 compliant. The Company cannot
currently predict the potential effect of third parties' Year 2000 issues on its
business. The Company believes that its Year 2000 compliance project will be
completed in advance of the Year 2000 date transition and will not have a
<PAGE>
material adverse effect on the Company's financial condition or overall trends
in the results of its operations. However there can be no assurance that
unexpected delays or problems, including the failure to ensure Year 2000
compliance by systems or products supplied to the Company by a third party will
not have an adverse effect on the Company, its financial performance, or the
competitiveness or customer acceptance of its products.
Results of Operations
Results of operations may vary from period to period depending on several
factors including licensing transactions and the sale of subsidiaries. Revenues
from license agreements often do not occur evenly in each reporting period,
which can cause the results to fluctuate. Additionally, non-recurring gains and
losses on the sale of a subsidiary can significantly impact the financial
results.
Revenues from research and development contracts and commercial development
agreements (other than the Company's agreements with its consolidated
affiliates) are reported under "Research and development contract revenue" in
the Company's Consolidated Statement of Operations. Expenses related to these
contracts and agreements are reported under operating costs as "Research and
development contract costs."
Product development and engineering (PD&E) costs represent amounts incurred for
projects sponsored by the Company and/or its commercial venture partners through
the Company's consolidated affiliates. This includes PD&E costs expended in
support of the Company's patent portfolio. Operating income and losses allocated
to commercial venture partners through the Company's consolidated affiliates are
reported under "Minority allocation of operating (income) loss."
The Company's significant revenue sources in fiscal year 1998 consist primarily
of (i) technology licensing revenues; (ii) product sales revenues and (iii)
revenues from a brake component development program between the Company and AKN.
Year ended September 30, 1998 compared to Year ended September 30, 1997
The Company recorded net income of $21,000 on revenues of $16,122,000 during the
year ended September 30, 1998, as compared to a net loss of $3,245,000 on
revenues of $26,429,000 during the year ended September 30, 1997 due to the
factors described below.
Net Sales and Cost of Sales
Consolidated sales decreased 17% to $6,232,000 from $7,485,000 and cost of sales
increased .3% to $6,709,000 from $6,688,000 compared to the prior period.
Negative margin on product sales was incurred due to the operating
inefficiencies experienced during the lay-offs in February 1998.
Licensing and Other Related Revenues
The Company expects to continue to license its technology in certain specific
market sectors by product and geography. Although the Company will, subject to
the availability of capital, continue to commercialize products using the
LANXIDE(TM) technology, the Company plans to seek advantageous licensing
arrangements with third parties which have the ability to commercialize products
in those areas where there are significant barriers to entry (i.e., substantial
up-front costs or the need for a substantial industry presence or where
LANXIDE(TM) technology provides only a portion of the necessary solution).
<PAGE>
During fiscal year 1998 the Company concluded licensing arrangements with
AlliedSignal Composites, Inc., M3 Technologies, Inc., Commodore Environmental
Services, Inc. and also revised for additional consideration license
arrangements with Celanx KK, Nihon Cement and Brembo S.p.A. for a total amount
of $7,800,000. During the prior fiscal year, licensing revenue was $13,800,000.
Given the reduced activity in developing new technology applications, there were
fewer licensing opportunities in fiscal year 1998 than there were in 1997.
Included in fiscal 1998 license revenues, was $5,300,000 of fees from Commodore
paid through the cancellation of $4,800,000 of indebtedness and accrued interest
and a $500,000 cash payment.
Research and Development Contract Revenue and Research and Development Costs
In fiscal 1998, Research and development contract revenue decreased $3,129,000,
from $5,190,000 to $2,061,000 and contract costs decreased $2,423,000 from
$4,534,000 to $2,111,000, compared to the prior period. The decrease in contract
revenue was primarily due to the sale of LEC and LAP and the temporary shut down
of the operation in February 1998.
Product Development and Engineering Costs
PD&E spending decreased by $5,039,000, from $8,449,000 in fiscal 1997 to
$3,410,000 in fiscal 1998. This decrease was principally due to the lay-offs in
February 1998 noted above.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $4,059,000 from
$7,680,000 to $3,621,000 over the prior period. This decrease was principally
due to the lay-offs in February 1998 noted above. Included in selling, general
and administrative expenses are reimbursements of $147,000 and $637,000 for 1998
and 1997, respectively, received from unconsolidated affiliates for
administrative and facilities costs and services.
Interest Expense
Interest expense decreased 34%, from $1,829,000 to $1,216,000 compared to the
prior year ended September 30, 1997. This decrease is due to the cancellation of
a $5.7 million loan from PNC Bank on the sale of Lanxide Electronic Components,
Inc. and Lanxide Armor Products, Inc. in February 1998. In addition the loans
from Kanematsu were reduced to $8.5 million from $10 million and the rate was
reduced from 7.875% to approximately 3.5% for the last six months of the year
for $6.7 million of the Kanematsu debt.
Non-Operating and Extraordinary Items:
In Fiscal 1998, the Company experienced the following non-operating and
extraordinary gains and losses:
1) The sale of Lanxide Electronic Components, Inc. (LEC) and Lanxide
Armor Products, Inc.(LAP) in February 1998 which resulted in a
loss on the sale of $1,679,000 and gain on the troubled debt
restructuring of $940,000.
2) The sale of the Company's ownership interest in Lanxide K.K. to
Kanematsu which resulted in a gain of $847,000.
<PAGE>
3) The sale of DuPont Lanxide Composites, Inc. (DLC) which resulted
in a gain on the sale of $500,000 and gain on the troubled debt
restructuring of $455,000.
4) The write-off of the Company's ownership interest in Alanx Wear
Solutions, Inc. which resulted in a loss on the write-off of
investment in affiliate of $377,000.
No such items were recorded by the Company in fiscal 1997.
Income Tax Expense (Benefit)
Income tax expense(benefit) includes taxes withheld on foreign source income of
$150,000 and $120,000 for fiscal years 1998 and 1997, respectively. The
remaining $558,000 benefit in 1998 is primarily related an adjustment to the
valuation allowance account related to net operating loss carryforwards utilized
in the Company's 1997 federal tax return. Although the Company has substantial
net operating loss carryforwards, the amount of carryforwards which are able to
be utilized in any one year are limited by the alternative minimum tax (AMT).
Any tax paid under the AMT constitutes a future tax credit and can be carried
forward indefinitely to offset federal tax after the Company has utilized all
available net operating loss carryforwards. The net operating loss carryforwards
expire in varying amounts through the year 2012.
Liquidity and Capital Resources
On January 6, 1999 the Company closed its plant facility and terminated
substantially all of its employees due to a liquidity shortfall. Unless the
Company is able to sell additional licenses, equipment or lines of business in
the immediate future, the Company may file for bankruptcy. The board of
directors and management are currently considering these options.
Since its inception, the Company has financed its working capital and capital
expenditure requirements with the proceeds from the sale of stock, borrowings,
product sales, research and development contracts and, more recently, technology
licensing revenues. The Company's working capital deficit was $3,353,000 at
September 30, 1998, compared to $2,670,000 at September 30, 1997. The cash
balances at September 30, 1998 and January 7,1999 were $84,000 and $53,000,
respectively. At September 30, 1998, the Company had no significant commitments
to purchase capital equipment and continues to sell surplus equipment to
generate cash. At September 30, 1998, the Company's immediate cash needs were
being met through sales of assets, cash reserves and working capital from
operations. However, the Company remained critically dependent on generating
additional cash in the near term to sustain its current operations. Potential
sources of cash include new licensing arrangements and/or other alternative
financing.
At September 30, 1998, the Company had a $10,000,000 note payable with Kanematsu
that was schedule to mature in December 1998. In fiscal 1998, the Company
restructured the Kanematsu loan. Under the restructuring agreement, part of the
loan was converted to an equipment installment loan, payable in equal monthly
payments maturing in April 2006, with a balance of $1,895,000 at September 30,
1998. The remaining balance of the $10,000,000 note, after other 1998 payments
was $6,664,000 at September 30, 1998. This amount is payable over a seven year
period commencing April 1999. Principal payments due on all of the Company's
outstanding indebtedness are as follows:
<PAGE>
Principal Payments
Fiscal Year Ended (Dollars in thousands)
----------------- ----------------------
1999 $ 685
2000 1,144
2001 1,199
2002 1,218
2003 1,224
Thereafter 3,369
------
$8,839
======
No assurance can be given that the Company will be able to make these payments
when they become due.
The terms of the agreements relating to (i) the loan from Kanematsu and (ii) the
lease with QRS 12-16, Inc. as Landlord for the Marrows Road facility currently
limit the Company from incurring additional indebtedness other than in
connection with the operation of its subsidiaries.
During fiscal 1998, the Company decreased its debt and accrued interest balances
by $13,454,000 through the issuance of licenses, sales of investments in
affiliates, sales of other assets and forgiveness of debt. The Company cannot
assume that it will be able to further reduce amounts owed to creditors through
such means.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants...............................................
Audited Financial Statements
Consolidated Balance Sheet
at September 30, 1998 and 1997.........................................
Consolidated Statement of Operations
for the years ended September 30, 1998, and 1997.......................
Consolidated Statement of Shareholders' Deficit
for the years ended September 30, 1998 and 1997........................
Consolidated Statement of Cash Flows
for the years ended September 30, 1998 and 1997........................
Notes to Consolidated Financial Statements.............................
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
Lanxide Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' deficit and of cash
flows present fairly, in all material respects, the financial position of
Lanxide Corporation and its majority-owned affiliates at September 30, 1998 and
1997, and the results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1 to the
financial statements, the Company's principal business activities are
development and commercialization of its proprietary technology. The Company's
significant continuing investment in product development and commercialization
activities has resulted in recurring losses from operations and the resultant
shareholders' deficit. Furthermore, the Company needs significant additional
financing to fund its ongoing business operations. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
November 20, 1998, except as to Note 15,
which is as of January 8, 1999
<PAGE>
<TABLE>
<CAPTION>
Lanxide Corporation
Consolidated Balance Sheet
(Amounts in thousands, except per share data)
September 30,
------------------------------
Assets 1998 1997
------------ ------------
<S> <C> <C>
Cash and cash equivalents, including amounts restricted for use
by majority owned affiliate (Note 1) $ 84 $ 3,892
Accounts receivable 236 2,738
Inventories (Note 1) -- 3,036
Other current assets 2 447
------------ ------------
Total current assets 322 10,113
Property and equipment, net (Note 4) 2,217 9,681
Investment in affiliate (Note 3) -- 377
Other assets -- 346
============ ============
$ 2,539 $ 20,517
============ ============
Liabilities and Shareholders' Deficit
Current portion of long term debt (Note 9) 685 6,789
Accounts payable and accrued expenses (Note 5) 1,401 4,237
Deferred compensation (Note 13) 1,372 1,377
Deferred revenue (Note 3) 217 380
------------ ------------
Total current liabilities 3,675 12,783
Long-term debt (Note 9) 8,154 14,079
Deferred credit (Note 1) 317 357
------------ ------------
12,146 27,219
Minority interest in consolidated affiliates (Note 1) -- 2,006
Commitments and contingencies (Note 14)
Redeemable Series E preferred stock (aggregate liquidation value, $261);
26,100 shares issued and outstanding (Note 11) 228 225
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Lanxide Corporation
Consolidated Balance Sheet
(Amounts in thousands, except per share data)
(continued)
September 30,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Shareholders' Deficit (Note 3 and 11)
Preferred stock 15,000,000 shares authorized:
Series A preferred stock (aggregate liquidation value,$88,135) $.01 par value;
1,101,683 shares issued and outstanding at September 30, 1998 and 1997 11 11
Series G preferred stock(aggregate liquidation value,$2,000) $.01 par value; -- --
20,000 shares issued and outstanding at September 30, 1997
Series H preferred stock (aggregate liquidation value,$2,000) $.01 Par value; -- --
20,000 shares issued and outstanding at September 30, 1998
Common stock,$.01 par value, 25,000,000 shares authorized:
1,325,598 issued and outstanding at September 30, 1998 and 1997 13 13
Additional paid-in capital 191,006 191,006
Accumulated deficit (200,865) (200,883)
Cumulative translation adjustment -- 920
------------ ------------
Total shareholders' deficit (9,835) (8,933)
------------ ------------
$ 2,539 $ 20,517
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
Lanxide Corporation
Consolidated Statement of Operations
(Amounts in thousands, except per share data)
Year Ended September 30,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Revenue:
Sales (Note 7) $ 6,232 $ 7,485
Licensing and other related revenues 7,829 13,754
Research and development contract revenue (Note 8) 2,061 5,190
-------- --------
16,122 26,429
-------- --------
Operating costs:
Cost of sales 6,709 6,688
Research and development contract costs 2,111 4,534
Product development and engineering 3,410 8,449
Selling, general and administration (Note 8) 3,621 7,680
-------- --------
15,851 27,351
-------- --------
Income (loss) from operations before
minority allocation 271 (922)
Minority allocation of investment in operating (income) loss (Note 1) 274 (817)
-------- --------
Income (loss) from operations 545 (1,739)
Write-off of investment in affiliate (Note 3) (377) --
Loss on sale of affiliates (Note 3) (332) --
Interest expense (1,216) (1,829)
Other income 156 443
-------- --------
Loss before income taxes (1,224) (3,125)
Income tax (benefit) expense (Note 6) (408) 120
-------- --------
Net loss before extraordinary item (816) (3,245)
Extraordinary item-gain on troubled debt restructuring,
net of taxes of $558 (Note 3) 837 --
-------- --------
Net income (loss) $ 21 ($ 3,245)
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Lanxide Corporation
Consolidated Statement of Operations
(Amounts in thousands, except per share data)
(continued)
Year Ended September 30,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Gain on redemption of subsidiary's preferred stock -- 680
Dividends on mandatorily redeemable
preferred stock (3) (30)
-------- --------
Net income (loss) applicable to common shareholders $ 18 $ (2,595)
======== ========
Net loss per share before extraordinary item-basic and diluted $ (0.62) $ (1.96)
Extraordinary item per share-basic and diluted 0.63 --
-------- --------
Net income (loss) per share-basic and diluted $ 0.01 $ (1.96)
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
Lanxide Corporation
Consolidated Statement of Shareholders Deficit
(Dollars in thousands, except per share data)
Series A Series G Series H
preferred stock preferred stock preferred stock
-------------------------- -------------------------- -------------------------
Number Number Number
of shares Amount of shares Amount of shares Amount
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1996 1,109,161 $ 11
Redemption of preferred stock (7,478)
Exercise of stock options
Sale of preferred stock and warrants 20,000 --
Translation adjustment
Gain on redemption of subsidiary's
preferred stock
Net loss
Preferred stock dividends
---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 1997 1,101,683 11 20,000 -- -- --
Exchange of Series G preferred stock for (20,000) -- 20,000
Series H preferred stock (See note 3)
Translation adjustment
Release of translation adjustment (Note 3)
Net income
Preferred stock dividends
---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 1998 1,101,683 $ 11 -- $ -- 20,000 $ --
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Lanxide Corporation
Consolidated Statement of Shareholders Deficit
(Dollars in thousands, except per share data)
(continued)
Common Stock
------------------------- Additional Cumulative
Number paid- in Accumulated translation
of shares Amount capital deficit adjustment Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1996 1,325,595 $ 13 $ 188,480 ($ 197,626) $ 1,226 ($ 7,896)
Redemption of preferred stock (34) (34)
Exercise of stock options 3 -- --
Sale of preferred stock and warrants 1,880 1,880
Translation adjustment (306) (306)
Gain on redemption of subsidiary's
preferred stock 680 680
Net loss (3,245) (3,245)
Preferred stock dividends (12) (12)
---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 1997 1,325,598 13 191,006 (200,883) 920 (8,933)
Exchange of Series G preferred stock for -- --
Series H preferred stock (See note 3)
Translation adjustment (47) (47)
Release of translation adjustment (Note 3) (873) (873)
Net income 21 21
Preferred stock dividends (3) (3)
---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 1998 1,325,598 $ 13 $ 191,006 ($ 200,865) $ -- ($ 9,835)
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
Lanxide Corporation
Consolidated Statement of Cash Flows
(Amounts in thousands)
Year Ended September 30,
------------------------
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 21 ($3,245)
Adjustments to reconcile net income (loss) to net cash flows from
operating activities:
Depreciation and amortization 1,110 1,909
Non-cash revenues (Note 3) (4,800) --
Loss on sale of affiliates 332 --
Gain on redemption of debt (1,395) --
Write-off of investment in affiliate 377 --
Minority allocation of operating income (loss) (274) 817
Loss (Gain) on the sale of equipment 64 (80)
Other non-cash charges 268 --
Change in assets and liabilities, net of sale of subsidiaries:
Decrease in receivables 804 327
Decrease (increase) in inventories 1,226 (1,094)
Decrease in other assets 525 117
(Decrease) increase in accounts payable and accrued expenses (678) 1,370
Decrease in deferred revenue and deferred credit (203) (31)
Increase (decrease) in other liabilities (5) 147
------- -------
Net cash provided by (used in) operating activities (2,628) 237
Cash flows from investing activities
Cash held by subsidiaries at time of disposition (1,105) --
Capital additions (304) (704)
Proceeds from the sale of equipment 466 117
------- -------
Net cash used in investing activities (943) (587)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Lanxide Corporation
Consolidated Statement of Cash Flows
(Amounts in thousands)
(continued)
Year Ended September 30,
------------------------
1998 1997
------- -------
<S> <C> <C>
Cash flows from financing activities
Issuance of preferred stock, net -- 1,880
Redemption of a subsidiary's preferred stock -- (4,000)
Proceeds from issuance of debt obligations -- 3,825
Repayment of debt obligations (190) (445)
------- -------
Net cash provided by (used in) financing activities (190) 1,260
Effect of exchange rate translations (47) (476)
------- -------
Net (decrease) increase in cash and cash equivalents (3,808) 434
Cash and cash equivalents, beginning of period 3,892 3,458
------- -------
Cash and cash equivalents, end of period $ 84 $ 3,892
======= =======
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 788 $ 1,361
======= =======
Taxes $ 150 $ 120
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
LANXIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS,
SIGNIFICANT ACCOUNTING POLICIES
AND LIQUIDITY:
Organization and business:
Lanxide Corporation (the Company) is engaged in the development and
commercialization of a new class of proprietary materials called LANXIDE(TM)
reinforced ceramics and metals and CERASET(TM) ceramers (collectively
LANXIDE(TM) technology). The Company develops and commercializes LANXIDE(TM)
technology using its own resources as well as the resources of a select number
of licensees. In 1995, the Company began receiving fees for licensing its
technology in certain specific market sectors by product and geography.
During 1998, the Company sold its ownership interests in Lanxide Armor Products,
Inc. (LAP), Lanxide Electronic Components, Inc .(LEC), Lanxide K.K. and DuPont
Lanxide Composites, Inc. (DLC) which resulted in a significant reduction in the
operating revenues and net assets of the Company (See Note 3).
Significant accounting policies:
Liquidity - The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has significant
ongoing investment in product development and commercialization activities and
continues to incur losses from operations.
The Company's immediate cash needs are being met through cash reserves and
working capital from operations. However, the Company remains critically
dependent on generating additional cash in the near term to sustain its current
operations. Presently the Company does not have sufficient cash resources to
meet its requirements in fiscal 1999. Potential sources of cash include new
licensing arrangements and/or other alternative financing. No assurances can be
given, however, that the Company will be able to obtain any of these potential
sources of cash. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Consolidation - The consolidated financial statements include the accounts of
the Company and its majority-owned affiliates. Transactions with majority-owned
affiliates are eliminated in consolidation.
Investment in affiliates - Investment in affiliates of less than twenty percent
ownership are recorded at cost. In fiscal 1998, the Company sold 2 of its
investments in affiliates as discussed in Note 3.
Minority allocation of operating (income) loss - Operating income and losses are
allocated to minority owners of the Company's consolidated affiliates pursuant
to certain agreements between the Company and its commercial venture partners.
<PAGE>
Inventories - Inventories are valued at the lower of cost (primarily average
cost) or market and consist of the following as of September 30:
(Dollars in thousands)
1998 1997
------ ------
Raw materials and supplies $ 0 997
Work in process 0 1,399
Finished goods 0 640
------ ------
$ 0 $3,036
====== ======
Property and equipment - Property and equipment are carried at cost, and
depreciation is computed using the straight-line method over estimated useful
asset lives. Maintenance and repair costs are expensed as incurred; significant
renewals and betterments are capitalized.
Sales and research and development contract revenue recognition - Sales are
primarily recognized as products are shipped and, for certain other sales
contracts, using the percentage-of-completion method of accounting. Research and
development contract revenue is recognized as services are provided.
Licensing and other related revenues - Amounts earned by the Company from
licensing its technology by product and geographic area are recognized as
revenue when the Company fulfills its obligation under the applicable license
agreement. Also included in this revenue category are ancillary product sales
that are produced solely in support of existing or potential license agreements.
Deferred credit - The gain on the sale and subsequent leaseback of the Company's
Marrows Road facility has been deferred and is being amortized over 20 years.
Product development and engineering - Product development and engineering costs
are expensed as incurred.
Translation of foreign currency - The financial position and results of
operations of Lanxide K.K., the Company's former majority-owned Japanese
affiliate (See Note 3), were measured using Japanese yen as the functional
currency. Revenues and expenses of such affiliate were translated at the average
exchange rate. Assets and liabilities were translated at the year-end rate of
exchange. Translation gains and losses were recorded as a separate component of
shareholders' equity.
Financial Instruments - Financial instruments, including cash, accounts
receivable, accounts payable and accrued expenses, are recorded at cost, which
approximates fair value. At September 30, 1998, the Company estimates the fair
value of its long-term debt to be minimal due to the lack of liquidity of the
Company and the substantial doubt about the Company's ability to continue as a
going concern.
Cash and cash equivalents - Included in the cash balances at September 30, 1997
was $2.4 million held by Lanxide K.K., a consolidated subsidiary, which was not
available for general use by Company. All highly liquid investments with a
maturity of three months or less when purchased are considered to be cash
equivalents.
<PAGE>
Research and Development - Research and development expenditures are charged to
operations as incurred.
Reclassifications - Certain prior year amounts have been reclassified to conform
with current year presentations.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make reasonable
estimates and assumptions, based upon all known facts and circumstances, that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements.
Actual results could differ from estimates.
New Accounting pronouncements - In 1997, The Financial Accounting Standards
Board (FASB) issued its Statement of Financial Accounting Standards (SFAS)
No.129, "Disclosure of Information About Capital Structure," effective for
periods ending after December 15, 1997 and has not had a material impact on the
financial statements or related disclosures of the Company.
In 1997 the FASB also issued SFAS 130, "Reporting on Comprehensive Income,"
effective for fiscal years beginning after December 15, 1997. SFAS 130 requires
that an enterprise (a) classify items of other comprehensive income by their
nature in the financial statements and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in-capital on the balance sheet.
Also in 1997, the FASB issued SFAS 131, "Disclosures About Segments of an
Enterprise and Related information," effective for fiscal years beginning after
December 15, 1997.
The Company does not anticipate that SFAS 130 or SFAS 131 will have a material
impact on the financial statements or related disclosures made by the Company.
Note 2 - EARNINGS PER SHARE
All earnings per share reflect the implementation of SFAS 128, which established
new standards for computing and presenting earnings per share and which required
all prior period earnings per share data be restated to conform with the
provisions of the statement. Basic earnings per share are computed by dividing
net income available to common shareholders by the weighted average number of
shares outstanding during the period. Diluted earnings per share are computed
using the weighted average number of shares determined for the basic
computations plus the number of shares of common stock that would be issued
assuming all contingently issuable shares having a dilutive effect on earnings
per share were outstanding for the period.
<PAGE>
<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------
1998 1997
----------- -----------
(Dollars in thousands,
except per share data)
<S> <C> <C>
Net loss before extraordinary item $ (816) ($ 3,245)
Dividends on mandatorily redeemable preferred stock (3) (30)
Gain on redemption of subsidiary's preferred stock 680
----------- -----------
Net loss applicable to common stockholders before
extraordinary item $ (819) $ (2,595)
Extraordinary item-gain on troubled debt restructuring 837 _______
-----------
Net income (loss) applicable to common shareholders $ 18 $ (2,595)
=========== ===========
Weighted average common shares outstanding (basic) 1,325,598 1,325,598
Employee stock options (A) (A)
Warrants to purchase common shares (A) (A)
Convertible preferred stock (A) (A)
----------- -----------
Weighted average common shares outstanding (diluted) 1,325,598 1,325,598
=========== ===========
Net loss per share before extraordinary item-basic and diluted $ (0.62) $ (1.96)
Extraordinary item per share-basic and diluted $ 0.63 $ --
----------- -----------
Net income (Loss) per share-basic and diluted $ 0.01 $ (1.96)
=========== ===========
</TABLE>
(A) Due to the Company's net loss before extraordinary item in 1998 and 1997,
the incremental shares issueable in connection with these instruments are
anti-dilutive and accordingly not considered in the calculation.
Note 3 - SIGNIFICANT TRANSACTIONS
Termination of Employees
On February 3, 1998, the Company terminated substantially of its
employees, as well as those of three of its subsidiaries located at the
Company's Newark, Delaware offices, as a result of its inability to secure
adequate funding to continue its operations. The Company subsequently hired back
approximately 30 employees and has restructured its operations.
<PAGE>
Transfer of Subsidiaries: LAP and LEC
In 1992, E.I DuPont de Nemours and Company, Inc. (DuPont) entered into an
agreement with PNC Bank (PNC), pursuant to which DuPont agreed to guarantee the
Company's obligations to PNC under a Revolving Credit and Term Note in the
original principal amount of $5,970,000 (the PNC Bank Loan). In consideration
for DuPont's guarantee, the Company and DuPont had entered into a Loan Guarantee
Letter Agreement (as amended, the Guarantee Agreement), pursuant to which the
Company granted to DuPont, as collateral, an option (the Option) to acquire all
of the outstanding common equity securities of Lanxide Armor Products, Inc.
(LAP) and Lanxide Electronic Components, Inc. (LEC). DuPont's exercise of the
Option would release the Company from all obligations and liabilities under the
PNC Bank Loan. Under the terms of the Guarantee Agreement, the Option would
become exercisable by DuPont upon the Company's notification to DuPont of the
Company's inability to meet its obligations under the PNC Bank Loan.
In a letter agreement entered into between the Company and DuPont, dated
February 6, 1998, the Company notified DuPont that the Company would not meet
its obligations under the PNC Bank Loan. Accordingly, the Company consented to
DuPont's assignment of its right to exercise the Option to DHB Capital Group,
Inc. (DHB) and DuPont agreed to repay the Bank all amounts owed by the Company
to the Bank under the PNC Bank Loan.
Concurrent with the assignment of the Option by DuPont to DHB, the Company
entered into a Transfer Agreement, dated February 6, 1998 (the Transfer
Agreement), by and among the Company, DHB, LAP, LEC and Lanxide Technology
Company, L.P. (LTC), pursuant to which DHB elected to exercise the Option and,
accordingly, the Company transferred to DHB all of the outstanding common equity
securities of LEC and LAP. Pursuant to the Transfer Agreement, LEC and LAP have
each amended their existing license agreements with LTC to provide royalties to
LTC on future sales by LEC and LAP relating to the Company's technologies.
In connection with the transfer of LEC and LAP to DHB and the release of the
Company from the PNC Bank Loan, the Company recorded a loss on the sale of
affiliates of $1,679,000 and a gain on troubled debt restructuring of $940,000.
Transactions with Kanematsu Corporation
In May 1992, the Company and Kanematsu Corporation (Kanematsu) entered into an
agreement to commercialize products of Lanxide technology in Japan by the
formation of a commercial venture, Lanxide K.K.
Lanxide K.K. was owned 65% by the Company and 35% by Kanematsu and has been
granted an exclusive license to make, use and sell products in Japan (other than
products licensed on a worldwide basis to commercial ventures initially formed
with DuPont), using LANXIDE(TM) technology. A significant portion of Lanxide
K.K.'s operating costs consist of services provided by Lanxide and its other
U.S. subsidiaries.
In April 1994, Kanematsu agreed to provide the Company with a $10.0 million line
of credit (see Note 9). Concurrent with Kanematsu providing the line of credit,
the Company and Kanematsu revised the royalty sharing arrangements to give
Kanematsu 48% of the royalties from Lanxide K.K. compared with 20% under the
original arrangements. The agreement also provided that Lanxide K.K. would
purchase its raw materials from the Company.
On April 1, 1998 the Company entered into a memorandum agreement with Kanematsu
to restructure the $10 million note payable (Capital Loan) that had been
scheduled to mature in December 1998.
<PAGE>
On April 10, 1998, as amended July 10, 1998, Kanematsu transferred $1,960,000 of
the Capital Loan to a new equipment installment loan. The equipment loan is
payable in equal monthly installments through May 2006 and bears interest at
LIBOR plus 2%. The loan is collateralized by specifically identified fixed
assets of the Company (See Note 9).
On July 10, 1998, the Company entered into a restructuring agreement for the
remaining Capital Loan. In connection with the agreement, the Company
transferred its 65% interest in Lanxide K.K. to Kanematsu. The fair market value
of the Company's interest in Lanxide K.K. of $1,114,000 was applied directly as
a reduction to the Capital Loan. The Company recorded a gain on the sale of
affiliates of $847,000 in connection with the transfer, inclusive of the
$873,000 balance in foreign currency translation adjustment account, a separate
component of shareholders' deficit. Pursuant to the agreement, 50% of certain
license revenues generated by the Company in the future must be used to reduce
the outstanding balance on the loan. In addition, the Company has agreed to sell
its surplus equipment and apply the proceeds from such sales to reduce the loan
principal.
The restructured capital loan is payable in monthly installments over a seven
year period commencing April 1, 1999. During the moratorium of principal
payments in effect until that date, the Company is required to make nine
payments of $5,000 each toward interest on the loan. The interest rate on the
loan was reduced as of July 1, 1998 from LIBOR plus 2% to the Japanese Yen Long
Term Prime Rate of the Industrial Bank of Japan plus 1% (See Note 9).
Transactions with Commodore Environmental Services, Inc.
On July 3, 1997, the Company entered into a Securities Purchase Agreement (the
Agreement) with Commodore Environmental Services, Inc. (Commodore), pursuant to
which the Company sold to Commodore 20,000 shares of Series G Preferred Stock at
an aggregate purchase price of $2.0 million. The Series G Stock was not
convertible and was not entitled to vote or to receive dividends.
Pursuant to the Agreement, the Company also issued Commodore a warrant to
purchase 250,000 shares of Series F Preferred Stock, at an exercise price of
$100 per share. The warrant could have been exercised, in whole or in part, by
the exchange of the shares of Series G Preferred Stock acquired by Commodore
pursuant to the Agreement for a like number of shares of Series F Preferred
Stock. The warrant agreement was scheduled to expire on June 30, 2000. In the
event that the Company consummated a financing under a Superior Offer as
described in the Securities Purchase Agreement after August 27, 1997, the
Company could redeem for $0.001 per warrant share that portion of the warrant
that had not been exercised.
The terms of the Series F Stock included, among other things, (a) the right to
convert into shares of Common Stock at a rate, subject to adjustment, of 13.5
shares of common stock for each share of Series F Stock; (b) a mandatory
conversion by the holders upon certain events, including the sale by the Company
of at least $10 million of Company securities in a public offering or a private
placement prior to the time that Commodore exercises at least $10 million of the
Warrant and (c) the right to elect four of the seven members of the Board of
Directors of the Company. The Series F Stock was entitled to vote, but not
entitled to receive dividends.
<PAGE>
Also in July 1997, Commodore obtained effective control of the Company pursuant
to a voting agreement among the Company and certain of its shareholders (the
Voting Agreement) which was executed in connection with the transactions
contemplated by the Securities Purchase Agreement mentioned above. Pursuant to
the Voting Agreement, shareholders owning 50.1% of the outstanding common stock
granted proxies to the members of the Board of Directors of Commodore to vote
all shares of common stock held by each such shareholder until December 31,
1998.
On March 5, 1998 the Company entered into a series of transactions with
Commodore and certain of its subsidiaries pursuant to which, among other things,
Commodore paid $500,000 cash and its subsidiaries agreed to cancel $4,500,000 in
indebtedness and $300,000 in accrued interest to subsidiaries of Lanxide (which
was guaranteed by Lanxide) in exchange for the issuance of a royalty-bearing
license to use CERASET (TM) on a worldwide basis, excluding Japan (the
"License"). The License, which was issued pursuant to the terms of a Settlement
and Release agreement (the "Release Agreement"), grants Commodore certain
business and technology rights that do not conflict with the rights of Lanxide's
other licenses, or future licenses in the fields for metal matrix composites and
ceramic matrix composites. Based on management's assessment of the fair value of
the license, the Company recognized license revenue of $5,300,000 associated
with this transaction.
In connection with the issuance of the License, Lanxide and Commodore amended
the Securities Purchase Agreement, such that (i) Lanxide and Commodore each
agreed to exchange all of the issued and outstanding shares of Series G
Preferred Stock for an equal number of Series H Preferred Stock of Lanxide, (ii)
Commodore's right to purchase additional shares of Series G Preferred Stock
pursuant to the terms of the original purchase agreement was cancelled; (iii)
Lanxide issued warrants to Commodore for the purchase of up to 270,000 shares of
Lanxide's common stock, at an exercise price of $7.41 per share; and (iv)
Commodore's right to purchase 250,000 shares of Series F Preferred Stock
pursuant to the previously described warrant was canceled. The Series H
Preferred Stock does not pay dividends and is not convertible, however, it
carries a liquidation preference of $2,000,000. In addition, holders of the
Series H Preferred Stock may utilize such securities to satisfy the exercise
price of the warrants described in item (iii) above based on the liquidation
value of the preferred stock.
Sale of DLC
On December 29, 1997, Lanxide K.K. agreed to loan $1.8 million to the Company.
The Lanxide K.K. Loan was to mature on January 31, 1998 and bore interest at the
rate of 6% per annum. Upon an event of default under the Lanxide K.K. Loan, the
Company was required to transfer to Lanxide K.K. its 10% ownership in DuPont
Lanxide Composites, Inc. (DLC). The loan came due and the Company negotiated an
assignment and transfer with Lanxide K.K. on April 1, 1998 to settle the
outstanding balance. As a result of the settlement, the Company's interest in
DLC was transferred to Lanxide KK on June 23, 1998 in full satisfaction of the
loan. In connection with the transfer of DLC to Lanxide KK, the Company recorded
a gain on the sale of affiliates of $175,000 and a gain on troubled debt
restructuring of $455,000.
Subsequently in 1998, Lanxide K.K. sold DLC to AlliedSignal, Inc. for $500,000.
Pursuant to the terms of the Lanxide K.K. transfer agreement with Kanematsu,
Lanxide received $325,000 (65%) of the sales price which was recorded as a gain
on the sale of affiliates and applied directly against the Kanematsu Capital
Loan.
<PAGE>
Write off of investment in Alanx Wear Solutions, Inc. (Alanx)
Due to the continued significant losses incurred by Alanx, the Company's
investment of $377,000 in this 10% owned affiliate was written off in fiscal
1998.
Transactions with Nihon Cement
On November 30, 1993, Nihon Cement Co., Ltd. (Nihon Cement) purchased 500,000
shares of Redeemable Convertible Preferred Stock in Alanx, a wholly owned
subsidiary of the Company, for $4.0 million. Nihon Cement had the option to
convert the preferred stock into common stock at any time prior to the first
anniversary of the sale. Nihon Cement elected not to convert and Alanx was
obligated to redeem the preferred stock ratably over a five year period
beginning in November 1999. At September 30, 1996, the preferred stock was
classified as a minority interest in the accompanying consolidated balance
sheet. In November 1996, the Company repurchased the $4.0 million of the
preferred stock from Nihon Cement. The Company also recognized a $680,000 gain
on the repurchase of the preferred stock as a direct credit to additional
paid-in capital.
In October 1996, the Company signed a non-exclusive license agreement with AKN
for the manufacture, use and sale of brake components in Southeast Asia and
Oceania. AKN was a newly created joint venture of three global companies
headquartered in Japan: Akebono Brake Industry, Co., Ltd. (Akebono); Kanematsu,
and Nihon Cement. Also in October 1996, the joint venture purchased a license
from Lanxide K.K. for the manufacture, use and sale of brake products in Japan.
In addition to license payments, the agreements also require AKN to pay
royalties on all sales of licensed products. A separate agreement between
Akebono, Nihon Cement and the Company provides for a joint development program
whereby the Company will be reimbursed $4.0 million for development work
performed over a two year period. At September 30, 1998, $217,000 is included in
deferred revenue related to this program.
In September 1997, the Company and Nihon Cement entered into another license
agreement that included an up-front license fee. The new license extends Nihon
Cement's rights to include the manufacture and sale of ceramic reinforced
aluminum ingot and concentrate (CRA Materials) using the Company's technology.
The license restricts the sale of the CRA Materials to licensees of the Company
or its Japanese affiliate, Lanxide K.K. Territory for the additional license
includes Japan, Eastern Asia and Oceania.
<PAGE>
Summary of gain/loss on sales of affiliates and troubled debt restructuring
The following table summarizes the above described gains and losses on the sale
of affiliates and troubled debt restructuring related to the sale of LEC and
LAP, Lanxide K.K. and DLC for the year ended September 30, 1998:
<TABLE>
<CAPTION>
Gain (Loss) on Gain on Troubled
Sale of Affiliates Debt Restructuring
------------------ ------------------
(Dollars in thousands)
<S> <C> <C>
Sale of LEC and LAP to DHB $(1,679) $ --
Forgiveness of PNC loan related to sale
of LEC and LAP -- 940
Sale of DLC from Lanxide to Lanxide K.K 175
Forgiveness of debt owed to Lanxide K.K
after intercompany eliminations -- 455
Lanxide portion of sale of DLC from Lanxide K.K
to AlliedSignal 325
Sale of interest in Lanxide K.K. to Kanematsu 847
------- -------
Total $ (332) $ 1,395
======= =======
</TABLE>
NOTE 4 - PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
(Dollars in thousands)
September 30, Estimated
1998 1997 useful lives
----------- ----------- ------------
<S> <C> <C> <C>
Leasehold improvements $ 1,591 $ 3,080 12-20 Years
Machinery and equipment 10,406 19,724 5-10 Years
Furniture and fixtures 535 539 10 Years
----------- -----------
12,532 23,343
Accumulated depreciation (10,315) (13,662)
----------- -----------
$ 2,217 $ 9,681
=========== ===========
</TABLE>
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
<TABLE>
<CAPTION>
(Dollars in thousands)
September 30,
-----------------------
1998 1997
------ ------
<S> <C> <C>
Accounts payable $1,042 $2,481
Compensation-related costs 0 594
Other 359 1,162
------ ------
$1,401 $4,237
====== ======
</TABLE>
<PAGE>
NOTE 6 - INCOME TAXES:
Deferred income taxes are provided based on the estimated future tax effects of
differences between financial statement carrying amounts and the tax bases of
existing assets and liabilities. The provision for income taxes for the year
ended September 30 results in an effective tax rate which differs from the
federal income tax rate as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
1998 1997
------- -------
<S> <C> <C>
Expected tax benefit at federal statutory rate $ (416) $(1,063)
Excluded foreign subsidiary (income) loss 93 (516)
Loss of NOL's, R&D credits and other changes
in connection with sale of affiliates 6,368 --
Changes in valuation allowance (6,614) 1,607
Foreign tax withheld on foreign source income 150 120
Other 11 (28)
------- -------
Income tax (benefit) expense $ (408) $ 120
======= =======
</TABLE>
As of September 30, 1998 and 1997, the Company has net deferred tax assets of
approximately $26.5 million and $33.7 million, respectively, which have been
fully reserved through a valuation allowance due to the uncertainty of
recoverability. The components of the net deferred income tax asset as of
September 30 are as follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
1998 1997
-------- --------
<S> <C> <C>
Federal Net Operating Loss Carryforwards $ 13,015 $ 16,425
State Net Operating Loss Carryforwards 3,064 4,303
Capitalized Costs 6,185 8,565
Tax Credit Carryforwards 3,196 3,892
Deferred Revenue 243 395
Deferred Compensation 775 777
Other 210 435
-------- --------
Gross Deferred Tax Asset 26,688 34,792
-------- --------
Excess of tax over book depreciation (200) (1,132)
-------- --------
Gross Deferred Tax Liability (200) (1,132)
-------- --------
Net Deferred Tax Asset 26,488 33,660
Valuation Allowance (26,488) (33,660)
-------- --------
Deferred Tax Asset $ -- $ --
======== ========
</TABLE>
<PAGE>
The Company has federal net operating loss carryforwards of approximately $40.3
million at September 30, 1998 which expire in varying amounts beginning in 1999
through 2012. The Company also has comparable state net operating loss
carryforwards. As specified in the Internal Revenue Code, certain ownership
changes would result in limitations on the Company's ability to utilize its net
operating loss carryforwards. At September 30, 1998, the Company had research
and development tax credit carryforwards of approximately $3.2 million expiring
through 2012. An additional $558 was released from the valuation allowance to
offset a like amount of tax liability recorded on the extraordinary gain.
NOTE 7 - SIGNIFICANT CUSTOMERS AND FOREIGN OPERATIONS:
Significant Customers
During fiscal 1997, 5% of revenues were derived from the U.S. Government. In
fiscal 1998, revenues from six customers accounted for approximately 52% of
total revenues. In fiscal 1997, revenues from one customer accounted for
approximately 39% of total revenues.
Foreign Operations
The following financial data is presented to provide additional information on
the Company's foreign operations.
<TABLE>
<CAPTION>
(Dollars in Thousands)
United States Japan Consolidated
------------- ----- ------------
Year ended September 30, 1998
<S> <C> <C> <C>
Total Revenues $ 11,479 $ 4,643 $ 16,122
========== ========== ==========
Net income (loss) before extraordinary item $ (34) $ (782) $ (816)
=========== ========== ==========
Identifiable Assets at September 30, 1998 $ 2,539 $ - $ 2,539
========== ========== ==========
<CAPTION>
United States Japan Consolidated
------------- ----- ------------
Year ended September 30, 1997
<S> <C> <C> <C>
Total Revenues $ 20,503 $ 5,926 $ 26,429
========== ========== ==========
Net income (loss) before extraordinary item $ (5,579) $ 2,334 $ (3,245)
=========== ========== ==========
Identifiable Assets at September 30, 1997 $ 15,689 $ 4,828 $ 20,517
========== ========== ==========
</TABLE>
<PAGE>
NOTE 8 - RELATED PARTY TRANSACTIONS:
The Company previously performed research and development activities on behalf
of its affiliates. Included in research and development contract revenue are
$75,000 and $900,000 for the years ended September 30, 1998 and 1997
respectively, related to revenue from unconsolidated affiliates.
In addition, the Company previously allocated certain administrative and
facility charges to its affiliates. Costs allocated to unconsolidated affiliates
are reflected as a reduction of selling, general and administrative expenses and
totaled $147,000 and $637,000 for the years ended September 30, 1998 and 1997
respectively.
At September 30, 1997, the Company owed $163,000 in interest payments on loans
from Commodore Environmental Services, Inc. and Commodore Applied Technologies,
Inc. (See Note 3).
NOTE 9 - LONG-TERM DEBT:
<TABLE>
<CAPTION>
(Dollars in thousands)
September 30,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Notes payable to Kanematsu (See Note 3) $ 8,559 $ 10,000
Note payable to PNC Bank guaranteed by DuPont (See Note 3) --
5,900
Secured revolving credit and demand note to Commodore Applied
Technologies, Inc. (See Note 3) -- 1,500
Secured revolving credit and demand note to Commodore Environmental
Services, Inc. (See Note 3) -- 3,000
Capital leases 280 468
-------- --------
Total debt 8,839 20,868
Less: Current portion (685) (6,789)
-------- --------
Long-term debt $ 8,154 $ 14,079
======== ========
</TABLE>
The note payable to Kanematsu includes a capital loan with a balance of
$6,664,000 and an equipment installment note with a balance of $1,895,000 at
September 30, 1998. The capital loan is payable in equal monthly installments
over a seven year period, commencing April 1, 1999 and bears interest at the
Japanese Yen long term prime rate of the Industrial Bank of Japan plus 1% (an
effective rate of 3.5% at September 30, 1998). The equipment installment note is
payable in equal monthly installments and matures on April 10, 2006. The
equipment loan bears interest at LIBOR plus 2%, adjusted on a quarterly basis
(an effective rate of 8% at September 30, 1998).
<PAGE>
The principal payments due on the debt outstanding at September 30, 1998 are as
follows:
(Dollars in thousands)
Fiscal Year Ended Principal Payments
----------------- ------------------
1999 $ 685
2000 1,144
2001 1,199
2002 1,218
2003 1,224
Thereafter 3,369
-----------
$ 8,839
The loan from PNC Bank was cancelled on the transfer of ownership of LEC and LAP
to DHB on February 6, 1998. The interest rate was at prime. The loans from
Commodore Applied Technologies, Inc. and Commodore Environmental Services, Inc.
were repaid by the granting of a license to Commodore Environmental Services,
Inc The interest rate on these loans was at Prime (See Note 3).
NOTE 10 - COSTS AND EXPENSES:
The following are included in operating costs:
(Dollars in thousands)
For the Year ended September 30,
--------------------------------
1998 1997
----------- -----------
Patent expenses - external $ 374 $ 595
Depreciation and amortization 1,110 1,909
NOTE 11 - SHAREHOLDERS' EQUITY AND
RELATED ITEMS:
Common Stock
The Company has 25,000,000 authorized shares of voting common stock with $0.01
par value and has issued and outstanding 1,325,598 shares
Preferred Stock
The Company has 15,000,000 authorized shares of preferred stock of which
1,101,683 Series A non-voting shares are issued and outstanding. Each share of
Series A preferred stock is convertible into approximately 0.372 shares of
common stock and has an annual dividend of $3.20 commencing January 1, 2001. The
dividend is cumulative thereafter, subject to a limitation of 50% of net income.
The Series A preferred stock has a liquidation preference of $88,135,000.
On October 3, 1995, the Company sold 26,100 shares of mandatorily redeemable
Series E Preferred Stock to an existing common shareholder for $261,000. The
Series E Preferred Stock pays a cumulative dividend at the rate of 7% per annum
when, as and if declared by the Board of Directors. Each outstanding share of
Series E Preferred Stock is mandatorily redeemable by the Company at $10 per
<PAGE>
share, plus accrued but unpaid dividends out of assets legally available
therefor on October 3, 2000. The carrying amount of the Series E Preferred Stock
is being accreted up to the redemption value over the five-year term. In
connection with the initial sale of preferred stock, the Company issued a
warrant to purchase 58,763 shares of common stock, at an exercise price of $4.50
per share, for a period expiring January 1999.
The Company has issued and outstanding 20,000 non-voting shares of Series H
Preferred Stock which has a liquidation preference of $2,000,000 (See Note 3).
Adoption of New Stock Option Plan
On March 5, 1998 the Board of Directors approved the 1998 Stock option Plan (the
1998 Plan) for employees of the Company. Under the 1998 Plan, options may be
granted to employees and certain consultants of the Company to acquire not more
than 1,000,000 shares of common stock. Options under the Plan will be primarily
incentive stock options, but some number of non-qualified stock options may also
be issued. The stock option price is equal to 100% of the fair market value of
the common stock on the grant date. During 1998, the stock options had an
average exercise price of $1.00. The Board has discretion in determining the
term and vesting period of the option up to a maximum of ten years. The stock
options issued in 1998 under the 1998 Plan are scheduled to vest over eighteen
to twenty-seven month periods commencing on the date of the grant.
Options granted under the 1995 Plan were converted into stock options under the
1998 Plan for all existing employees at the time the 1998 Plan became effective.
A minimal number of options under the 1995 Plan remain outstanding, held by
former employees.
1995 Director Stock Option Plan
In December 1995, the Board of Directors approved the 1995 Director Stock Option
Plan (the 1995 Director Plan). The 1995 Director Plan authorized the grant of
options to purchase up to 25,000 shares of Common Stock. In December 1995, each
director that was not an employee of the Company was granted an option to
purchase 3,000 shares of Common Stock at an exercise price of $5.62 per share.
One-twelfth of these options vest at the end of each three-month period
following the date of grant. This Plan has been suspended.
Grant of Warrants
In December 1995, the Board of Directors approved the issuance to certain
executive officers of warrants to purchase 66,000 shares of Common Stock. All of
the warrants vest on the third anniversary of the date of grant and have an
exercise price of $8.50. On July 3, 1997, pursuant to the terms of the
Securities Purchase Agreement with Commodore, the Board of Directors approved
the issuance to certain executive officers, warrants to purchase an additional
66,000 shares of Common Stock. In 1998, substantially all of the warrants were
canceled and replaced with new options granted under the 1998 Plan for officers.
<PAGE>
Summary of stock option activity of the employee stock option plans
1998 Stock Option Plan
1998
--------
Options outstanding at beginning of year 0
Granted 619,397
Exercised 0
Canceled (16,000)
--------
Options outstanding at end of year 603,397
========
Options exercisable at end of year 252,699
Option exercise price at end of year $ 1.00
1995 Stock Option Plan
1998 1997
-------- --------
Options outstanding at beginning of year 516,853 262,938
Granted 0 260,993
Exercised 0 0
Canceled (502,370) (7,078)
-------- --------
Options outstanding at end of year 14,483 516,853
======== ========
Options exercisable at end of year 14,483 170,436
Option exercise price (range) at end of year $ 5.625 $5.62-22.00
The Company has adopted the intrinsic value method of accounting for stock
options and warrants under APB 25 with footnote disclosure of the proforma
effects as if the FAS 123 fair value method had been adopted. Had compensation
expense for the Company's employee stock options been determined based on the
fair value at the grant date for awards in 1998 and 1997 consistent with the
provisions of FAS 123, the Company's net income (loss) per share would have been
adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997
------ --------
<S> <C> <C> <C>
Net income (loss) As reported $ 21 $ (3,245)
Pro forma $ (248) $ (3,665)
Basic and diluted income (loss) per share As reported $ 0.01 $ (1.96)
Pro forma $ (0.19) $ (2.27)
</TABLE>
<PAGE>
FAS 123 requires stock options to be valued using an approach such as the
Black-Scholes option pricing model. The Black-Scholes model calculates the fair
value of the grant based upon certain assumptions about the underlying stock.
For 1998 the average expected dividend yield of the stock is zero, the average
expected volatility is 60 percent, the average expected life of the options at
grant date is 5 years, and the average expected risk-free rate of return is 5.6
percent calculated as the rate offered on U.S. Government securities with the
same term as the expected life of the options. For 1997, the average expected
dividend yield of the stock was zero, the average expected volatility was 60
percent, the average expected life of the options was 6 years and the average
expected risk free rate of return was 5.7 percent. The weighted average
remaining contractual life of options and warrants outstanding at September 30,
1998 and 1997 was 4.5 and 9 years respectively. The weighted average fair values
of options granted during 1998 and 1997 are $0.57 and $3.52 for the Company.
NOTE 12 - EMPLOYEE BENEFIT PLAN:
The Company has a 401(k) Matched Savings Plan that permits eligible employees to
defer and have the Company contribute a portion of their compensation on a
pre-tax basis to the Plan. The Company shall make a 50% matching contribution up
to 4% of a participant's compensation. Company contributions to the Plan were
$90,000 and $202,000 in 1998 and 1997, respectively.
NOTE 13 - DEFERRED COMPENSATION PLAN:
The Company implemented a Deferred Compensation Plan for the period June 1993 to
May 1994, whereby a portion of the employees' compensation was deferred and
payable in June 1998, together with 12% interest compounded annually up to June
1, 1998. Payment is to be in cash or common stock at a rate of $25 per share.
The stock has traded below $25 and management has commenced paying cash to the
Plan participants on a 24 month payout schedule from June 1, 1998. The Company
has the right to amend the Plan at any time solely at its discretion. Due to the
limited liquidity of the Company, only three of the monthly installments have
been paid and payments have been suspended pending the generation of sufficient
cash flow to recommence payments under the Plan.
NOTE 14 - COMMITMENTS AND CONTINGENCIES:
On August 1, 1996, the Company entered into a lease modification agreement for
the Forge Drive facility. The modified lease term covers the period August 1,
1996 through December 31, 2008, with a 10-year renewal option at the expiration
of the lease. Minimum annual lease payments are $275,000 through December 31,
1998, increasing to $285,000 and $300,000 on January 1, 1999 and 2004,
respectively. The lease grants the Company the right of first refusal with
respect to the purchase of the facility.
On March 28, 1996, the Company sold the Marrows Road facility for $8.6 million.
Concurrent with the sale, the Company entered into a noncancelable twenty-year
operating lease with the Buyer with renewal options for another 20 years. The
lease requires prepaid quarterly payments of $244,000 with inflation adjustments
every five years, and is being accounted for as an operating lease.
Minimum annual operating lease payments were $1,276,000 and $1,253,000 for 1998
and 1997, respectively.
<PAGE>
In addition to the Forge Drive and Marrows Road facilities, the Company leases
certain machinery and equipment. Commitments for minimum rentals under all
non-cancelable leases at the end of 1998 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
Capital Operating
Fiscal Year Ended Lease Payments Lease Payments
----------------- -------------- --------------
<S> <C> <C>
1999 $ 86 $ 1,177
2000 86 1,180
2001 86 1,304
2002 71 1,315
2003 1,315
Thereafter 15,476
-------- ----------
Total minimum lease payments 329 $ 21,767
==========
Less amount representing interest 48
--------
Present value of net minimum lease payments,
including current maturities of $86 $ 281
========
</TABLE>
Property and equipment at year-end includes the following amounts for
capitalized leases:
<TABLE>
<CAPTION>
(Dollars in thousands)
1998 1997
----- -----
<S> <C> <C>
Machinery and Equipment $ 386 $ 447
Leasehold Improvements 0 68
----- -----
386 515
Less: Accumulated Depreciation and Amortization (128) (20)
----- -----
$ 258 $ 495
===== =====
</TABLE>
Legal proceedings
There are a number of pending legal actions from vendors regarding claims on
past due obligations. In addition, there are five legal actions from vendors
regarding claims for past due obligations of approximately $150,000. The Company
is also subject to certain purchase price adjustments related to the transaction
with DHB (See note 3). As of September 30, 1998, the Company has recorded an
accrual of $150,000 related to potential liabilities for these matters. In the
opinion of management none of the claims are expected to have a material impact
on the Company.
<PAGE>
Note 15 - Subsequent Event:
On January 6, 1999 the Company closed its plant facility and terminated
substantially all of its employees due to a liquidity shortfall. Unless the
Company is able to sell additional licenses, equipment or lines of business in
the immediate future, the Company may file for bankruptcy. The board of
directors and management are currently considering these options.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth, as of September 30, 1998, certain
information concerning the directors and executive officers of the Company:
<TABLE>
<CAPTION>
Year
first
elected
Name Age Position Director
---- --- -------- --------
<S> <C> <C> <C>
Marc S. Newkirk 51 President, Chief Executive Officer and Director 1983
Michael J. Hollins 54 Vice President, Corporate Development 1998
Bentley J. Blum 57 Director 1983
</TABLE>
MARC S. NEWKIRK founded the Company and has been its President since 1983 and
its Chief Executive Officer since 1984. Mr. Newkirk is a past Chairman and
President of the United States Advanced Ceramic Association, the trade
association for the advanced ceramics industry. He is a member of The Council on
Competitiveness. He is the inventor of numerous patented developments in
materials processing systems.
MICHAEL J. HOLLINS has served as Vice President, Corporate Development, of the
Company since its inception in 1983. From 1978 to 1983, Mr. Hollins was
Operations Manager in charge of manufacturing, engineering and market
development for SES Incorporated (SES), a Shell Oil Company venture in the field
of solar energy conversion.
BENTLEY J. BLUM has been a director of the Company since 1983. He served as the
Chairman of the Board of Commodore from 1984 through November 1996, and has
served as a director of Commodore since that date. Mr. Blum served as Chairman
of the Board of Applied and Commodore Labs until November 1996, and has served
as a director of Applied since that date. Mr. Blum also currently serves as a
director of Commodore Separation Technologies, Inc., Commodore Advanced
Sciences, Inc. and Commodore CFC Technologies, Inc. For more than 15 years, Mr.
Blum has been actively engaged in real estate acquisitions and currently is the
sole stockholder and director of a number of private corporations which hold
real estate interests, oil drilling interests and other corporate interests. Mr.
<PAGE>
Blum is a director of Federal Resources Corporation, a company formerly engaged
in manufacturing, retail distribution and natural resources development;
Specialty Retail Services, Inc., a former distributor of professional beauty
products; and North Valley Development Corp., an inactive real estate
development company. Mr. Blum is the principal stockholder of Commodore and the
Company, and is the brother-in-law of Paul E. Hannesson, the Chairman of the
Board of the Company.
Prior to the Company's 1996 Annual Meeting of Stockholders on February 28, 1996,
the Company's Board of Directors was divided into three classes, each of which
was elected by holders of Old Common Stock and Old Series A Preferred Stock,
voting together as a single class, for a three-year term, with one class being
elected each year.
Pursuant to an amendment to the Company's Certificate of Incorporation which was
adopted by the stockholders of the Company at its 1996 Annual Meeting of
Stockholders, the Board of Directors is no longer divided into classes.
Commencing with the next Annual Meeting of Stockholders, Directors will now be
elected for one-year terms.
Board of Directors Committees
The Board of Directors has three standing committees: the Audit Committee, the
Compensation Committee and the Stock Option Committee.
Audit Committee
As of September 30, 1998, the Audit Committee consisted of Mr. Blum who is a
non-employee director. The Audit Committee did not formally meet during the 1998
fiscal year. The Audit Committee evaluates the adequacy and effectiveness of the
Company's administrative, operating and accounting policies and its internal
accounting control system. It reviews and approves significant accounting
changes and the annual financial statements.
Compensation Committee
The Compensation Committee currently also consists of Mr. Blum. The Compensation
Committee determines and sets the annual compensation to be paid to the Company
officers.
Stock Option Committee
The Stock Option Committee currently consists of Messrs. Newkirk and Hollins.
The Stock Option Committee administers the Stock Option Plans as approved by the
stockholders of the Company and determines each employee's participation in the
plans. Mr. Blum approved the option grants for Messrs. Newkirk and Hollins.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table sets forth the annual and long-term compensation of the
Chief Executive Officer and the four other most highly compensated executive
officers of the Company for the fiscal years ended September 30, 1998, 1997 and
1996 (the Named Executives).
TABLE I
Summary of Compensation to Certain Executive Officers
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------------- --------------------------------
Awards Payouts
----------- ------------
Securities All Other
Fiscal Underlying Compensation
Name and Principal Position Year Salary ($)(1) Options (#) ($)(2)
--------------------------- ---- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Marc S. Newkirk 1998 $267,647 283,198 $9,016
President and 1997 $279,637 114,123 $5,421
Chief Executive Officer 1996 $257,425 114,123 $6,021
Michael J. Hollins 1998 $138,197 106,199 $6,176
Vice President 1997 $148,810 18,605 $4,622
1996 $136,423 18,605 $4,521
</TABLE>
(1) Includes the following salary restoration adjustments in 1997 and 1996,
respectively: $73,004 and $49,950 for Mr. Newkirk; $39,492 and $27,021 for
Mr. Hollins;
(2) Represents interest earned on the Deferred Compensation Plan which is in
excess of the maximum allowable federal rate of 7.79%, plus the Company's
matching contributions under the Employee Savings Plan.
Salary Restoration Program
Due to the Company's ongoing cash needs, during the period ended March 20, 1995
through February 6, 1998, the officers of the Company agreed to a temporary 33%
salary reduction. During fiscal 1995, the total amount of this salary reduction
was approximately $160,000. Although this salary reduction remains in effect
during that period, on December 8, 1995, the Board of Directors approved a
salary restoration program. During each quarter of the fiscal year, the officers
were eligible to receive restoration of their lost salary (the Restored Portion)
to the extent that the operating income of the Company, excluding extraordinary
items, was greater than $15,000 for the quarter, after giving effect to the
restoration of the salaries. If the operating income in any quarter was
insufficient to pay each participant's Restored Portion, then the Company was
permitted to pay to the participants that amount of salary not previously
restored, to the extent that the operating income of the Company, excluding
extraordinary items, was greater than $60,000 for the fiscal year, after giving
effect to the restoration of salaries.
<PAGE>
Compensation of Directors
In addition to the Director Option Plan referred to below, the Directors are
reimbursed for normal expenses incurred in attending Board of Directors or
committee meetings and for other miscellaneous expenses incurred while
performing their duties as Directors. No cash compensation is paid to the
Directors for their services.
The following table shows the number of shares of Common Stock underlying the
Stock Options granted in fiscal year 1997 to each of the Named Executives, the
percentage of total options granted which each Named Executive's stock option
grant represents, the exercise price of each option granted and the expiration
date of each option granted.
TABLE II
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
# of Securities Percent of total
Underlying options granted Option
Name Options in fiscal year Exercise Price Expiration Date
---- ------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Marc S. Newkirk 283,198 40 % $1.00 03/05/03
Michael J. Hollins 106,199 15 % " 03/05/03
</TABLE>
Options Exercised in Fiscal Year 1998
The following table shows the number and value of stock options exercised by
each of the Named Executives during fiscal year 1998, the number of all vested
(exercisable) and unvested (not yet exercisable) stock options held by each
Named Executive at the end of fiscal year 1998, and the value of all such
options that were "in the money" (i.e., the market price of the Common Stock was
greater than the exercise price of the options) at the end of fiscal year 1998.
TABLE III
Aggregated Option Exercises in Fiscal Year 1998 and
Fiscal Year End Option Values
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Shares at End of Fiscal 1998 at End of Fiscal 1998
Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
---- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Marc S. Newkirk.......... -0- $0 141,599/141,599 $0/$0
Michael J. Hollins....... -0- 0 53,100/53,099 $0/$0
</TABLE>
<PAGE>
COMPANY PLANS
1998 Stock Option Plan
In March 5, 1998 the Board of Directors approved the 1998 Stock option Plan (The
1998 Plan) for employees of the Company. Under the 1998 Plan, options may be
granted to employees and certain consultants of the Company to acquire not more
than 1,000,000 shares of common stock. Options under the Plan will be primarily
incentive stock options, but some number of non-qualified stock options may also
be issued. The stock option price is equal to 100% of the fair market value of
the common stock on the grant date. During 1998, the stock options had an
average exercise price of $1.00. The Board has discretion in determining the
term and vesting period of the option up to a maximum of ten years. The stock
options issued in 1998 under the 1998 Plan are scheduled to vest over eighteen
to twenty-seven month periods commencing on the date of the grant. Options
granted under the 1995 Plan were converted into stock options under the 1998
Plan for all existing employees at the time the 1998 Plan became effective. A
minimal number of options under the 1995 Plan remain outstanding, held by former
employees.
1995 Director Stock Option Plan
In December 1995, the Board of Directors approved the 1995 Director Stock Option
Plan (the 1995 Director Plan). The 1995 Director Plan authorized the grant of
options to purchase up to 25,000 shares of Common Stock. In December 1995,
subject to stockholder approval, each director was granted an option to purchase
3,000 shares of Common Stock at an exercise price of $5.62 per share.
One-twelfth of these options vested at the end of each three-month period
following the date of grant. Future directors will receive a prorated portion of
the option to purchase 3,000 shares. A non-employee consultant was granted an
option to purchase 3,000 shares of Common Stock with terms identical to the
directors. The stockholders of the Company approved the 1995 Director Plan at
the Annual Meeting of Stockholders held on February 28, 1996.
Grant of Warrants
In December 1995, the Board of Directors approved the issuance to certain
executive officers of warrants to purchase 66,000 shares of Common Stock. All of
the warrants vest on the third anniversary of the date of grant and have an
exercise price of $8.50. On July 3, 1997, pursuant to the terms of the
Securities Purchase Agreement with Commodore, the Board of Directors approved
the issuance to certain executive officers, warrants to purchase an additional
66,000 shares of Common Stock. In 1998, substantially all of the warrants were
canceled and replaced with new options granted under the 1998 Plan for officers.
Deferred Compensation Plan
The Company implemented a Deferred Compensation Plan for the period June 1993 to
May 1994, whereby a portion of the employees' compensation was deferred and
payable in June 1998, together with 12% interest compounded annually up to June
1, 1998. Payment is to be in cash or common stock at a rate of $25 per share.
The stock has traded below $25 and management has commenced paying cash to the
Plan participants on a 24 month payout schedule from June 1, 1998. The Company
has the right to amend the Plan at any time solely at its discretion. Due to the
limited liquidity of the Company, only three of the monthly installments have
been paid and payments have been suspended pending the generation of sufficient
cash flow to recommence payments under the Plan. The deferred compensation
accrual as of September 30, 1998 and 1997 was, $1,372,000 and $1,377,000,
respectively.
<PAGE>
401(k) Matched Savings Plan
The Company has a 401(k) Matched Savings Plan (the Employee Savings Plan)
permitting eligible employees to defer and have the Company contribute a portion
of their compensation on a pre-tax basis to the Employee Savings Plan. The
Company may make a matching contribution of fifty cents for each dollar deferred
by a participant up to 4% of a participant's total cash compensation. Company
contributions to the Employee Savings Plan were $90,0000 and $202,000 in 1998
and 1997, respectively.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Below is a table setting forth the beneficial ownership as of December 12, 1998
of the Common Stock of the Company (on a common stock equivalent basis) by each
of its officers, directors and each entity known by the Company to beneficially
own five percent or more of any class of the Company's voting securities.
<TABLE>
<CAPTION>
Number of Percent of
Title of Class Name and Address of Beneficial Owner(1) Shares Class
-------------- --------------------------------------- ------ -----
<S> <C> <C> <C>
Common Stock Commodore Environmental Services, Inc. (2) 270,000 10.4%
Alcan (3) 188,432 7.3
Marc S. Newkirk (4), (5), (6) 356,381 8.3
Michael J. Hollins (4), (6), (7) 118,478 2.5
Bentley J. Blum (4), (6), (8) 657,492 25.4
All directors and executive officers 1,132,351 36.2
as a group (eleven persons) (4),(5), (6), (7), (8)
Series H Preferred Stock Commodore Environmental Services, Inc. 20,000 100
</TABLE>
- -----------------------
(1) Unless otherwise indicated, (i) the address of each of the beneficial
owners is c/o Lanxide Corporation, 1300 Marrows Road, P.O. Box 6077,
Newark, Delaware 19714-6077, (ii) all shares are owned directly, and
(iii) each person has sole investment and voting power.
(2) Includes 270,000 shares of Common Stock from the exercise of common
stock warrants issued to Commodore. Commodore's address is 150 East
58th Street, Suite 3400, New York, New York 10155.
(3) Consists solely of shares of the Company's Series A Preferred Stock,
convertible at any time into the Company's Common Stock and includes
27,007; 96,865; and 64,560 shares of Series A preferred stock on as
converted basis owned by Alcan Aluminium Limited, Alcan Aluminum
Corporation and Alcan Automotive Castings, respectively. Alcan's
address is 1188 Sherbrooke Street West, Montreal, Quebec, Canada H3A
3G2.
(4) Includes an aggregate of 60,534 shares of the Company's Series A
Preferred Stock, convertible at any time into shares of the Company's
Common Stock as follows: 36,869 shares for Mr. Newkirk, 2,279 shares
for Mr. Hollins, 21,386 shares for Mr. Blum,.
(5) Includes shares owned by Mr. Newkirk's spouse, Karen H. Newkirk (2,487
shares); and minor children trusts dated 3/3/88 for the benefit of
Corey E. Newkirk (1,827 shares) and Ross S. Newkirk (1,827 shares) and
trust under agreement of Marc S. Newkirk dated 3/3/88 (66,773 shares)
for which Mr. Newkirk has voting power.
<PAGE>
(6) Includes the following options to purchase shares of the Company's
Common Stock which are exercisable within 60 days, including: 141,599
shares for Mr. Newkirk, 53,099 shares for Mr. Hollins and 2,757 shares
for Mr. Blum.
(7) Excludes shares beneficially owned by Kanematsu which are subject to
the Voting Trust Agreement, dated as of May 28, 1992, between Kanematsu
and Mr. Hollins, as voting trustee.
(8) Includes 41,088 shares owned by Mr. Blum's spouse, Laura Utley, as to
which Mr. Blum disclaims beneficial ownership. Also includes warrants
to purchase 58,763 shares of the Company's Common Stock exercisable
until January 14, 1998. Mr. Blum's address is 150 E. 58th Street, Suite
3400, New York, New York 10155. Pursuant to the Voting Agreement, Mr.
Blum and Ms. Utley are not entitled to vote the 574,586 shares of
Common Stock owned by them.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1996, the Company entered into a Merger Agreement with Commodore
Environmental Services, Inc. (Commodore) providing for the acquisition of the
Company by Commodore and the conversion of the Company's outstanding Common
Stock and Series A Preferred Stock into common stock of Commodore (the Merger).
The Merger was subject to several conditions, including the completion of a
public offering of Commodore capital stock with gross proceeds of at least $50
million. In July 1997, the merger discussions were terminated as a result of the
consummation of the transaction between the Company and Commodore described
below.
In July 1997, Commodore obtained effective control of the Company pursuant to
the Voting Agreement which was executed in connection with the transactions
contemplated by the Securities Purchase Agreement. Pursuant to the Voting
Agreement, stockholders owning 50.1% of the outstanding Common Stock granted
proxies to the members of the Board of Directors of Commodore to vote all shares
of Common Stock held by each such stockholder until December 31, 1998.
Pursuant to the Securities Purchase Agreement, Commodore purchased 20,000 shares
of Series G Preferred Stock for $2.0 million. For a description of the terms of
the Series G Preferred Stock, see Item 5 of this 10-KSB. The Securities Purchase
Agreement further provided that if prior to August 27, 1997, Commodore received
$10.5 million in financing, Commodore would purchase an additional 85,000 shares
of Series G Preferred Stock for an aggregate purchase price of $8.5 million
comprised of (x) $4.0 million in cash and (y) the cancellation of the Company's
outstanding indebtedness to Commodore and its subsidiary, Commodore Applied
Technology, Inc., in the amount of $4.5 million. On August 27, 1997, Commodore
informed the Company that it had not completed the required financing and that
it would not purchase the additional 85,000 shares of Series G Preferred Stock.
Pursuant to the Securities Purchase Agreement, the Company also issued a warrant
to Commodore for the purchase of 250,000 shares of the Company's Series F
Preferred Stock at an exercise price of $100 per share. For a description of the
terms of the Series F Preferred Stock, see Item 5 of this 10-KSB. The Warrant
may be exercised, in part, by the exchange of the 20,000 shares of Series G
Preferred Stock acquired by Commodore pursuant to the Securities Purchase
Agreement for a like number of shares of Series F Preferred Stock.
<PAGE>
Bentley J. Blum, a director and principal stockholder of the Company, is a
director and principal stockholder of Commodore. Paul E. Hannesson, the Chairman
of the Board of the Company, is the Chairman of the Board and the Chief
Executive Officer of Commodore. Pursuant to the Securities Purchase Agreement,
Michael Fullwood, the Senior Vice President, Chief Financial and Administrative
Officer, Secretary and General Counsel of Commodore, and William Toller, a
director of Commodore Separation Technologies, Inc., [a subsidiary of
Commodore], became members of the Board of Directors of the Company.
During the latter part of 1996, Lanxide Performance Materials, Inc. (LPM)
established an aggregate line of credit of $4.5 million with Commodore and its
subsidiary, Commodore Applied Technology, Inc. LPM drew all available amounts
under this line which bore interest at Citibank N.A.'s prime rate of interest
and matured on February 28, 1998.
On March 5, 1998, the Company and Commodore entered into a settlement and
Release agreement that terminated the voting trust thereby eliminating
Commodore's potential vote on 3,769,329 shares. The Company on that same date
also issued a technology license to a wholly-owned subsidiary of Commodore for
$5,297,500 the proceeds of which were used in part to repay all the Commodore
indebtedness of $4.5 million plus accrued interest of $297,500. Finally, on
March 5, 1998, the Company and Commodore entered into an amendment to Securities
Purchase agreement whereby all the Commodore warrants to purchase 250,000 shares
of Series F preferred stock were cancelled and Warrants to purchase 270,000
shares of Common stock were issued and all the 20,000 shares of Series G
preferred stock previously issued to Commodore were exchanged for the 20,000
shares of the Company's newly issued Series H preferred stock,
<PAGE>
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
a. 2.3 Recapitalization Plan, dated October 10, 1995.
Incorporated by reference to Exhibit 2.3 of the Company's
Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1995.
2.4 Merger Agreement, dated October 10, 1995
3.5 Restated Certificate of Incorporation
3.6 By-laws. Incorporated by reference to Exhibit 3.2 of the
Company's Registration Statement on Form S-4 (No.
33-94186)
4.8 Specimen Certificate for Common Stock
4.9 Specimen Rights Certificate
4.10 Warrant Agreement, dated as of March 28, 1996, between QRS
12-16, Inc. and the Company. Incorporated by reference to
Exhibit 4.12 of the Company's Post-Effective Amendment No.
1 to the Registration Statement on Form S-4 under cover of
Form SB-1 (No. 33-94186).
4.11 Form of Warrant Agreement among the Company and the
individuals listed on Schedule A thereto. Incorporated by
reference to Exhibit 4.13 of the Company's Post-Effective
Amendment No. 1 to the Registration Statement on Form S-4
under cover of Form SB-1 (No.
33-94186).
4.12 Warrant Agreement, dated as of December 22, 1995, among
the Company and the officers listed on Schedule A thereto.
Incorporated by reference to Exhibit 4.14 of the Company's
Post-Effective Amendment No. 1 to the Registration
Statement on Form S-4 under cover of Form SB-1 (No.
33-94186).
4.14.1 Amendment to Warrant Agreement, dated June 26, 1996 among
the Company and the Warrantholders. Incorporated by
reference to Exhibit 4.14.1 to the Company's Quarterly
Report on Form 10-QSB for the fiscal quarter ended June
30, 1996.
9.1 Voting Trust Agreement, dated as of May 28, 1992, between
Kanematsu Corporation, the Company and Michael J. Hollins,
incorporated by reference to Exhibit 9.1 of the Company's
Registration Statement on Form S-4 (No. 33-94186)
10.23.1 License Agreement between the Company, Lanxide Technology
Company L.P. and Sturm, Ruger and Company, Inc., dated
January 5, 1996. Incorporated by reference to Exhibit
10.23.1 of the Company's Post-Effective Amendment No. 1 to
the Registration Statement on Form S-4 under cover of Form
SB-1 (No. 33-94186)
<PAGE>
10.24 Stock Purchase Agreement among LNX Acquisition Company,
the Company and Lanxide Technology Company, dated May 25,
1995. Incorporated by reference to Exhibit 10.24 to the
Company's Registration Statement on Form S-4 (No.
33-94186)
10.25 Asset Purchase Agreement between Alanx Products Inc. and
Alanx Wear Solutions, Inc., dated June 26, 1995.
Incorporated by reference to Exhibit 10.25 to the
Company's Registration Statement on Form S-4 (No.
33-94186)
10.26 Guarantee (Asset Purchase Agreement) between the Company
and Alanx Wear Solutions, Inc., dated June 26, 1995.
Incorporated by reference to Exhibit 10.26 to the
Company's Registration Statement on Form S-4 (No.
33-94186)
10.28 Amendment to Note, dated August 15, 1995, between PNC
Bank, Delaware and the Company. Incorporated by reference
to Exhibit 10.28 to the Company's Registration Statement
on Form S-4 (No. 33-94186)
10.31 Letter Agreement between Alcan and the Company, dated July
14, 1995. Incorporated by reference to Exhibit 10.31 to
the Company's Registration Statement on Form S-4 (No.
33-94186)
10.32 Lease, between the Company and Terrace Realty, Inc.
relating to the Company's Forge Drive Facility, dated June
1, 1995. Incorporated by reference to Exhibit 10.32 to the
Company's Registration Statement on Form S-4 (No.
33-94186)
10.36 Amendment to Loan Agreement between the Company and PNC
Bank, Delaware, dated September 29, 1995. Incorporated by
reference to Exhibit 10.36 to the Company's Registration
Statement on Form S-4 (No. 33-94186)
10.41 Amendment to Loan Agreement between the Company and PNC
Bank, Delaware, dated September 30, 1995. Incorporated by
reference to Exhibit 10.41 to the Company's Registration
Statement on Form S-4 (No. 33-94186)
10.43 1995 Employee Stock Option Plan. Incorporated by reference
to Exhibit 10.43 to the Company's Annual Report on Form
10-KSB for the fiscal year ended September 30, 1995.
10.47 Amendment to Loan Agreement, dated December 7, 1995,
between PNC Bank, Delaware and the Company. Incorporated
by reference to Exhibit 10.47 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended September
30, 1995.
10.48 Registration Rights Agreement, dated November 7, 1995,
among the Company, Alcan and Marc S. Newkirk. Incorporated
by reference to Exhibit 10.48 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended September
30, 1995.
<PAGE>
10.49 Special Warranty Deed, dated as of March 28, 1996, from
the Company to QRS 12-16, Inc. with respect to the Marrows
Road Facility. Incorporated by reference to Exhibit 10.49
of the Company's Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 under cover of Form
SB-1 (No. 33-94186)
10.50 Lease Agreement, dated as of March 28, 1996, between QRS
12-16, Inc., as landlord, and the Company, as tenant.
Incorporated by reference to Exhibit 10.50 of the
Company's Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 under cover of Form
SB-1 (No. 33-94186)
10.51 Sublease Agreement, dated as of March 28, 1996, between
the Company, as landlord, and Lanxide Armor Company, L.P.,
a Delaware limited partnership (LAC), as subtenant.
Incorporated by reference to Exhibit 10.51 of the
Company's Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 under cover of Form
SB-1 (No. 33-94186)
10.52 Sublease Agreement, dated as of March 28, 1996, between
the Company, as landlord, and DuPont Lanxide Composites,
L.P., a Delaware limited partnership (DLC), as subtenant.
Incorporated by reference to Exhibit 10.52 of the
Company's Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 under cover of Form
SB-1 (No. 33-94186)
10.53 Sublease Agreement, dated as of March 28, 1996, between
the Company, as landlord, and Lanxide Electronic
Components, Inc., a Delaware corporation (LEC), as
subtenant. Incorporated by reference to Exhibit 10.53 of
the Company's Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 under cover of Form
SB-1 (No. 33-94186)
10.54 Assignment of Subleases and Rents, dated as of March 28,
1996, between Lanxide and QRS 12-16, Inc. Incorporated by
reference to Exhibit 10.54 of the Company's Post-Effective
Amendment No. 1 to the Registration Statement on Form S-4
under cover of Form SB-1 (No.
33-94186)
10.55 Promissory Note, dated as of March 28, 1996, from QRS
12-16, Inc. to the Company. Incorporated by reference to
Exhibit 10.55 of the Company's Post-Effective Amendment
No. 1 to the Registration Statement on Form S-4 under
cover of Form SB-1 (No. 33-94186)
10.56 Purchase and Sale Agreement, dated as of February 29,
1996, among Nihon Cement Co. Ltd., Lanxide K.K. and
Celanx, KK. Incorporated by reference to Exhibit 10.56 of
the Company's Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 under cover of Form
SB-1 (No. 33-94186)
<PAGE>
10.57 Form of Settlement Agreement among the Company and the
individuals listed on Schedule A thereto. Incorporated by
reference to Exhibit 10.57 of the Company's Post-Effective
Amendment No. 1 to the Registration Statement on Form S-4
under cover of Form SB-1 (No.
33-94186)
10.58 Registration Rights Agreement, dated as of April 11, 1996,
between Mees Pierson, Inc. and the Company. Incorporated
by reference to Exhibit 10.58 of the Company's
Post-Effective Amendment No. 1 to the Registration
Statement on Form S-4 under cover of Form SB-1 (No.
33-94186)
10.59.10 Sale of Interest Agreement, dated June 28, 1996, among
DuPont, Lanxide Armor Products, Inc. and Lanxide Armor
Company, Inc. Incorporated by reference to Exhibit 2.0 of
the Company's current report on Form 8-K filed on July 17,
1996.
10.59.20 Sale of Interest Agreement, dated June 28, 1996, between
DuPont and the Company. Incorporated by reference to
Exhibit 2.1 of the Company's current report on Form 8-K
filed on July 17, 1996.
10.59.30 Sale of Interest Agreement, dated June 28, 1996, among
DuPont, Lanxide Technology Company, L.P. and DuPont
Lanxide Composites, Inc. Incorporated by reference to
Exhibit 2.2 of the Company's current report on Form 8-K
filed on July 17, 1996.
10.59.40 Letter Agreement, dated June 28, 1996, between the Company
and DuPont relating to the Guaranty Agreement, dated
February 11, 1993. Incorporated by reference to Exhibit
10.59 of the Company's current report on Form 8-K filed on
July 17, 1996.
10.60 Agreement and Plan of Merger, dated November 13, 1996, by
and among the Company, Commodore and COES Acquisition
Corp. Incorporated by reference to Exhibit 1 to the
Company's Current Report on Form 8-K, dated November 13,
1996.
10.61 Line of Credit Agreement, dated November 13, 1996, by and
between Lanxide Performance Materials, Inc. and Commodore.
Incorporated by reference to Exhibit 3 to the Company's
Current Report on Form 8-K, dated November 13, 1996.
10.62 Line of Credit Promissory Note, dated November 13, 1996,
by Lanxide Performance Materials, Inc. in favor of
Commodore. Incorporated by reference to Exhibit 4 to the
Company's Current Report on Form 8-K, dated November 13,
1996.
10.63 Security Agreement, dated November 13, 1996, by and
between Lanxide Performance Materials, Inc. and Commodore.
Incorporated by reference to Exhibit 5 to the Company's
Current Report on Form 8-K, dated November 13, 1996.
<PAGE>
10.64 Guaranty, dated November 13, 1996, by the Company in favor
of Commodore. Incorporated by reference to Exhibit 6 to
the Company's Current Report on Form 8-K, dated November
13, 1996.
10.65 Letter Agreement, dated November 13, 1996, by and between
Lanxide Performance Materials, Inc. and Commodore Applied
Technologies, Inc. Incorporated by reference to Exhibit 7
to the Company's Current Report on Form 8-K, dated
November 13, 1996.
10.66 Joint Development Agreement, dated as of October 25, 1996,
by and among Akebono Brake Industry Co., Ltd., Nihon
Cement Company Ltd. and the Company. Incorporated by
reference to Exhibit 10.66 of the Company's Annual Report
on Form 10-KSB for the fiscal year ended September 30,
1996.
10.67 Joint Venture Agreement, dated as of October 25, 1996 by
and among Akebono Brake Industry Co., Ltd., Nihon Cement
Company Ltd., Lanxide K.K., Kanematsu Corporation and the
Company. Incorporated by reference to Exhibit 10.67 of the
Company's Annual Report on Form 10-KSB for the fiscal year
ended September 30, 1996. (Portions of this exhibit have
been omitted pursuant to a request for confidential
treatment by Lanxide Corporation, which has been granted.)
10.68 Settlement Agreement, dated January 30, 1997, among the
Company, the plaintiffs listed in Exhibit A thereto, (the
"Plaintiffs") and Bentley J. Blum. Incorporated by
reference to Exhibit 10.68 of the Company's Quarterly
Report on Form 10-QSB for the quarter ended March 31,
1997.
10.69 Promissory Note of the Company, dated January 30, 1997 in
favor of the Plaintiffs. Incorporated by reference to
Exhibit B of Exhibit 10.68 of the Company's Quarterly
Report on Form 10-QSB for the quarter ended March 31,
1997.
10.70 Securities Purchase Agreement, dated July 3, 1997, between
the Company and Commodore Environmental Services, Inc.
Incorporated by reference to Exhibit 10.70 of the
Company's Current Report on Form 8-K filed on July 18,
1997. (No. 0-16293)
10.71 License Agreement between the Company and Nihon Cement
Company, Ltd. dated September 5, 1997. (Portions of
Exhibit 10.71 have been omitted pursuant to a request for
confidential treatment.)
10.72* Capital loan restructuring between the Company and
Kanematsu dated April 1, 1998.
10.73* Amendment to Securities Purchase Agreement between the
Company and Commodore Environmental Services, Inc. (COES)
10.74* Transfer agreement between the Company and DHB Capital
Group, Inc. to transfer all of the stock of LAP and LEC
* Filed with this report, all other reports previously filed.
<PAGE>
b. Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated
October 2, 1996, reporting the revised structure of the
previously announced merger transaction with Commodore.
The Company filed a Current Report on Form 8-K dated
October 24, 1996, reporting the determination by the Board
of Directors not to change its fiscal year end to December
31.
The Company filed a Current Report on Form 8-K dated
November 13, 1996, reporting (i) the execution of the
Merger Agreement and (ii) the execution of loan documents
between Commodore and Lanxide Performance Materials, Inc.
The Company filed a Current Report on Form 8-K dated July
18, 1997, reporting the change in control of the Company.
The Company filed a Current Report on Form 8-KA dated
February 6, 1998 reporting a pro forma balance sheet and
income statement as of September 30, 1997 as if Lanxide
Electronic Components, Inc. and Lanxide Armor Products,
Inc. had been sold as of September 30, 1997.
The Company filed a Current Report on Form 8-K dated March
5, 1998 reporting the issuance of a license to Commodore
Environmental Services, Inc.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Lanxide Corporation
Date
January 12, 1999
By: /s/Marc S. Newkirk
------------------
Marc S. Newkirk
President and Chief
Executive Officer
Pursuant to the requirements of the Exchange Act, the report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/Marc S. Newkirk President, Chief Executive Officer
- ------------------ and Director January 12, 1999
Marc S. Newkirk
DATE : lST APRIL, 1998
MEMORANDUM
SUBJECT: $10 MILLION LOAN OBLIGATION OF LANXIDE CORPORATION ("LANXIDE") TO
KANEMATSU CORPORATION ("KANEMATSU") UNDER THE LOAN AGREEMENT DATED 29 APRIL,
1994 ("$10 MI1LION LOAN")
KEY POINTS ARE AGREED AS FOLLOWS:
THE FOLLOWING TERMS AND CONDITIONS SHALL BE SUBJECT TO EACH PARTY' S BOARD
APPROVALS.
1) [VALUATION OF LANXIDE K.K. STOCK]
LANXIDE'S 65% STOCK INTEREST IN LANXIDE K. K., CURRENTLY COLLATERAL OF
$10 MILLION LOAN, SHALL BE TRANSFERRED TO KANEMATSU IMMEDIATELY. THE
VALUE OF SUCH STOCK SHALL BE CALCULATED IN ACCORDANCE WITH THIS
MEMORANDUM. THE NET WORKING CAPITAL OF LANXIDE K.K. SHALL BE
DISTRIBUTED TO KG AND 65% OF ITS VALUE SHALL BE CREDITED AS A REDUCTION
TO THE $10 MILLION LOAN OBLIGATION OF LANXIDE. VALUATION OF LANXIDE
K..'S STOCK SHALL BE ACCOMPLISHED NOT LATER THAN 30 JUNE, 1998.
2) [INSTALLMENT SALE OF THE EQUIPMENT]
BY 10 APRIL 1998, LANXIDE WILL FURNISH A LIST OF EQUIPMENT THAT IS
PRESENTLY COLLATERAL TO THE $10 MILLION LOAN WHICH LANXIDE WILL
PURCHASE ON A MONTHLY INSTALLMENT BASIS OVER AN 8 YEAR PERIOD, WITH
PAYMENTS COMMENCING 10 MAY 1998 ("EQUIPMENT".
TITLE OF THE EQUIPMENT TO BE PURCHASED BY LANXIDE WILL BE TRANSFERRED
TO KANEMATSU ON 10 APRIL 1998 AND SHALL REMAIN IN KANEMATSU. SUCH TITLE
SHALL BE TRANSFERRED BACK TO LANXIDE FOLLOWING THE FINAL PAYMENT IN THE
EIGHTH YEAR.
3) [SALE OF THE REMAINING EQUIPMENT]
LANXIDE WILL ATTEMPT TO SELL ANY OF THE EQUIPMENT EXCEPT THAT PURCHASED
BY LANXIDE IN ACCORDANCE WITH ABOVE NO. 2 RETWEEN NOW AND 30 JUNE 1998,
REMITTING PROCEEDS FROM SUCH SALES NET OF ANY REMOVAL COSTS TO
KANEMATSU IN REDUCTION OF THE $10 MILLION LOAN BA1ANCE. ANY SUCH
EQUIPMENT THAT IS NOT 501D BY 30 JUNE 1998 WILL BE TRANSFERRED IN TITLE
TO KANEMATSU AT THAT TIME AND ADDED TO THE INSTALLMENT SALE OF
EQUIPMENT BEING PURCHASED BY LANXIDE, WITH MONTH1Y PAYMENTS REVISED
ACCORDINGLY.
4) [INTEREST OF INSTALLMENT SALE AND TRANSFER OF TITLE]
INTEREST RATE GOVERNING THE EQUIPMENT PURCHASED ON INSTALLMENT SALE BY
LANXIDE UNDER ABOVE NO. 2 AND NO. 3 SHALL BE LIBOR PLUS 2% PER ANNUM,
AND THE VA1UE OF SUCH PURCHASES SHAL1 BE BOOK VALUE ON LANXIDE'S
BOOKS AS OF THE DATE OF TRANSFER TO KANEMATSU. F01LOWING THE FINAL
INSTALLMENT PAYMENT IN THE EIGHTH YEAR ALL OF THE OWNERSHIP OF THE
EQUIPMENT SHAL1 BE TRANSFERRED BACK FROM KANEMATSU TO LANXIDE FOR NO
FURTHER CONSIDERATION.
<PAGE>
5) [DISTRIBUTION RIGHT OF LANXIDE K.K.]
ANY PROCEEDS PAID TO LANXIDE K.K. BY LANXIDE ELECTRONIC COMPONENTS INC.
("LEC") OR DHB CAPITAL GROUP INC. ("DHB") OR ANY JAPANESE SUBSIDIARY OF
LEC OR DHB, FOR THE MARKETING RIGHTS OF LEC PRODUCTS IN JAPAN SHALL BE
REMITTED TO LANXIDE K.K. SUCH PROCEEDS SHALL BE DEEMED AS NET ASSETS OF
LANXIDE K.K. AND 65% OF SUCH PROCEEDS SHALL BE CREDITED AGAINST THE $10
MILLION LOAN OBLIGATION OF LANXIDE TO KANEMATSU IN ACCORDANCE WITH NO.
1. ABOVE. KANEMATSU AND LANXIDE AGREE THAT THEY ARE WILLING FOR LANXIDE
K.K. TO SELL THE LEC PRODUCTS DISTRIBUTION RIGHTS IN JAPAN BY, IN
EFFECT, TERMINATING THE DISTRIBUTION AGREEMENT BETWEEN LANXIDE K.K. AND
LEC, IN RETURN FOR $0.5 MILLION PLUS AN ADDITIONAL CONTINGENT $0.5
MILLION PAID TO LANXIDE K. K ., AND WILL CAUSE LANXIDE K.K. TO ENTER
INTO SUCH A TRANSACTION IF A BUYER CAN BE FOUND FOR SUCH RIGHTS.
LANXIDE IS TO LEAD A DISCUSSION WITH LEC AND/OR DHB TOWARD SUCH
OBJECTIVE. SAID CONTINGENT $0.5 MILLION IS TO BE PAID TO LANXIDE K.K.
BY LEC OR DHB IN THE EVENT ANY RIGHT TO SELL PRODUCTS LICENSED TO LEC
IS TRANSFERRED TO SUMITOMO ELECTRIC OR ANY SUMITOMO AFFILIATE WITHIN A
FIVE YEAR PERIOD.
6) [LICENSE RIGHT OF LANXIDE K.K. ]
KANEMATSU AND LANXIDE AGREE TO CAUSE LANXIDE K.K. TO SELL BACK TO
LANXIDE ALL TECHNOLOGY LICENSE RIGHTS CURRENTLY GRANTED BY LANXIDE AND
ITS SUBSIDIARIES TO LANXIDE K.K. EXCEPT THOSE PREVIOUS1Y LICENSED TO
NIHON CEMENT CO., LTD., AKN CORPORATION AND CELANX KK, FOR THE SUM OF
ONE DOLLAR, BY REVISING LANXIDE K.K.'S LICENSE TO NARROW ITS SCOPE TO
THAT OF ITS PRESENT SUB1ICENSES.
7) [10% INTEREST IN DUPONT LANXIDE COMPOSITES INC.]
ANY PROCEEDS PAID BY DUPONT COMPANY OR DUPONT LANXIDE COMPOSITES INC.
FOR THE PURCHASE OF LANXIDE'S 10% INTEREST IN DUPONT LANXIDE COMPOSITES
INC., WHICH IS CONTRACTUALLY COMMITTED TO BE TRANSFERRED TO LANXIDE
K.K. IN SATISFACTION OF THE $1.8M L0AN MADE BY LANXIDE K.K. TO LANXIDE,
WILL BE REMITTED TO LANXIDE K.K. SUCH PROCEEDS SHALL BE DEEMED AS NET
ASSETS OF LANXIDE K.K. AND 65% OF SUCH PROCEEDS SHALL BE CREDITED
AGAINST THE $10 MI1LION L0AN OBLIGATION OF LANXIDE TO KANEMATSU IN
ACCORDANCE WITH NO.1 ABOVE. KANEMATSU AGREES THAT LANXIDE K.K. IS
WILLING TO ACCEPT $1.5 MIL1ION OR MORE FROM ANY PURCHASER OF THE 10%
DUPONT LANXIDE COMPOSITES INC. INTEREST.
8) [BALANCE OF $10 MI1LION L0AN]
ANY PROCEEDS WHICH SHALL BE CREDITED AGAINST THE $10 MIL1ION LOAN IN
ACCORDANCE WITH THIS MEMORANDUM SHALL BE FIRSTLY APPROPRIATED TO THE
OUTSTANDING INTERESTS, AT THE RATE OF 2% ABOVE LIBOR PER ANNUM, ACCRUED
FROM 1 JANUARY 1998 THROUGH 30 JUNE 1998, AND THEREAFTER SHALL BE
APPROPRIATED TO THE PRINCIPAL OF THE $10 MILLION LOAN.
ANY BALANCE REMAINING OF THE $10 MILLION LOAN OBLIGATION FOLL0WING THE
ABOVE CREDITS SHALL BE PAID OVER A SEVEN YEAR PERIOD BY LANXIDE TO
KANEMATSU FOLL0WING A ONE YEAR MORATORIUM ON THE PAYMENT OF PRINCIPA1
AND INTERESTS, EXCEPT THAT LANXIDE SHALL MAKE PARTIAL INTEREST PAYMENTS
OF $5000 PER MONTH ON THE 1ST DAY
OF EACH MONTH BEGINNING ON 1 AUGUST 1998 THROUGH 1 MARCH 1999.
COMMENCING 1 JU1Y 1998, THE INTEREST RATE APPLYING TO SUCH BALANCE
SHALL BE THE JAPANESE YEN'S L0NG TERM PRIME RATE AT THE INDUSTRIAL BANK
OF JAPAN P1US 1% PER ANNUM. ANY UNPAID ACCRUED INTEREST FROM 1 JU1Y
1998 THROUGH 28 FEBRUARY 1999 SHA1L BE ADDED ONTO THE PRINCIPAL AMOUNT
OF THE REMAINING $10 MILLION L0AN. FULL INSTALLMENTS COMPRISING BOTH
PRINCIPA1 AND INTEREST SHALL BE PAID MONTH1Y COMMENCING 1 APRI1 1999.
<PAGE>
9) [LANXIDE LICENSE IN JAPAN]
IF 1ANXIDE LICENSES ANY ADDITIONAL LICENSEES IN JAPAN BASED ON THE
LICENSE RIGHTS SOLD BACK TO LANXIDE BY LANXIDE K.K. IN ACCORDANCE WITH
NO. 6 ABOVE, 25% OF ANY FRONT END PAYMENT FROM SUCH LICENSEES SHALL BE
PAID BY LANXIDE AGAINST THE NEXT INSTALLMENTS DUE UNDER THE LOAN, AND
25% F ANY SUCH FRONT END PAYMENT SHALL BE PAID LANXIDE AGAINST THE
LAST INSTALLMENT DUE UNDER THE LOAN, UP TO THE EXTENT BALANCES STILL
EXIST UNPAID UNDER THE INSTALLMENTS PROVIDED IN ABOVE NO . 8.
10) [LANXIDE K.K.'S ACTION]
LANXIDE K.K. SHALL TAKE NO ACTION AGAINST LANXIDE IN CONSIDERATION OF
ANY OF THE ABOVE.
11) [ROYALTY TO BE PAID BY AKN CORPORATION]
ON FULL PAYMENT OF THE ABOVE AMOUNTS A1L FINANCIAL OBLIGATIONS OF
LANXIDE TO KANEMATSU AND LANXIDE K.K. SHALL BE DEEMED FULLY SATISFIED,
EXCEPT FOR PAYMENT TO KANEMATSU OF THE FIRST $1,384,615 OF ROYALTIES
RECEIVED FROM LANXIDE K.K. IN CONNECTION WITH ITS SUB1ICENSE TO AKN
CORPORATION IN ACCORDANCE WITH 12.2(b)(ii) OF THE SECOND AMENDMENT TO
THE LANXIDE K.K. JOINT VENTURE AGREEMENT ("AMENDMENT"). THIS PAYMENT
SHA1L BE MADE BY LANXIDE K.K. ON BEHALF OF LANXIDE DIRECTLY TO
KANEMATSU.
12) [PAYMENT OF ROYALTY SPLIT]
KANEMATSU AND LANXIDE AGREE THAT WITH RESPECT TO THE ROYALTY SPLIT
ARRANGEMENT REFERRED TO IN 12.2(b)(i) OF THE AMENDMENT LANXIDE K.K.
SHALL DIRECTLY REMIT TO KANEMATSU ITS 48% SHARE ON BEHALF OF LANXIDE
AND SHALL REMIT TO LANXIDE ITS 52% SHARE OF THE ROYALTY RECEIPTS FROM
THE AKN SUBLICENSE.
13) [AMENDMENT OF LICENSE AGREEMENT]
LANXIDE SHALL AGREE, AND SHALL CAUSE LANXIDE TECHNOLOGY COMPANY L.P.,
LANXIDE DEVE10PMENT CO. L.P. AND ALANX PRODUCTS, L.P. TO AGREE, TO
AMEND THE LICENSE AGREEMENT EXECUTED AMONG THEM ON APRIL 24, 1992 SO AS
TO ELIMINATE CLAUSE 5.2(ii) IMMEDIATELY AFTER EXECUTION OF THIS
MEMORANDUM AND NOT LATER THAN 30 APRIL, 1998.
14) [CONFIDENTIALITY]
EXCEPT AS REQUIRED BY AUDITORS, GOVERNMENT REPORTING AND FINANCIAL
REPORTING REQUIREMENTS, THE ABOVE INFORMATION SHALL BE CONSIDERED
CONFIDENTIAL AMONG THE PARTIES.
15) [DOWNSIZE OF LANXIDE K.K.]
BOTH LANXIDE AND KANEMATSU AGREE TO DOWNSIZE LANXIDE K.K. AS SOON AS
POSSIBLE TO ELIMINATE CASH BURN OF LANXIDE K. K.
16) [SECURITY INTEREST FOR THE REMAINING $10 MILLION LOAN]
IN ORDER TO SECURE THE BA1ANCE OF THE INSTALLMENTS REFERRED TO IN NO. 8
ABOVE KANEMATSU SHALL RETAIN A SECURITY INTEREST IN THE TECHNOLOGY
RIGHTS SOLD TO LANXIDE IN NO. 6 ABOVE, AND AGREES TO RELEASE SUCH
SECURITY INTEREST TO THE EXTENT OF ANY LICENSE BY LANXIDE OF SUCH
RIGHTS TO THIRD PARTIES, AND TO RELEASE ANY REMAINING SECURITY INTEREST
IN FULL UPON FINAL PAYMENT OF THE BA1ANCE OF THE INSTALLMENTS REFERRED
TO IN NO. 8 ABOVE.
17) [FORMAL AGREEMENT]
LANXIDE AND KANEMATSU SHALL EXECUTE A FORMAL AGREEMENT REGARDING THE
TRANSACTIONS REFERRED IN THIS MEMORANDUM BY 10 JULY, 1998. IF LANXIDE
FAILS TO EXECUTE SUCH AGREEMENT, THE INSTALLMENT SALE OF THE EQUIPMENT
IN ACCORDANCE WITH THIS MEMORANDUM SHALL BE TERMINATED.
<PAGE>
LANXIDE CORPORATION KANEMATSU CORPORATION
BY: /S/MARC S. NEWKIRK By /S/YOSHIKAZU IKEHATA
------------------ --------------------
NAME: MARC S. NEWKIRK NAME: YOSHIKAZU IKEHATA
TIT1E: PRESIDENT AND CEO TITLE: DIRECTOR
LANXIDE K.K.
BY: /S/MARC S. NEWKIRK
---------------
NAME: MARC S. NEWKIRK
TITLE: PRESIDENT
AMENDMENT TO SECURITIES PURCHASE AGREEMENT
This Amended Securities Purchase Agreement (this "Agreement")
is entered into this 5th day of March, 1998, by and between LANXIDE CORPORATION,
a Delaware corporation ("Lanxide") and COMMODORE ENVIRONMENTAL SERVICES, INC., a
Delaware corporation, ("COES").
RECITALS:
WHEREAS, Lanxide's subsidiary, Lanxide Performance, is a party
to and borrower under (i) a Line of Credit Agreement with Commodore Applied
Technologies, Inc. Lender, dated August 30, 1996 in the amount of $1.5 Million
(the "$1.5 Million Credit Agreement"), (ii) a Line of Credit Promissory Note
dated August 30, 1996 in the amount of $1.5 Million (the "$1.5 Million Note"),
and (iii) a Security Agreement dated August 30, 1996 in the amount of $1.5
Million (the "$1.5 Million Security Agreement"); Lanxide is a guarantor of the
aforementioned $1.5 Million Credit Agreement and $1.5 Million Note; thc $1.5
Million Credit Agreement, Note, Security Agreement and Guaranty Agreement are
hereinafter collectively referred to as the "Lanxide Performance $1.5 Million
Loan Documents");
WHEREAS, Lanxide Performance is a party to and borrower under
a certain Line of Credit Agreement with COES dated November 13, 1996 in the
amount of $3 Million (the "$3 Million Credit Agreement"), a Line of Credit
Promissory Note dated November 13, 1996 (the "$3 Million Note"), a corresponding
Security Agreement dated November 13, 1996 (thc $3 Million Security Agreement");
Lanxide guaranteed the aforementioned $3 Million Credit Agreement, the $3
Million Note and $3 Million Security Agreement (the "Lanxide $3 Million
Guaranty"); the aforementioned $3 Million Credit Agreement, the $3 Million Note,
the $3 Million Security Agreement and the $3 Million Lanxide Guaranty are
hereinafter collectively referred to as the "Lanxide Performance $3 Million Loan
Documents");
WHEREAS, Lanxide and COES are parties to a Securities Purchase
Agreement dated the third day of July, 1997 (the "Securities Purchase
Agreement") pursuant to which, inter alia, Lanxide granted to COES a warrant
entitling COES or the holder to purchase up to 250,000 shares of Lanxide Series
F Preferred Stock (the "Series F Preferred Stock") at an exercise price of $100
per warrant (the "Original Warrant"); and
WHEREAS, certain individual stockholders of Lanxide entered
into a "Voting Agreement" with Bentley J. Blum ("Blum"), Paul E Hannesson
("Hannesson"), David Mitchell ("Mitchell"), Herbert Cohen ("Cohen") and Kenneth
Adelman ("Adelman") (collectively the "Proxy Holders") pursuant to which said
Lanxide stockholders granted a proxy to the Proxy Holders to vote their shares
in Lanxide.
NOW, THEREFORE, in consideration of the foregoing Recitals and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and intending to be legally bound, it is hereby agreed as
follows:
1. Definitions. "Common Stock Warrant" shall mean the three
(3) year warrant issued to COES on the execution and delivery date hereof
entitling the holder to purchase up to 270,000 shares of Lanxide common stock,
at an exercise price of $7.41 per warrant share, in substantially the form of
Exhibit "A" annexed hereto.
<PAGE>
2. Cancellation of Share Purchase Right. The parties hereto
acknowledge and agree that COES's right to purchase any additional shares of
Series G Preferred Stock of Lanxide (the "Series G Preferred Stock"), as
provided in Section 2.2(c) and (d) of the Securities Purchase Agreement is
hereby cancelled.
3. Cancellation of Warrant. The parties hereto hereby agree
that the Warrant which Lanxide issued to COES for the right to purchase any
shares of preferred stock, as set forth in Section 2.3 of the Securities
Purchase Agreement, is hereby cancelled.
4. Board Action for Series F Preferred Stock; Consent to
Employee Stock Option Plan: Consent to Landlord Warrant Modifications. Lanxide
hereby covenants and agrees not to issue any shares of Series F Preferred Stock
and shall take all necessary action as soon as practicable to cancel all Series
F Preferred Stock, and COES hereby consents to such cancellation.
COES hereby consents to the adoption by Lanxide of a stock
option plan anticipated to be approved by Lanxide on or before March 31, 1998
(i) pursuant to which certain employees of Lanxide will be given five year
options to acquire shares of Common Stock for an exercise price anticipated to
be $1.00 per share and (ii) under which the aggregate number of shares to be
reserved for issuance is not to exceed twenty-five percent (25%) of the issued
and outstanding shares of Common Stock as of the date hereof on a fully diluted
basis, including shares of Common Stock issuable under the Common Stock Warrant
COES hereby consents to Lanxide's modifications to an
outstanding Warrant to acquire shares of Common Stock registered in the name of
W.P. Carey & Co., Inc., or an affiliate thereof, which entity is Lanxide's
landlord for its principal place of business, provided that such modifications
do not (i) reduce the exercise price under such modified Warrant below $1.00 per
share of Common Stock issuable upon exercise of such Warrant or (ii) increase
the maximum number of shares of Common Stock issuable upon a exercise of such
modified Warrant to a number that is greater than 31,000 shares.
5. Post-Closing Financing and Consummation. The parties hereto
hereby acknowledge and agree that COES's duty to seek or obtain post-closing
financing and/or to consummate any of the transactions contemplated in the
Securities Purchase Agreement not already consummated prior to the execution
date hereof are hereby cancelled.
6. Exchange of Shares of Series G Preferred Stock; Board
Action for Series G Preferred Stock; Common Stock Warrant. Lanxide, in
consideration for (a) the terms and conditions of this Agreement, (b) other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, shall (i) upon surrender to Lanxide of the share certificates
representing COES' ownership of all shares of Series G Preferred Stock, issue
share certificate(s), in such denominations and registered in such names as COES
may reasonably request, representing ownership of a like number of shares of
Lanxide' s Preferred Stock, Series H, having terms and conditions set forth on
Exhibit B hereto (the "Series H Preferred Stock"), (ii) following COES'
surrender of the certificates representing its ownership of Series G Preferred
Stock, cause its Board to cancel all Series G Preferred Stock, and COES hereby
consents to such cancellation, and (iii) issue to COES (in such denominations as
may reasonably be requested by COES) the Common Stock Warrant.
<PAGE>
7. Registration Rights. The following provisions replace the
provisions set forth in Section ll of the Securities Purchase Agreement:
7.1 Piggyback Rights. If at any time following the date
hereof, Lanxide shall file a registration statement (other than a registration
statement on Form S-4, Form S-8, or any successor form) with the SEC while any
Registrable Securities (as hereinafter defined) are outstanding, Lanxide shall
give all the then holders of any Registrable Securities or securities which are
convertible into or exercisable for Registrable Securities, including for this
purpose, holders of the Registrable Securities (the "Eligible Holders") at least
30 days prior written notice of the filing of such registration statement. If
requested by any Eligible Holder in writing within 15 days after receipt of any
such notice, Lanxide shall, at Lanxide's sole expense (other than the fees and
disbursements of counsel for the Eligible Holders and the under writing
discounts or commissions, if any, payable in respect of the Registrable
Securities sold by any Eligible Holder), register or qualify all or, at each
Eligible Holder's option, any portion of the Registrable Securities of any
Eligible Holders who shall have made such request, concurrently with the
registration of such other securities, all to the extent requisite to permit the
public offering and sale of the Registrable Securities through the facilities of
all appropriate securities exchanges and the over-the-counter market, and will
use its best efforts through its officers, directors, auditors, arid counsel to
cause such registration statement to become effective as promptly as
practicable. Notwithstanding the foregoing, if the managing underwriter of any
such offering shall advise Lanxide in writing that, in its opinion, the
distribution of all or a portion of the Registrable Securities requested to be
included in the registration concurrently with the securities being registered
by Lanxide would adversely affect the distribution of such securities by Lanxide
for its own account, then the underwriters shall have the right to exclude any
or all of the securities that the Eligible Holders or other prospective seller
requested to be included in such public offering; provided, however, that such
exclusion shall be made pro rata amone the Eligible Holders and the other
stockholders of Lanxide that have registration rights or have otherwise
requested to participate on a piggyback basis in such public offering in
proportion to the respective number of shares of securities which were requested
to be included in such public offering. As used herein, "Registrable Securities"
sl~ll mean the shares of Lanxide Common Stock issuable upon full or partial
exercise of the Warrant, which have not been previously sold pursuant to a
registration statement or Rule 144 promulgated under the 1933 Act.
7.2 If at any time following COES's completion of its purchase
and payment for any of the 270,000 Shares of Common Stock, Lanxide shall receive
a written request, from Eligible Holders who in the aggregate own (or upon
exercise of all Warrants then outstanding or issuable would own) at least 50% of
the Registrable Securities then included (or upon such exercises would be
included) in the Registrable Securities (the "Majority Holders"), to register
the sale of all or part of such Registrable Securities, Lanxide shall, as soon
as reasonably practicable, but in any event within 180 days of Lanxide's receipt
of a written request from the Eligible Holders, prepare and file with the SEC a
registration statement sufficient to permit the public offering and sale of the
Registrable Securities through the facilities of all appropriate securities
exchanges and the over-the-counter market, and will use its best efforts through
its officers, directors, auditors and counsel to cause such registration
statement to become effective within such 180 day time period; provided,
however, that the Eligible Holders shall bear all expenses, fees (including
Lanxide's reasonable attorney's fees) and disbursements incurred in connection
with such registration. Lanxide shall not be obligated to effect any
<PAGE>
registration of its securities pursuant to this Section 7.2 within six months
after} the effective date of a previous registration statement prepared and
filed in accordance with Sections 7.1 or 7.2 Within seven (7) business days
after receiving any request contemplated by this Section 7.2, Lanxide shall give
written notice to all the other Eligible Holders, advising each of them that
Lanxide is proceeding with such registration and offering to include therein all
or any portion of any such other Eligible Holder's Registrable Securities,
provided that Lanxide receives a written request to do so from such Eligible
Holder within fifteen (15) days after receipt by him or it of Lanxide's notice.
Provided, however, that the Eligible Holders may not make such a request or
demand provided for in this Section 7.2 before January 1, 2000.
7.3 Blue Sky Matters. In the event of a registration pursuant
to the provisions of this Section 7, Lanxide shall use its best efforts to cause
the Registrable Securities so registered to be registered or qualified for sale
under the securities or blue sky laws of such jurisdictions as the Eligible
Holder or such holders may reasonably request; provided, however. that Lanxide
shall not be required to qualify to do business in any state by reason of this
Section 7.3 in which it is not otherwise required to qualify to do business.
7.4 Period During Which Registration Statement to Remain
Effective. Lanxide shall keep effective any registration or qualification
contemplated by this Section 7 and shall from time to time amend or supplement
each applicable registration statement, preliminary prospectus, final
prospectus, application, document, and communication for such period of time as
shall be required to permit the Eligible Holders to complete the offer and sale
of the Registrable Securities covered thereby. Lanxide shall in no event be
required to keep any such registration or qualification in effect for a period
in excess of nine months from the date on which the Eligible Holders are first
free to sell such Registrable Securities, provided. however, that, if Lanxide is
required to keep any such registration or qualification in effect with respect
to securities other than the Registrable Securities beyond such period, Lanxide
shall keep such registration or qualification in effect as it relates to the
Registrable Securities for so long as such registration or qualification remains
or is required to remain m effect in respect of such other securities.
7.5 Copies of Documents. In the event of a registration
pursuant to the provisions of this Section 7, Lanxide shall furnish to each
Eligible Holder such number of copies of the registration statement and of each
amendment and supplement thereto (in each case, including all exhibit), such
reasonable number of copies of each prospectus contained in such registration
statement and each supplement or amendment thereto (including each preliminary
prospectus), all of which shall conform to the requirements of the 1933 Act and
the rules and regulations thereunder, and such other documents, as any Eligible
Holder may reasonably request to facilitate the disposition of the Registrable
Securities included in such registration.
7.6 Opinion of Counsel to Lanxide. In the event of a
registration pursuant to the provisions of this Section 7, Lanxide shall furnish
each Eligible Holder of any Registrable Securities so registered with an opinion
of its counsel (reasonably acceptable to the Eligible Holders) to the general
effect that (i) the registration statement has become effective under thc 1933
Act and no order suspending the effectiveness of the registration statement,
preventing or suspending the use of the registration statement, any preliminary
prospectus, any final prospectus, or any amendment or supplement thereto has
been issued nor has the SEC or any securities or blue sky authority of any
<PAGE>
jurisdiction instituted or threatened to institute any proceedings with respect
to such an order, (ii) the registration statement and each prospectus forming a
part thereof (including each preliminary prospectus), and any amendment or
supplement thereto, complies as to form with the 1933 Act and the rules and
regulations thereunder, and (iii) such counsel has no knowledge of any material
misstatement or omission in such registration statement or any prospectus, as
amended or supplemented.
7.7 Terms of Underwriting Agreement. In the event of a
registration pursuant to the provision of this Section 7, Lanxide shall enter
into a cross-indemnity agreement and a contribution agreement, each in customary
form, with each underwriter, if any, and, if requested, enter into an
underwriting agreement containing conventional representations, warranties,
allocation of expenses, and customary closing conditions, including, but not
limited to, opinions of counsel and accountants' cold comfort letters, with any
underwriter who acquires any Registrable Securities.
7. Undertakings of Eligible Holders. In the event of a
registration pursuant to the provisions of this Section 7:
(a) each Eligible Holder shall furnish to Lanxide in writing such
appropriate information (relating to such Eligible Holder and the intention of
such Eligible Holder as to proposed methods of sale or other disposition of
their Shares) and the identity of and compensation to be paid to any proposed
underwriters to be employed in connection therewith as Lanxide, any underwriter,
or the SEC or any other regulatory authority may request;
(b) the Eligible Holders shall enter into the usual and customary form
of underwriting agreement agreed to by Lanxide and any underwriter with respect
to any such offering, if required, and such underwriting agreement shall contain
the customary rights of indemnity between Lanxide, the underwriters, and such
Eligible Holders;
(c) each Eligible Holder shall agree that he shall execute, deliver
and/or file with or supply Lanxide, any underwriters, the SEC and/or any state
or other regulatory authority such information, documents, representations,
undertakings and/or agreements necessary to carry out the provisions of the
registration covenants contained in this Section 1 and/or to effect the
registration or qualification of his or its Registrable securities under the
1933 Act and/or any of the laws and regulations of any state or governmental
instrumentality;
(d) Lanxide's obligation to include any Registrable Securities in a
registration statement shall be subject to the written agreement of each holder
thereof to offer such securities in the same manner and on the same terms and
conditions as the other securities of the same class are bein6 offered pursuant
to the registration statement, if such shares are being underwritten;
(e) in the event that all the Registrable Securities have not been sold
on or prior to the expiration of the period specified in Section 7.4 above,
Lanxide may de-register by post-effective amendment any Registrable Securities
covered by the registration statement, but not sold on or prior to such date.
Lanxide agrees that it will notify each holder of Registrable Securities of the
filing and effective date of such post-effective amendment; and
<PAGE>
(f) each Eligible Holder agrees that upon notification by Lanxide that
the prospectus in respect to any public offering covered by the provisions
hereof is in need of revision, such Eligible Holder shall immediately upon
receipt of such notification (i) cease to offer or sell any securities of
Lanxide which must be accompanied by such prospectus, (ii) return all such
prospectuses in such Eligible Holder's hands to Lanxide, and (iii) not offer or
sell any securities of Lanxide until such Holder has been provided with a
current prospectus and Lanxide has given such Eligible Holder notification
permitting such Eligible Holder to resume offers and sales.
7.9 Covenant Regarding Current Information. Lanxide agrees
that until all the Registrable Securities have been sold under a registration
statement or pursuant to Rule 144 under the 1933 Act, it shall use its best
efforts to keep current in filing all reports, statements and other materials
required to be filed with the SEC to permit holders of the Registrable
Securities to sell such securities under Rule 144.
7.10 Negative Covenant Regarding Future Registration Rights.
Except for (i) rights granted to holders of the Warrants. and (ii) rights
granted by Lanxide to other security holders of Lanxide prior to the date
hereof, Lanxide will not, without the written consent of the Majority Holders,
grant to any persons the right to request Lanxide to register any securities of
Lanxide, provided that Lanxide may grant such registration rights to other
persons so long as such rights are subordinate or pari passu to the richts of
the Eligible Holders.
7 11 Definitions. Wherever the term "Warrant" is used in this
Article it means and refers to the Common Stock Warrant defined in Section 1
hereof.
8. Series H Preferred Stock. Lanxide covenants and agrees
that, within seven (7) business days following the execution and delivery of
this Agreement, it will take all necessary action to fix the rights, preferences
and limitations of the Series H Preferred Stock in the manner set forth on
Exhibit B hereto. Lanxide shall deliver to COES a fully executed Certificate of
Stock Designation for the Series H Preferred Stock promptly following the filing
of such certificate.
9. Parties' Representations and Warranties. Each of the
parties hereby represents and warrants to the other party hereto as follows:
9.1 Corporate Organization. Standing. It is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
9.2 Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by it and, subject to the due authorization,
execution and delivery by such other party, constitutes a legal, valid and
binding obligation of it, enforceable in accordance with its terms, except that
(i) the enforceability hereof may be subject to bankruptcy, insolvency,
reorgS~ni7~tion, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and (ii) the remedy of specific performance and
injunctive and other terms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought. The execution and delivery of this Agreement, the consummation
of the transactions contemplated hereto and the fulfillment and compliance with
the terms and conditions hereof do not and will not after the giving or notice,
or the lapse of time, or otherwise: (a) violate any provisions of any judicial
or administrative order, award. judgment or decree applicable to it, or (b)
<PAGE>
conflict with any of the provisions of the Certificate of Incorporation or
By-Laws of it, or (c) conflict with, result in a breach of or constitute a
default under any agreement or instrument to which it is a party or by which it
is bound, except for any of the foregoing that, individually or in the
aggregate, would not have a material adverse effect on the financial condition,
operations or businesses of such party and its subsidiaries taken as a whole.
10. Indemnification. The indemnification provision set forth
in Sections 12.1 through 12.3 of the Securities Purchase Agreement are
incorporated herein by reference as though set forth at length and apply with
equal force with respect to the Common Stock Warrant and stock purchases as a
result of any exercise thereof
11. Miscellaneous.
11.1 Notices. All notices, requests, demands and other
communications under or in respect of this Agreement or any transactions
hereunder shall be in writing (which may include telegraphic or telecopied
communication) and shall be personally delivered, sent by overnight courier,
mailed (registered or certified mail, return receipt requested), telegraphed or
telecopied by facsimile transmission to the applicable party at its address or
telecopier number indicated below.
If to COES:
Commodore Environmental Services, Inc.
150 East 58th Street
Suite 3410
New York, New York 10155
Atten: Michael D. Fullwood, Esquire
Senior Vice President and General Counsel
Chief Financial and Administrative Officer
Telecopier No.: (212) 753-0731
Commodore Applied Technologies, Inc.
150 East 58th Street
Suite 3410
New York, New York 10155
Atten: Michael D. Fullwood, Esquire
Senior Vice President and General Counsel
Chief Financial and Administrative Officer
Telecopier No.: (212) 753-0731
<PAGE>
If to the Lanxide Companies:
Lanxide Corporation
1300 Marrows Road
Newark, Delaware 19714-6077
Atten: Mr. Marc S. Newkirk, President
Telecopier No.: (302) 454-1714
11.2 Entire Agreement. This Agreement (including the Exhibits
and Schedules) contains the entire agreement among the parties with respect to
the purchase of the Purchased Shares and related transactions and supersedes all
prior arrangements or understandings, written or oral, with respect thereto.
11.3 Amendments. Any term or condition of this Agreement may
be amended or modified in whole or in part at any time, to the extent authorized
by applicable law, by an agreement in writing, authorized and executed in the
same manner as tins Agreement by the parties hereto. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party of any right,
power of privilege hereunder, nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder. The
nights and remedies herein provided are cumulative and are not exclusive of any
rights or remedies which any party may otherwise have at law or in equity. The
rights and remedies of any party arising out of or otherwise in respect of any
inaccuracy in or breach of any representation, warranty, covenant or agreement
contained in this Agreement shall in no way be limited by the fact that the act,
omission, occurrence or breach is based may also be the subject matter of any
other representation, warranty, covenant or agreement contained in this
Agreement (or in any other agreement between the parties) as to which there is
no inaccuracy or breach.
11.4 Severabilitv. If any provision of This Agreement is held
invalid or unenforceable, either in its entirety or by virtue of its scope or
application to given circumstances, such provision shall thereupon be deemed
modified only to the extent necessary to render same valid, or not applicable to
given circumstances, or excised from this Agreement, as the situation may
require, and this Agreement shall be construed and enforced as if such provision
had been included herein as so modified in scope or application, or had not been
included herein, as the case may be.
11.5 Execution and Delivery. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. Delivery of a
counterpart shall be deemed effective upon receipt by the other party of
telefaxed signature page to this Agreement, provided that such party shall
nonetheless Transmit its original executed signature page to the other party.
11.6 Exhibits and Schedules. The Exhibits and Schedules and
other documents attached to or delivered herewith are hereby incorporated and
made a part of this Agreement as if set forth in full herein.
11.7 Drafting. No presumption shall operate in favor of or
against any party in the construction or interpretation of this Agreement as a
consequence of a party's responsibility for drafting this Agreement.
<PAGE>
11.8 Recitals. The recital clauses of this Agreement are
incorporated herein to the body as though set forth at length.
11.9 Attorney and Professional Fees. Each party will pay
his/her own attorney or professional fees in connection with this Agreement or
settlement discussions leading to this Agreement.
11.10 Captions. The captions of Sections hereof are for
convenience only and shall not control or affect the meaning or construction of
any of the provisions of this Agreement.
11.11 Controlling Law. The parties hereto agree that this
Agreement shall be governed and construed by the internal, substantive laws of
the State of New York (without regard to that state's choice of law rules or
doctrines) and, if applicable, the substantive law (statutory, administrative or
common law) of the United States (without regard to its choice of law, rules or
doctrines) Sellers hereby consent to personal jurisdiction in the State of New
York for the purposes of any matter of or related to this A8reement or any other
agreement between the parties hereto executed and delivered on or about the date
hereof, including for purposes of any amendments hereto or thereto. The parties
hereto further agree that venue for any dispute arising under this Agreement or
for any other agreement between the parties hereto which are executed on or
about the date hereof shall be proper in the United States District Court for
the Southern District of New York. The parties ~Iso expressly waive trial by
jury and the right to request a transfer of venue,
11.12 Binding Effect. This Agreement shall be bindin8 and
inure to the benefit of the named parties hereto, all of their wholly or
partially-owned subsidiaries, the parties on whose behalf and for whose benefit
it is made and their respective heirs, administrators, executors, successors and
assigns.
11.13 Survival. The Securities Purchase Agreement, as amended
by the Amendment, shall survive and remain valid, binding and enforceable
according to its terms.
Remainder of Page Intentionally Left Blank
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound, the
parties have hereto executed this Agreement on the day and date first above
written.
LANXIDE CORPORATION
TRANSFER AGREEMENT
TRANSFER AGREEMENT, dated as of February 6, 1998 by and among Lanxide
Corporation ("Lanxide"), DHB Capital Group, Inc. ("DHB"), Lanxide Armor
Products, Inc. ("LAP"), Lanxide Electronic Components, Inc. ("LEC") and Lanxide
Technology Company, L.P. ("LTC").
WHEREAS, pursuant to the terms of the Assignment Agreement (the
"Assignment Agreement"), dated as of February 6, 1998, by and between DHB and
E.I. duPont de Nemours and Company ("DuPont"), DuPont has assigned all of its
right, title and interest under the Letter Agreement (as defined in the
Assignment Agreement) relating to Option 1 (as defined in the Assignment
Agreement); and
WHEREAS, Lanxide, in connection with the execution of this Agreement,
is simultaneously notifying DuPont that it does not intend to meet its
obligations under the Note (as defined in the Assignment Agreement).
NOW, THEREFORE, intending to be legally bound hereby, the parties agree
as follows:
1. Transfer of LEC and LAP.
(a) DHB hereby notifies Lanxide that it elects to acquire all of the
outstanding common equity securities of LEC and LAP (the "Equity Securities")
pursuant to Option 1.
(b) Lanxide hereby conveys, assigns, transfers and delivers to DHB
all of the Equity Securities (the "Equity Sale") pursuant to Option 1.
(c) Notwithstanding the Equity Sale, Lanxide shall retain custody,
to the extent permitted by law, of (i) all information covered by LAP's U.S.
Government Facility Clearance until DHB obtains a U.S. Government Facility
Clearance covering such information and (ii) all assets covered by LAP's Federal
Firearms License until DHB obtains a Federal Firearms License covering such
assets.
(d) DHB hereby agrees to use its best efforts, and Lanxide hereby
agrees to assist DHB in connection therewith, to cause LEC and LAP to hire, at a
minimum, all of the persons employed as of February 2, 1998, by LEC and LAP,
respectively, upon substantially the same wages that such persons were receiving
from LEC and LAP as of February 2, 1998 and consistent with current benefits
provided by DHB to its employees.
(e) DHB hereby agrees to the cancellation of the outstanding shares
of preferred stock of LEC that DuPont is transferring to DHB pursuant to the
Assignment Agreement and waives any and all rights relating thereto.
(f) Lanxide hereby represents and warrants to DHB that (i) the
Equity Securities constitute all of the issued and outstanding common equity of
LEC and LAP, other than certain options to acquire securities of LEC held by
employees of LEC representing no more than 10% of the common equity of LEC; (ii)
accounts payable of LEC are not greater that $506,000 and the accounts payable
of LAP are not greater than $320,000; (iii) all rent on real estate occupied by
LEC and LAP at Marrows Road has been paid through March 31; (iv) LAP rent at
<PAGE>
Forge Road through March 31 will be paid by Lanxide; (v) the attached Equipm ent
List represents machinery and equipment owned or leased by LEC and LAP and, to
the extent necessary for operations, is in satisfactory working condition; (vi)
financial statements and other documents provided to DHB by Lanxide in
connection with the transactions contemplated thereby, are to the best knowledge
of Lanxide, true and correct in all material respects or to be completed; (vii)
Lanxide is current on its real estate taxes; and (viii) utilities, including
telephone through the date hereof will be paid by Lanxide from the proceeds of
asset sales. Lanxide will use its benefits to ensure that telephone service will
not be shut off pending such payments. EXCEPT FOR THE FOREGOING REPRESENTATIONS
AND WARRANTIES, LANXIDE HAS NOT MADE AND DOES NOT HEREBY MAKE ANY EXPRESS OR
IMPLIED REPRESENTATIONS AND WARRANTIES OF ANY NATURE AND DHB ACKNOWLEDGES AND
AGREES THAT IT IS ACQUIRING LEC AND LAP PURSUANT TO THE OPTION ON AN "AS IS
WHERE IS" BASIS.
(g) DHB hereby releases Lanxide from any further obligation or
liability under the Guarantee Agreement.
2. Sale of LAP Equipment
(a) DHB hereby sells, conveys, assigns, transfers and delivers to
LTC, and LTC hereby purchases and acquires from DHB, all of the assets set forth
on Schedule I hereto (the "Asset Sale").
(b) In consideration of the Asset Sale, upon the execution of this
Agreementl, LTC shall immediately pay an aggregate cash payment of $1.00 to DHB.
(c) Lanxide agrees to require any purchaser of the assets set forth
on Schedule 1 hereto from LTC to provide adequate assurance that such purchaser
will provide castable MMC Ingot to LEC on a basis no less favorable than those
made available to any other customer of like quantity and quality of MMC Ingot.
3. License Agreement
(a) LTC and LEC each agrees that the License Agreement, dated as of
July 25, 1995 , between LTC and LEC is hereby amended in the manner set forth in
Schedule 2 hereto, effective as of the date hereof.
(b) LTC and LAP each agree that the License Agreement dated as of
March 31, 1987, between LTC and LAP (f/k/a Lanxide Products Company, Inc.) is
hereby amended in the manner set forth in Schedule 3 hereto, effective as of the
date hereof.
4. Miscellaneous.
(a) Notwithstanding anything to the contrary contained in this
Agreement, no party hereto shall have any obligation or liability under this
Agreement until DHB pays DuPont $4,800,000 in accordance with Section 2(a) of
the Assignment Agreement.
(b) All of the transactions contemplated by this Agreement shall be
deemed to have occurred simultaneously, and no such transactions shall be deemed
to have been consummated until all such transactions have been consummated.
(c) This Agreement may be amended, modified or supplemented at any
time by written Agreement of the parties hereto.
<PAGE>
(d) This Agreement contains the entire understanding of the parties
hereto with respect to its subject matter and supersedes all prior agreements
and understandings, oral and written, with respect to its subject matter.
(e) Should any provision of this Agreement for any reason be
declared invalid or unenforceable, such decision shall not affect the validity
or enforceability of any of the other provisions of this Agreement, which other
provisions shall remain in full force and effect and the application of such
invalid or unenforceable provision to persons or circumstances other than those
as to which it is held invalid or unenforceable shall be valid and be enforced
to the fullest extent permitted by law.
(f) This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
executors, successors and permitted assigns, but except as contemplated herein,
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned, directly or indirectly, by any party hereto without the prior
written consent of the other parties hereto. Nothing contained herein shall
prohibit DHB from sellinlg LEC with its license from LTC or require Lanxide's
consent thereto.
(g) This Agreement is not intended and shall not be deemed to confer
upon or give any person except the parties hereto and their respective
successors and permitted assigns any remedy, claim, liability, reimbursement,
cause of action or other right under or by reason of this Agreement.
(h) This Agreement may be executed simultaneously in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(i) This Agreement shall be governed by the laws of the State of
Delaware, without regard to the principles of conflicts of law thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Transfer
Agreement as of the date first written above.
LANXIDE CORPORATION
By:
DHB CAPITAL GROUP, INC
By: /s/David Brooks
Name: David Broooks
Title: Chairman of Board
LANXIDE ARMOR PRODUCTS, INC.
By:
Name:
Title:
LANXIDE ELECTRONIC
COMPONENTS, INC.
By:
Name:
Title:
LANXIDE TECHNOLOGY
COMPANY, L.P.
By:
Name:
Title:
EXHIBIT 21.1
AFFILIATES OF THE COMPANY
State of
Name Incorporation
---- -------------
Lanxide Performance Materials, Inc. Delaware
Lanxide Wear Products, Inc. Delaware
Lanxide Technology Company, L.P. Delaware
LTC Capital, Inc. Delaware
Lanxide Development Company, L. P. Delaware
Alanx Products, L.P. Delaware
Lanxide Thermo-Composites, Inc.
Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Company's Consolidated Balance Sheet at September 30, 1998 and Consolidated
Statement of Operations for the 12 months ended September 30, 1998, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 84
<SECURITIES> 0
<RECEIVABLES> 262
<ALLOWANCES> (26)
<INVENTORY> 0
<CURRENT-ASSETS> 322
<PP&E> 12,532
<DEPRECIATION> (10,315)
<TOTAL-ASSETS> 2,539
<CURRENT-LIABILITIES> 3,675
<BONDS> 8,839
228
11
<COMMON> 13
<OTHER-SE> 191,006
<TOTAL-LIABILITY-AND-EQUITY> 2,539
<SALES> 6,232
<TOTAL-REVENUES> 16,122
<CGS> 6,709
<TOTAL-COSTS> 12,230
<OTHER-EXPENSES> 3,621
<LOSS-PROVISION> 26
<INTEREST-EXPENSE> 1,216
<INCOME-PRETAX> (1,224)
<INCOME-TAX> 408
<INCOME-CONTINUING> (816)
<DISCONTINUED> 0
<EXTRAORDINARY> 837
<CHANGES> 0
<NET-INCOME> 21
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
