SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: Commission File No.:
JUNE 30, 1997 000-28198
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CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
(Exact name of Small Business Issuer as specified in its charter)
DELAWARE 13-3754366
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) I.D. Number)
3452 LAKE LYNDA DRIVE
ORLANDO, FLORIDA 32817
(Address of principal executive offices) (Zip Code)
(407) 207-5900
(Issuer's telephone number including area code)
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Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, REDEEMABLE CLASS A WARRANTS AND REDEEMABLE CLASS B WARRANTS
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 past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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 Form 10-KSB. [ ]
Issuer's revenues for the fiscal year ended June 30, 1997 were $1,429,008.
The aggregate market value of voting stock held by non-affiliates of registrant
was $11,941,310 as of September 19, 1997, based on the average of the closing
bid and closing ask price of the Common Stock on the Nasdaq SmallCap Market on
such date, and assuming the conversion of all outstanding shares of Series A
Convertible Preferred Stock held by non-affiliates of registrant into Common
Stock.
As of September 19, 1997, the issuer had outstanding 5,539,745 shares of Common
Stock, $.00025 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be filed pursuant to
Regulation 14(a) not later than October 28, 1997 are incorporated by reference
into Part III of this Report on Form 10-KSB.
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PART I
ITEM 1. BUSINESS
Overview
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Conversion Technologies International, Inc. (the "Company") is engaged in the
business of manufacturing, recycling and processing various substrates and
advanced materials. These substrates and materials include (i) industrial
abrasives which can be used for surface cleaning and surface preparation
applications such as in cleaning steel structures, railcars, aircraft parts, and
equipment in loose grain blasting operations; (ii) decorative particles that
visually enhance structural materials such as plasters, tiles, grouts, wall
systems and roofing and flooring; and (iii) performance aggregates which can be
used as structural and textural enhancers, fillers and additives and to
strengthen and add consistency to materials such as cements, plasters, grouts,
roofing and flooring and glass and ceramic materials. The Company is also
engaged in the business of recycling cathode ray tube ("CRT") glass produced in
the manufacture of televisions for resale to such manufactures and others.
Although substantially all of the Company's revenues to date have been derived
from its CRT recycling operations, the Company intends to focus its efforts on
its substrates and advanced materials products.
The Company's industrial abrasives and construction material substrates include
ALUMAGLASS(R), an alumino-silicate glass produced in a patented process
utilizing industrial waste streams and certain virgin materials, as well as
other glass and fired ceramic materials produced utilizing the Company's
manufacturing equipment. ALUMAGLASS was introduced in 1995, but has generated
only minimal sales to date. Although the Company intends to continue to market
ALUMAGLASS, the Company has shut-down the melter used to manufacture ALUMAGLASS
at its Dunkirk, New York, facility and is currently satisfying limited orders
through inventory of ALUMAGLASS. The Company does not intend to restart the
melter in the foreseeable future. If warranted by market demand for ALUMAGLASS,
the Company intends to pursue opportunities to license its ALUMAGLASS patents to
third parties. The Company would then purchase the raw ALUMAGLASS particles from
such manufacturers and process the material for resale to is customers. Although
the Company is currently in discussions with one such potential licensee, there
can be no assurance that such arrangements will be consummated on terms
satisfactory to the Company, or at all, or that there will ever be significant
sales of ALUMAGLASS.
The Company was incorporated in June 1993 for the purpose of acquiring its
Dunkirk International Glass and Ceramics Corporation ("Dunkirk") subsidiary, and
conducted no business activities prior to such acquisition. Dunkirk was acquired
by the Company in August 1994 pursuant to a merger in which holders of the
common stock of Dunkirk received Common Stock of the Company. Prior to such
acquisition, Dunkirk was a development stage company, principally engaged in the
construction of its manufacturing facilities and initial CRT glass recycling
efforts. In June 1997, the Company purchased the remaining 50% interest in
Advanced Particle Technologies, Inc.
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("APT"), a corporation formed in October 1996 by the Company and a former joint
venture partner for the purpose of applying color coatings to particles, as a
result of which APT became a wholly-owned subsidiary of the Company.
The Company recently relocated its executive offices to 3452 Lake Lynda Drive,
Suite 280, Orlando, Florida 32817. The Company's telephone number is (407)
207-5900.
This Form 10-KSB contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, including,
without limitation, statements regarding the Company's efforts to increase sales
of its abrasives, manufacture and sell, on a commercial scale, its decorative
particles and the possibility of outsourcing ALUMAGLASS production. Such
forward-looking statements include risks and uncertainties, including, but not
limited to: (i) the risk that the Company's marketing efforts with respect to
its abrasives, decorative particles and other products will not result in
increased sales and that the Company will continue to experience substantial
losses from operations, (ii) the risk that the Company will require additional
financing prior to achieving positive cash flow from operations and that it may
not be able to obtain such financing on terms acceptable to the Company or at
all, (iii) the risk that the redemption of the IDA Bonds or removal of
non-productive assets from service will result in taxable income to the Company
or otherwise create tax or tax-related obligations of the Company the result of
which could reduce the Company's net operating loss carry-forwards and/or,
depending on the amount of such taxable income, if any, result in the Company
being required to satisfy such obligations out of its available cash, at a time
when such obligations could exceed the Company's available cash, (iv) the risk
that the Company will experience interruptions in its manufacturing operations
which will delay shipments or result in lost business, (v) risks associated with
retaining and attracting key personnel, (vi) the risk that the Company will lose
key CRT customers prior to obtaining increased sales of its abrasives and other
products, (vii) risks associated with being able to obtain requisite supplies of
raw materials for its products, (viii) risks associated with its ability to
protect its intellectual property and proprietary rights, (ix) risks associated
with the failure to comply with applicable environmental laws and regulations,
and (x) the risk that the Company will not be able to continue to satisfy the
minimum maintenance requirements for continued listing which were recently
adopted by the Nasdaq SmallCap Market.
CERTAIN RECENT EVENTS
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Termination of Merger With Octagon
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In November 1996, the Company entered into an Agreement and Plan of
Reorganization (the "Merger Agreement") with Octagon, Inc. ("Octagon") pursuant
to which a wholly-owned subsidiary of the Company would be merged with and into
Octagon (the "Merger"), whereby Octagon would become a wholly-owned subsidiary
of the Company. In July 1997, the Company and Octagon announced that they had
mutually terminated the Merger Agreement. Pursuant to the terms of the
Termination Agreement, Octagon agreed to provide certain support services to the
Company on an interim basis and the Company agreed to forgive bridge loans in
the approximate amount of $630,000 it made to Octagon in payment for certain
services provided by Octagon to the Company prior to the termination of the
Merger. The Company also hired certain employees of Octagon who had been hired
by Octagon in anticipation of the Merger, including Jack D. Hays, Jr., the
Company's Executive Vice President - Operations and Marketing, and Richard H.
Hughes,
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Vice President - Sales and Marketing. William L. Amt, Octagon's former President
and Chief Executive Officer also joined the Company on August 1, 1997.
New Management
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The Company has obtained new management. On August 1, 1997, William L. Amt,
previously the President and Chief Executive Officer of Octagon, joined the
Company as President and Chief Executive Officer. In July 1997, Jack D. Hays,
Jr., and Richard H. Hughes, who had previously joined Octagon in anticipation of
the closing of the Merger, became Executive Vice President - Operations and
Marketing and Vice President - Sales and Marketing, respectively, of the
Company. With the exception of Robert Dejaiffe, who remains the Company's Vice
President - Technology, the former executive officers of the Company, including
Harvey Goldman, the Company's former Vice-Chairman, President and Chief
Executive Officer, ceased to be employees of the Company in June 1997. Eckardt
C. Beck, who remains as the Company's Chairman of the Board, served as acting
President and Chief Executive Officer of the Company from June 1997 until August
1, 1997.
Write-Down of Non-Productive Assets and Related Charges to Earnings
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The Company has shutdown its melter and certain other equipment not currently
being used by the Company. Accordingly, in the quarter ended June 30, 1997, the
Company has recorded a $5,712,000 write-down in the value of such assets to
reflect that such assets are no longer productive, which write down has resulted
in a $5,712,000 charge to earnings for such quarter, increasing the Company's
loss for such quarter by an equal amount.
Redemption of IDA Bonds
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In 1995, the Company's subsidiary, Dunkirk, financed certain equipment purchases
and manufacturing improvements through the issuance of $8,000,000 in Solid Waste
Disposal Facility Bonds, Series 1995 (the "IDA Bonds"), by the County of
Chatauqua Industrial Development Agency (the "Agency") pursuant to a Trust
Indenture dated as of March 1, 1995 between the Agency and United States Trust
Company of New York, as trustee. Pursuant to agreements among the parties, in
September 1997, the IDA Bonds were redeemed in full in exchange for a cash
payment of $1,620,000 and Dunkirk's forfeiture of its interest in a related debt
service reserve fund (which had a then current balance of approximately
$190,000).
Termination of VANGKOE Joint Venture
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In June 1997, the Company terminated its joint venture with VANGKOE Industries,
Inc. ("VANGKOE") by purchasing for nominal consideration VANGKOE's 50% interest
in APT, located in St. Augustine, Florida. APT was organized by the Company and
VANGKOE for the purpose of applying color coatings in a proprietary process to
create decorative particles. Pursuant to the termination of such joint venture,
APT became a wholly-owned subsidiary of the Company, APT purchased the
proprietary color coating process used to manufacture the particles from VANGKOE
for $135,000 (and a contingent payment of $30,000 based on certain
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milestones), and VANGKOE agreed to sell the particles in certain markets as
APT's exclusive distributor. The Company recently commenced manufacturing such
particles and the parties are in the process of creating inventory and
conducting customer sampling and sales efforts. There can be no assurance,
however, that the Company will be able to manufacture such particles
consistently or that sales of such particles will occur.
Preferred Stock Financing
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In August and September 1997, the Company raised aggregate gross proceeds of
$4,145,000 in a private placement of Series A Convertible Preferred Stock (the
"Preferred Stock"). An aggregate of 414,500 shares of Preferred Stock were
issued. Each share of Preferred Stock is initially convertible into eight shares
of Common Stock at a conversion price of $1.25 per share, subject to adjustment
based on the lesser of $1.25 and the prevailing average market price of the
Common Stock immediately preceding any subsequent closing, if any.
Repayment of Bridge Loan
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In July and August 1997, the Company borrowed an aggregate of $500,000 (the
"1997 Bridge Loan") for general working capital purposes from Aries Domestic
Fund, L.P. and The Aries Trust (collectively, the "Aries Funds"). In connection
with the 1997 Bridge Loan, the Company issued warrants to purchase 100,000
shares of Common Stock to the Aries Funds at an exercise price equal to $1 5/16.
The 1997 Bridge Loan, together with 12% interest thereon, was repaid on
September 8, 1997.
Other Changes to Indebtedness
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Dunkirk is obligated with respect to $1,888,000 outstanding aggregate principal
amount of equipment term notes issued in December 1994 and January 1995 to Key
Bank of New York ("Key Bank"), which were guaranteed by the Empire State
Development Corporation/Job Development Authority ("ESDC"). In July 1997, ESDC
agreed to honor its guarantee of such loans and Key Bank and ESDC are in the
process of assigning such loans from Key Bank to ESDC. ESDC has agreed to defer
all interest and principal payments due under the loans through January 1, 1998
until the maturity date of the notes, with interest continuing to accrue on such
deferred amounts payable at maturity. ESDC has also agreed to allow Dunkirk to
reduce the principal amount of such loans by the amount of a debt service
reserve fund (with a balance as of June 30, 1997 of approximately $449,190) that
will be forfeited by Dunkirk.
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PRODUCTS
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Abrasives
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The Company produces several products which can be used as industrial abrasives.
These products currently include ALUMAGLASS, which has achieved only limited
sales to date, and other glass and ceramic formulation materials, marketed as
VISIGRIT(TM) and GREAT WHITE(TM). Such glass and ceramic products have only
recently been produced by the Company in limited amounts. As loose grain
abrasives, these products can be applied with blasting equipment for industrial
cleaning and maintenance and manufacturing operations. Potential purchasers
include military and defense agencies, entities engaged in the electronics,
aerospace, automotive, glass products and construction industries and entities
engaged in surface finishing, coating removal and maintenance of manufacturing
and processing equipment, buildings, highways, bridges and commercial vehicles
and vessels.
The Company has shut down the melter used to manufacture ALUMAGLASS and is
currently satisfying limited orders through inventory of ALUMAGLASS. The Company
does not currently intend to restart the melter. If market demand for ALUMAGLASS
warrants further ALUMAGLASS production, the Company intends to pursue
opportunities to license its ALUMAGLASS patents to third parties. The Company
could then purchase the raw ALUMAGLASS particles from such manufacturers and
process the material for resale to its customers. The Company expects this
process to provide a lower cost of production.
Decorative Particles
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The Company's facility in St. Augustine, Florida color coats various glass
substrates to produce decorative particles. Decorative particles are widely used
in the construction industry to visually enhance structural materials such as
plasters, tiles, grouts, wall systems and roofing and flooring. Colored
particles are also incorporated into countertops and cabinetry. The substrates
currently being coated in St. Augustine are produced at the Company's Dunkirk,
New York facility, however, locally sourced substrates, including ceramic or
mined mineral substrates, will also be used. The Company believes that the
proprietary color coating process it employs in St. Augustine yields a coating
of superior visual quality and endurance compared to competing products and
believes that there is a potential market for these products. There can be no
assurance, however, that the Company will ever achieve significant sales of
these products. The Company recently commenced commercial production of these
products and has been working with VANGKOE to initiate customer sampling and
testing in the swimming pool plaster market in the southeast, which will be the
initial marketing focal point for these products.
Performance Aggregates
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ALUMAGLASS and the Company's other glass and ceramic products, individually or
in blended combinations, can also be used as structural or textural enhancers,
fillers and additives. These products, which can be sized according to industry
standards, can be used to strengthen and add
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consistency to materials such as cements, plasters, grouts, mortars, roofing and
flooring and other glass and ceramic materials.
Recycled CRT Glass
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The Company is also engaged in recycling CRT glass used in televisions. The
Company's current CRT glass recycling customers include electronics
manufacturers such as Techneglas, Inc. ("Techneglas"), Toshiba Display Devices,
Inc. ("Toshiba") and Hitachi Electronic Devices, U.S.A., Inc. Thomson Consumer
Electronics, Inc. ("Thomson"), which had been a significant CRT customer of the
Company, ceased shipping CRT glass to, and purchasing recycled CRT glass from,
the Company in March 1997
In the Company's CRT recycling operations, waste CRT glass is shipped to the
Company by its customers pursuant to agreements with the Company. The Company
receives both funnel glass (the back of a television screen, which is relatively
thin and tubular in shape) and panel glass (the front of a television screen,
which is relatively thick and flat in shape). The funnel glass is cleaned,
separated and sold back to the original manufacturers and others. The panel
glass is cleaned, separated and sold as a raw material to the original
manufacturers and others, used as a raw material by the Company in the
production of abrasives or further processed for sale as an aggregate for
construction materials.
Manufacturing and Recycling Processes
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The Company utilizes the crushing, sizing and packaging equipment at its
Dunkirk, New York facility to manufacture its abrasives, uncoated decorative
particle substrates and performance aggregate products. The Company has
identified several waste streams which it receives, including post-consumer
bottle glass, waste ceramics and CRT panel glass, which can be used as a
manufacturing raw material for these products. The Company identifies the
chemical or other valuable properties of these materials and identifies third
parties that can utilize the materials in their manufacturing or other
operations. Then, depending on the customer's needs, the Company utilizes its
equipment, principally its recycling lines and post-melting, abrasives finishing
equipment, to sort, clean and/or grind and crush the material into the desired
form. The material is then packaged and shipped to customers.
The Company's St. Augustine, Florida, facility is utilized to color-coat and
package particles for pool plasters and other construction materials. The
proprietary manufacturing process consists of applying various pigments and
other coating materials at the St. Augustine facility to particles produced at
the Company's Dunkirk, New York facility in a thermodynamic process. The
material is then bagged on-site in St. Augustine and shipped to customers.
The Company recycles CRT glass through two processing lines. The process
involves extracting pieces of CRT glass of less than a specified size,
separating panel glass from funnel glass on a primary processing line, cleaning
and removing coatings on the glass and batching the funnel glass and panel glass
for resale back to customers. This process is repeated for CRT glass fragments
too small for the primary line by identical processing through a second line
designed to handle
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smaller pieces of glass. Generally, CRT glass fragments received by the Company
of approximately one inch or less in diameter have not been recycled by the
Company due to limitations of its technology. Although the Company has recently
initiated a process to recycle this material, there can be no assurance the
Company will in fact sell such material on a profitable basis or at all. In the
event the Company is unable to sell such glass, it believes it can dispose of
such glass by smelting at prevailing rates.
Research and Development
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The Company's research and development efforts have been conducted principally
through the Company's internal staff and the Center for Advanced Ceramic
Technology ("CACT") at Alfred University. The Company currently employs one
individual principally devoted to research and development, and maintains an
on-site laboratory at its Dunkirk facility where various analyses, tests and
other research and development activities are conducted. CACT is the Company's
primary outside research and development partner, and works on various matters
from time to time as requested by the Company.
Although the Company's research and development activities are presently
limited, the Company plans to continue to engage in research and development
activities from time to time. It is anticipated that such efforts will be
focused in the near term on ALUMAGLASS licensing possibilities and expanding
color coating offerings for its decorative particles.
MARKETS FOR PRODUCTS AND SERVICES
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Abrasives
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A variety of media and methodologies have traditionally been used as industrial
abrasives. In particular, sand used in blasting applications and chemical
solvents have held a significant share of the market. In recent years, however,
increased regulations relating to the environment and worker health and safety
have resulted in a dramatic decline in the use of sand, which is known to
contribute to the lung disease silicosis. In addition, given the greater demand
for reclaimable abrasives, which reduce the amount of spent abrasive material
subject to landfill and potential environmental liability, the Company believes
that non-reclaimable abrasives, such as sand and metal slags, are competitively
disadvantaged. Chemical solvents have also decreased in use with respect to many
applications due to such regulatory changes, particularly regulations which have
resulted in increased disposal costs. Products such as ALUMAGLASS, glass beads
and mineral, metallic and plastic abrasives are affected to a lesser extent by
such regulations due to the nature of their composition and the fact that they
are reclaimable for multiple uses and have a lower quantity for disposal.
ALUMAGLASS, for example, contains no free silica, which causes silicosis, and,
depending on the application, could potentially be recycled rather than disposed
of after use. Other approaches such as high pressure water and dry ice blasting
are also gaining acceptance.
Loose grain abrasives, typically applied with blasting equipment, are used in
numerous industries throughout the world for equipment and facilities
maintenance. Applications include cleaning,
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stripping and other surface treatment or surface preparation applications, such
as industrial metal finishing, coating removal, structural steel and commercial
vehicle cleaning, paint removal and the cleaning and preparation of surface
substrates. Potential purchasers include utilities, military and defense
agencies, entities engaged in the electronics, aerospace, automotive, glass
products and construction industries and entities engaged in surface finishing,
coating removal and the maintenance of manufacturing and process industries
equipment and facilities, buildings, highways, bridges and commercial vehicles
and vessels.
Decorative Particles
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The Company believes that there is a large market for decorative particles, of
which 3M holds a significant share. End users for decorative substrates or
particles include ceramic tile manufacturers, producers of swimming pool
plasters, decorative roofing and wall systems, pottery and porcelain producers
and others.
The production of plasters, mortars, terrazzo, and ceramic tiles requires large
quantities of fillers and expanders. Crushed marble, white sand, kaolin or
similar low cost white calcium based material have traditionally been used as
fillers and expanders. Because of the high cost of coloring agents, pigments and
the process to coat substrates, it is not economical to color coat large volumes
of these fillers. Instead, the construction industry adds into the filler small
quantities of particles that have been previously color coated. The resulting
mixture, when viewed over a large surface area and from a distance, will appear
to have a consistent color or hue.
The Company believes that market acceptance of colored particles is largely a
function of the brilliance and endurance of the color, which results from the
level of translucence or reflectivity of the substrate. Because in most
applications the coated surface of a particle is subject to erosion, colored
substrates must have translucent properties to maintain their color
characteristics with a translucent or clear particle, as the color is eroded
from the exposed surface of the particle embedded in the mortar or plaster, the
color on the back side of the particle will remain visible, thereby extending
the life of the color system significantly. Traditionally quartz and high
quality silica sands have been employed as substrates to produce translucent
colored particles. The Company believes, however, that its glass formulation
substrates provide superior translucence and clarity compared to these
materials, and may have a lower cost of production. In addition, the Company
believes that its proprietary coating process will produce a coating of superior
endurance and visual appeal. There can be no assurance, however, that the
Company will be able to successfully manufacture and sell its color coated
substrates.
Performance Aggregates
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The Company also believes that there is a large market for performance
aggregates. Materials such as plasters, mortars, terrazzo, flooring tiles, and
other ceramic or cement based mixtures require fillers, expanders or
particulates that will add consistency or texture for functional purposes. If
needed, the Company has the ability to size its aggregates within narrow
specifications for specialty applications. Although the Company has only
recently begun to explore the use of its various substrates for this market, the
Company's ALUMAGLASS product
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has been purchased in limited quantities as an additive for non-slip epoxy
flooring systems. The Company believes that its fired ceramic substrates will
also have applicability in these markets, particularly as filler for tiles and
plasters. The Company further believes that, since many of its substrates are
produced from waste material, it may have production cost advantages over
certain materials traditionally used in this market, such as mined substrates.
Recycled CRT Glass
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The Company currently recycles waste CRT glass generated by television
manufacturers located in the United States. The Company's potential sales
revenue from such customers is therefore limited by the relatively few
manufacturers located in the United States, the relatively low percentage of CRT
glass which becomes waste prior to being incorporated into televisions, which
such manufacturers continually strive to reduce further, and shipping costs
associated with doing business with manufacturers located at significant
distances from the Company. In addition, the Company has recently experienced
increased competition with respect to CRT glass recycling services. Thomson,
historically a significant CRT customer, ceased doing business with the Company
in March 1997.
Dependence on Certain Customers
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For the year ended June 30, 1997, two of the Company's CRT glass recycling
customers, Techneglas and Thomson each accounted for more than 10% of the
Company's revenues and, in the aggregate, accounted for approximately 61.2% of
the Company's revenues. Thomson ceased shipping CRT glass to, and purchasing
recycled CRT glass from, the Company as of March 1997. Although the Company has
a limited number of customers for ALUMAGLASS and other materials, the Company is
currently dependent on its CRT customers for substantially all of its revenues.
Sales and Marketing
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To date, the Company's products have been marketed and distributed in the United
States primarily through distributors and limited direct sales efforts by the
Company and only limited sales have been achieved. N.T. Ruddock & Company, Fusco
Abrasive Systems, Inc., Standard Sand & Silica Co. and Porter Warner Industries,
Inc. are regional distributors of the Company's abrasives and are large-volume
distributors of loose grain abrasives in the United States. The Company has also
established relationships with distributors in the United Kingdom, Canada,
Mexico, China and Israel. The Company's marketing strategies include, among
others, telemarketing, direct mail and trade journal advertising, product
sampling programs and customer support programs such as technical assistance
programs and testing support.
To date, the Company's efforts through distributors have failed to generate
significant sales of ALUMAGLASS. Accordingly, the Company plans to explore joint
ventures and other corporate teaming efforts to increase outlets for its
products, which may include product bundling or composite production. The
Company also intends to review and evaluate its distributor
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relationships and incentives as well as its direct sales initiatives. There can
be no assurance, however, that such efforts will be successful.
In connection with the termination of the Company's joint venture with VANGKOE,
the parties entered into a Distributor Agreement, pursuant to which VANGKOE will
purchase the colored particles from APT and sell the particles to distributors
and others. The Distributor Agreement provides that VANGKOE will be APT's
exclusive distributor of colored particles for the swimming pool and other
pool-related markets, and that VANGKOE will purchase colored particles for such
markets exclusively from APT, subject to APT's ability to supply such particles.
VANGKOE must meet certain sales targets to maintain its exclusivity as a
distributor, although VANGKOE is under no obligation to meet such sales targets.
VANGKOE has been released from its previous minimum purchase commitment of
approximately $1.2 million of ALUMAGLASS and other materials. VANGKOE is a new
company without significant assets or experience in marketing aggregates and,
therefore, there can be no assurance that it will be successful in marketing the
Company's products.
The Company currently has three individuals dedicated principally to sales and
marketing and several others who support the sales and marketing effort on a
regular basis.
Intellectual Property
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The Company has been awarded two United States patents. The first patent was
issued in December 1993 and relates to the Company's process for manufacturing
abrasive particles from inorganic waste materials, including sludges from
various industrial processes and waste water treatment, emission control dusts
from high-temperature industrial processes, fly ash from incineration of
industrial and residential wastes and certain other process-specific effluents.
Examples of such inorganic wastes are spent pot liner from the aluminum
industry, refractory wastes from smelting, melting or refining furnaces, various
types of slags and precipitants related to metal recovery operations, foundry
sands, glass wastes, including television and computer monitor CRT glass, and
certain wastes from the manufacture of ceramic products. The second patent was
issued in October 1995 and relates to the pre-melting batching process involved
in the manufacture of the Company's abrasives. In addition, the Company has
filed jointly with another party an application for a U.S. patent on the X-ray
fluorescence technology that has been used in the Company's CRT glass recycling
operations. The Company has three additional patent applications on file. One
relates to ALUMAGLASS, one relates to the Company's potential glass bead product
and one relates to the use of the Company's products as aggregates in
construction materials. The Company's logo and ALUMAGLASS are registered
trademarks.
Competition
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The Company's products and services are subject to substantial competition. The
Company's abrasives compete with product offerings of other companies,
principally aluminum oxide, glass beads, plastic abrasives, garnet, steel grit,
coal slag and, with respect to certain applications, sand or water blasting
techniques. Many of the companies offering such products are large corporations
with substantially greater financial resources than the Company. Large
international competitors of
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manufactured metallic abrasives include: Exolon-ESK, General Abrasives
Triebacher, Inc., Washington Mills Electro Minerals Corp., Irvin Industries,
Inc., Norton/St. Gobain and others. Various other manufacturers produce mined,
plastic, glass bead and mineral abrasives, as well as high speed water jet spray
abrasive systems. The Company's ability to effectively compete against these
companies could be adversely affected by the ability of these competitors to
offer their products at lower prices than the Company's products and to devote
greater resources to the marketing and promotion of their products than are
available to the Company.
The Company's decorative particles and performance aggregates will also face
substantial competitive pressures. The Company believes that 3M has a
significant share of the market for decorative particles. 3M has available to it
financial, technical and other resources far superior to those of the Company.
In addition, certain customers of other products may be unwilling to switch to
the Company's particles due to factors such as personal preferences for a
competitor's color selections, consistency with colors previously sold,
performance concerns or satisfaction with its current products. The Company's
performance aggregates will face similar competitive pressures from producers of
mined minerals, aluminum oxide and others. These producers include 3M and
Norton/St. Gobain, each with resources superior to those of the Company.
With respect to its industrial CRT glass recycling operations, the Company
competes with several other companies who accept waste CRT glass for recycling
or other purposes, each of which may deal with customers of the Company and
satisfy their recycling, beneficial reuse or disposal needs. In addition, under
certain conditions, CRT glass might also be disposed of by melting it to
recapture the residuals. The Company has recently experienced increased
competition from companies offering to take CRT glass from sources free of
charge. In general, the Company has received revenue both when it receives and
when it sells recycled CRT glass. There can be no assurance that the Company
will be able to recycle CRT glass on a profitable basis if it is required to
eliminate the fee it receives upon receipt of such glass from customers in order
to maintain or attract additional sources of CRT glass. In addition, Thomson, a
significant CRT recycling customer, ceased doing business with the Company in
March 1997.
Environmental Matters
- ---------------------
The federal environmental legislation and policies that the Company believes are
applicable to its manufacturing operations include the Comprehensive
Environmental Response, Compensation and Liability Act of 1978, as amended
("CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended
("RCRA"), the Clean Air Act of 1970, as amended, the Federal Water Pollution
control Act of 1976, as amended, the Superfund Amendments and Reauthorization
Act ("SARA") and the Pollution Prevention Act of 1990. The Company is also
subject to state air, water and solid and hazardous waste laws and regulations
that affect its manufacturing operations.
To maximize market acceptance of the Company's manufacturing technology, the
Company has chosen to focus its initial efforts on the development of recycling
processes, materials and products which are most likely to qualify for
exemptions or favorable regulatory treatment. For example, the Company uses
materials that are not solid wastes and are not subject to RCRA permitting
requirements (for example, reclaimed characteristically hazardous by-products or
sludges). The
13
<PAGE>
Company handles secondary materials in a way to qualify such materials for
exclusions under state or federal RCRA regulations (for example, use of
materials as effective substitutes for other products in a manufacturing
process), and the Company stores materials in an environmentally sound manner
(for example, within the manufacturing building or on a concrete slab).
The New York State Department of Environmental Conservation ("NYSDEC") has been
delegated authority to administer the RCRA program in New York, and has adopted
regulations governing the treatment, storage and disposal of solid and hazardous
wastes. NYSDEC regulations require the Company to obtain regulatory exemptions
and/or beneficial use determinations for each hazardous waste material it
accepts for recycling purposes. Without these regulatory exemptions and/or
beneficial use determinations, the Company would be required to obtain a State
RCRA permit to operate its facility, and would become subject to onerous RCRA
regulatory requirements.
CERCLA and subsequent amendments under SARA impose continuing liability upon
generators of hazardous substances and owners and operators of facilities where
hazardous waste is released or threatened to be released, as well as upon
parties who arrange for the transportation of hazardous substances to such
facilities. CERCLA effectively imposes strict, joint and several liability upon
these parties. Accordingly, although the Company strives to operate its
facilities in compliance with regulatory requirements, there can be no assurance
that the Company will not incur liability as an owner or operator for releases
of hazardous substances, or possibly as a hazardous waste generator.
Employees
- ---------
At September 19, 1997, the Company had 38 full-time employees consisting of 30
employees in manufacturing, one employee in research and product applications
development, three employees in sales and marketing and four employees in
finance and administration. The Company also has one part-time employee. None of
the Company's employees are subject to a collective bargaining agreement and the
Company has not experienced any work stoppages.
ITEM 2. PROPERTIES
The Company owns its 230,000 square foot manufacturing facility in Dunkirk, New
York. Such facility is subject to a first mortgage held by the New York Job
Development Authority securing a promissory note issued to the Chautauqua Region
Industrial Development Corporation, with respect to which approximately $304,432
principal amount was outstanding at June 30, 1997. In addition, such facility is
subject to a second mortgage securing a promissory note issued to the former
owner of the property as part of the purchase price therefor, with respect to
which approximately $288,516 principal amount was outstanding on June 30, 1997.
The Company recently relocated its headquarters to Orlando, Florida, and has
entered into a three-year lease for approximately 4,700 square feet of executive
office space and rent is approximately $7,000 per month.
The Company has terminated its lease on approximately 3,000 square feet of
office space in Hazlet, New Jersey, effective September 30, 1997.
14
<PAGE>
APT currently leases approximately 10,000 square feet of manufacturing space in
St. Augustine, Florida. The lease will expire in February 2000 and rent is
approximately $6,000 per month.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to litigation, Conversion Technologies International,
Inc. v. R.E. Williams and Company, Inc., commenced by the Company on October 26,
1995 in the Supreme Court of New York, County of Chautauqua, against a general
contractor hired to construct the improved abrasives finishing area at the
Dunkirk facility. The contractor commenced work in April 1995, but was asked to
stop work in November 1995 following significant cost overruns, problems and
delays in construction and disputes with the Company over the scope of the work
to be performed by the contractor. The Company has served the contractor with
its complaint, alleging, among other things, breach of contract, fraud and
defamation, and seeks damages in excess of $1,000,000. The contractor has
counterclaimed damages of approximately $483,000, and has filed a mechanic's
lien with respect to such claim. The case is currently in the discovery phase.
The Company does not believe that there will be a material adverse outcome in
this dispute. The Company is not involved in any other material legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been quoted on the Nasdaq SmallCap Market (the
"SmallCap Market") under the symbol "CTIX" since May 16, 1996, the effective
date of the Company's registration statement relating to its initial public
offering of Common Stock (the "IPO"). The following table sets forth, for each
of the quarters indicated, the high and low bid prices per share of Common Stock
as quoted on the SmallCap Market (source, the Nasdaq Stock Market). The prices
shown represent quotations among securities dealers, do not include retail
markups, markdowns or commissions and may not represent actual transactions.
Quarter Ended High Low
- --------------------- ----------- ---------
June 30, 1996 $7.25 $5.00
September 30, 1996 $5.00 $3.375
December 31, 1996 $3.375 $2.25
March 31, 1997 $2.625 $1.375
June 30, 1997 $3.00 $1.00
15
<PAGE>
No dividends have ever been declared or paid on the Company's Common Stock, and
the Company does not anticipate declaring or paying dividends in the foreseeable
future.
As of September 19, 1997, the Company had approximately 114 holders of record of
Common Stock.
On October 11, 1996, pursuant to the Company's 1996 Long-Term Incentive Plan,
the Company sold 80,000 shares of restricted Common Stock to Harvey Goldman, the
Company's former President and Chief Executive Officer, and 10,000 shares of
restricted Common Stock to Perry A. Pappas, the Company's former Vice President
and General Counsel. Such shares were sold at a purchase price of $0.00025 per
share (or aggregate consideration of $22.50) and will vest on January 1, 1998.
The Company claims that the issuance and sale of all such securities were exempt
from registration under Section 4(2) of the Securities Act as transactions not
involving a public offering. Appropriate legends will be affixed to the
certificates evidencing such securities. All recipients had adequate access to
information relating to the Company. There were no other unregistered securities
sold by the Company during the fiscal year ended June 30, 1997.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
- --------
Since inception through June 30, 1997, the Company has sustained cumulative
losses of approximately $30,034,000. Such amount includes (i) a one-time,
non-cash charge to operations of approximately $6,232,000 relating to the
write-off of research and development (in-process) technologies that had not
reached technological feasibility and, in the opinion of management, had no
alternative use, which were purchased in conjunction with the Company's
acquisition of Dunkirk in 1994, (ii) approximately $2,528,000 expensed as
process development costs related to research and development of the Company's
CRT glass processing and ALUMAGLASS product lines, (iii) a non-cash charge to
operations of approximately $5,712,000 relating to the write-off of
non-productive fixed assets during the quarter ended June 30, 1997 and (iv)
other expenses, net of revenue, of approximately $15,562,000. The Company will
continue to incur losses until such time as revenues are sufficient to fund its
continuing operations.
Although the Company has not yet achieved profitability, the Company has taken a
number of recent steps in an effort to preserve cash, reduce its costs and
increase revenues. In late fiscal 1997 and early fiscal 1998, the Company
obtained a new management team that includes senior executives with significant
experience in the engineering, construction and marketing fields. As discussed
elsewhere, the Company's long-term debt has been reduced through the redemption,
at a discount, of the IDA Bonds, reducing interest expense and cash required for
principal repayments significantly and, with respect to the Key Bank loans,
renegotiated debt to defer payments until maturity which defers the required
cash outlays. Raw material costs will be reduced through the use of third party
tollers and the application of lower cost alternative substrates. Investments in
product development have been curtailed and investments in sales and
16
<PAGE>
marketing will be increased. Manufacturing and operating overheads have also
been reduced through payroll reductions and savings associated with
non-productive equipment and processes that have been shut-down, such as the
Company's melter. The Company has begun to sell limited amounts of the
decorative particles produced by its APT subsidiary and hopes to increase
revenue from this product line. The Company will also strive to increase sales
of other abrasives and aggregates as new marketing efforts are implemented.
Although management believes these steps will allow the Company to continue as a
going concern for at least 12 months, there can be no assurance that the
foregoing steps will result in the Company ever achieving profitability.
The Company has continued to experience limited revenue and negative cash flow
from operations. The Company had revenues of approximately $277,000 for the
quarter ended June 30, 1997 and expects revenues to be approximately $300,000
for the quarter ending September 30, 1997. In general, revenues have been
reduced from prior periods due to the loss of Thomson as a CRT customer in March
1997. The Company has recently begun to sell increased amounts of certain
recycled glass and hopes to obtain modest increases in CRT revenue as a result.
In addition, the Company has recently begun sales of limited amounts of
decorative particles manufactured by its APT subsidiary. Although the Company
plans to maintain its CRT recycling revenue, the Company will focus its efforts
on sales of decorative particles, abrasives and other substrates. The Company
anticipates that these efforts will result in increased revenue for the quarter
ending December 31, 1997 as compared to the quarter ending September 30, 1997,
however, there can be no assurance that such results will actually be achieved.
Since the Company has had limited revenue and has incurred significant losses
which has resulted in a working capital deficiency and a stockholders'
deficiency at June 30, 1997, the Report of Independent Auditors includes an
explanatory paragraph indicating there is substantial doubt as to the Company's
ability to continue as a going concern. See Report of Independent Auditors.
Results of Operations
- ---------------------
Fiscal Year Ended June 30, 1997 Compared to Fiscal Year Ended June 30, 1996
Consolidated revenues for the year ended June 30, 1997 ("fiscal 1997") were
approximately $1,429,000, consisting primarily of CRT glass recycling fees and
approximately $248,000 of ALUMAGLASS sales. For fiscal 1996, the Company had
consolidated revenues of approximately $2,680,000, of which approximately
$214,000 was from sales of ALUMAGLASS and the remainder was CRT recycling fees.
This decrease in revenue during fiscal 1997 primarily reflects reduced beginning
inventory of unprocessed CRT glass and the loss of Thomson as a CRT customer.
Cost of goods sold was approximately $3,952,000 for fiscal 1997 versus
approximately $3,094,000 for the prior fiscal year. Included in the fiscal 1997
cost was a $24,000 decrease in the Company's reserve for potential disposal
costs of raw materials, as compared to a $623,000 decrease in the reserve for
fiscal 1996 reflecting a significantly larger decrease in the Company's
beginning raw materials inventory, plus approximately $392,000 of costs for
starting up operations at the Company's particle coating facility in St.
Augustine, Florida. Excluding the effect of the change in the Company's reserve
for disposal during fiscal 1997 and fiscal 1996, and the St. Augustine start-up
costs, cost of goods sold decreased only approximately $133,000 in fiscal 1997
versus fiscal 1996, despite the over 40% decrease in revenues noted above. Major
factors contributing to the higher relative fiscal 1997 cost as compared to
sales were higher depreciation costs due to increased
17
<PAGE>
equipment purchases, an approximately $97,000 write-off of raw material and
in-process inventories related to discontinued processes and the fact that under
the prevailing operating conditions in both periods a significant portion of the
cost of production was fixed in nature. Some savings were realized as a result
of lower freight costs, resulting from a change in product pricing policy
whereby customers now pay freight on most shipments.
The Company's gross loss on sales of approximately $(2,523,000) during fiscal
1997 compares with a loss of approximately $(414,000) for the prior fiscal year
and reflects the lower revenue and higher costs detailed above.
Selling, general and administrative expenses for fiscal 1997 increased to
approximately $3,919,000 from $1,821,000 for fiscal 1996. This increase includes
(i) approximately $988,000 in higher consulting costs of which approximately
$705,000 was directly related to the terminated merger with Octagon and $90,000
was an accrued severance payment to the former President and Chief Executive
Officer of the Company, (ii) approximately $369,000 in higher legal costs and
approximately $181,000 in outside service costs (primarily financial printing)
both of which also relate to the terminated merger activities, (iii)
approximately $165,000 in compensation expenses relating to capital stock, (iv)
approximately $135,000 for the purchase of the APT particle coating technology
that had not reached technological feasibility at the time of purchase, (v) a
$99,000 settlement received in fiscal 1996 from a former officer of Dunkirk and
(vi) approximately $93,000 in higher insurance costs.
A charge against operations of approximately $5,712,000 was recorded in the
fourth quarter of fiscal 1997 to write down fixed assets to their estimated fair
market value for processes which have been shut down and no longer appear to be
viable for the forseeable future. There had been no comparable expense in fiscal
1996.
The Company incurred process development costs of approximately $996,000 for
fiscal 1996. There were no similar charges in fiscal 1997.
Interest expense increased to approximately $1,277,000 for fiscal 1997 from
approximately $1,077,000 for fiscal 1996, reflecting the capitalization of
approximately $440,000 in interest during fiscal 1996. No interest expense was
capitalized during fiscal 1997. Partially offsetting this cost increase was
approximately $240,000 in lower interest expense in fiscal 1997 as a result of
reductions in debt principal.
Interest income of approximately $227,000 in fiscal 1997 compares with
approximately $114,000 in fiscal 1996. The increase reflects higher earnings on
cash received from the Company's initial public offering in May 1996.
Other income of approximately $349,000 in fiscal 1997 was approximately $267,000
higher than fiscal 1996, due entirely to a $331,547 New York State net
investment tax credit recognized in June 1997. (A cash refund of $566,547 was
received, but provision has been made for the return of an estimated $235,000 of
this to the State as a result of the shut down of related fixed assets.)
18
<PAGE>
The fiscal 1996 Statement of Operations includes an extraordinary item amounting
to $442,000. This charge includes underwriting, debt discount, legal and
accounting costs relating to Bridge Notes issued in December, 1995 to provide
interim working capital until the initial public offering could be closed.
Liquidity and Capital Resources
- -------------------------------
The Company's business is capital intensive. The Company has funded its
operations principally from debt financing, the private placement of preferred
stock and the proceeds of the IPO. At June 30, 1997, the Company had
approximately $11,315,000 in principal amount of long-term indebtedness
(excluding capital lease obligations) and net working capital deficiency of
approximately $(3,394,554). As of June 30, 1997, the Company had cash and
marketable securities of approximately $325,000.
In August and September 1997, the Company raised aggregate gross proceeds of
$4,145,000 in a private placement of Preferred Stock. An aggregate of 414,500
shares of Preferred Stock were issued. Each share of Preferred Stock is
initially convertible into eight shares of Common Stock at a conversion price of
$1.25 per share, subject to adjustment based on the lesser of $1.25 and the
prevailing average market price of the Common Stock immediately preceding any
subsequent closing, if any. The maximum amount of such offering, including gross
proceeds received to date, would result in gross proceeds of $5,000,000
($8,000,000 if the Placement Agent's over-allotment option is exercised in
full), although there can be no assurance that any additional closings under the
offering will occur.
The Company received net proceeds of $3,606,150 from the placement of the
Preferred Stock (after deducting the placement agent's commissions and
non-accountable expense allowance). Of such net proceeds, $1,620,000 was used to
redeem the IDA Bonds and $500,000 plus accrued interest was used to repay the
1997 Bridge Loan, with the remainder to be used for transaction expenses
estimated at $150,000 and general working capital purposes, including accrued
payables.
In July and August 1997, the 1997 Bridge Loan provided the Company with an
aggregate of $500,000 which was used for general working capital purposes. The
1997 Bridge Loan was repaid, together with accrued interest at the rate of 12%
per annum, on September 8, 1997 out of the proceeds of the Preferred Stock
placement. In connection with such 1997 Bridge Loan, the Company issued warrants
to purchase 100,000 shares of Common Stock to the Aries Funds at an exercise
price equal to $1 5/16 per share.
In September 1997, the $8,000,000 principal amount of IDA Bonds were redeemed in
full in exchange for a cash payment of $1,620,000 and Dunkirk's forfeiture of
its interest in a related debt service reserve fund (which had a then current
balance of approximately $190,000).
In July 1997, ESDC agreed to honor its guarantee of approximately $1,888,000
outstanding principal amount of term loans owing by the Company's Dunkirk
subsidiary to Key Bank, and ESDC is in the process of assuming from Key Bank,
and Key Bank is assigning to ESDC, such loans. ESDC has agreed to defer all
interest and principal payments due under the loans through
19
<PAGE>
January 1, 1998 until the maturity date of the loans, with interest continuing
to accrue on such deferred amounts payable at maturity. ESDC has also agreed to
allow Dunkirk to reduce the principal amount of such loans by the amount of a
debt service reserve fund (the balance at June 30, 1997 was $449,190) that will
be forfeited by Dunkirk.
As of September 19, 1997, the Company had approximately $3,287,000 in principal
amount of long-term indebtedness (excluding capital lease obligations),
consisting of (i) approximately $1,888,000 outstanding principal amount under
the Key Bank term loans guaranteed by ESDC, which loans bear interest at the
prime rate and are payable in monthly installments through December 2001
(subject to the deferral through January 1, 1998 described above), (ii)
approximately $695,000 aggregate outstanding principal amount under various
mortgage and secured equipment loans and (iii) approximately $704,000 aggregate
outstanding principal amount under subordinated indebtedness from certain of the
Company's CRT glass customers who provided financial assistance to the Company
during its start-up phase. The Company's long-term indebtedness is secured by
liens on its fixed assets. The Company's long-term indebtedness has been used to
finance its facility, equipment and related capital expenditures. Certain of the
agreements related to such long-term indebtedness contain customary covenants
and default provisions.
The following unaudited pro forma balance sheet data reflects the following
transactions as if they had occurred as of June 30, 1997: (i) the private
placement of 414,500 shares of Preferred Stock resulting in gross proceeds of
$4,145,000 less commissions and a non-accountable expense allowance totaling
$538,850 and placement expenses estimated at $150,000 (of which $60,000 was paid
from the proceeds and $32,522 had been recorded by the Company at June 30,
1997), and (ii) retirement of the $8,000,000 principal amount of IDA Bonds for a
payment of $1,620,000 plus $190,000 representing debt service reserve funds
forfeited by Dunkirk upon such retirement in September 1997 plus $230,000
removed from the debt service fund on September 1, 1997 for payment of interest
(with the assumption that there was no related tax on the gain), and (iii)
write-off of $330,361 of deferred finance charges related to the $8,000,000
retired IDA Bonds.
20
<PAGE>
<TABLE>
<CAPTION>
June 30, 1997
---------------------------------------------------
Pro Forma
Actual Adjustments As Adjusted
------------ ------------- ------------
(unaudited) (unaudited)
ASSETS
<S> <C> <C> <C>
Cash .............................................................. $ 325,092 $ 1,868,672(1) $ 2,193,764
Other current assets .............................................. 855,810 (32,522) 823,288
------------ ------------ ------------
Total current assets ......................................... 1,180,902 1,836,150 3,017,052
Property, plant and equipment (net) ............................... 6,939,782 -- 6,939,782
Noncurrent assets ................................................. 446,929 (330,361) 116,568
Restricted assets ................................................. 869,311 (419,964) 449,347
------------ ------------ ------------
$ 9,436,924 $ 1,085,825 $ 10,522,749
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Accrued expenses .................................................. $ 858,447 (76,667) $ 781,780
All other current liabilities ..................................... 3,717,009 -- 3,717,009
------------ ------------ ------------
Total current liabilities .................................... 4,575,456 (76,667) 4,498,789
Capital lease obligations, less current portion 39,414 -- 39,414
Long-term debt, less current portion .............................. 10,784,343 (8,000,000) 2,784,343
Stockholders' equity (deficiency):
Common stock, $.00025 par value, authorized
25,000,000 shares, issued and outstanding
5,539,745 shares .......................................... 1,385 -- 1,385
Additional paid-in capital, common stock ..................... 24,186,932 -- 24,186,932
Preferred stock, $.001 par value, authorized
15,000,000 shares, issued and outstanding
414,500 shares ............................................ 415 415
Additional paid-in capital, preferred stock .................. -- 3,455,735 3,455,735
Unearned stock compensation .................................. (116,369) -- (116,369)
Accumulated deficit .......................................... (30,034,237) 5,706,342(2) (24,327,895)
------------ ------------ ------------
Total stockholders' equity (deficiency) ........................... (5,962,289) 9,162,492 3,200,203
------------ ------------ ------------
$ 9,436,924 $ 1,085,825 $ 10,522,749
============ ============ ============
<FN>
- ----------
(1) Reflects gross proceeds of $4,145,000 on the sale of Preferred Stock, less
commissions and estimated expenses totaling $656,328 and $1,620,000 paid to
retire the IDA Bonds.
(2) Reflects a pre-tax gain on retirement of $8,000,000 IDA Bonds based on (i)
payments of $1,620,000 cash, (ii) forfeiture of $419,964 in debt service
reserve funds, (iii) $76,667 accrued interest recorded at June 30, 1997 on
the IDA Bonds which was paid from the debt service reserve fund subsequent
to June 30, 1997, and (iv) a write-off of $330,361 for deferred finance
charges related to the retired IDA Bonds. The pro forma adjustment does not
include the related tax, if any, that may be payable with respect to the
debt retirement. If Dunkirk is deemed to be solvent immediately prior to
the retirement of the IDA Bonds, the Company will recognize taxable income
for the debt forgiveness in its tax year ending June 30, 1998. The amount
of such income may be offset by net operating loss carryforwards ("NOLs"),
subject to possible limitations (see below). Even if sufficient NOLs were
available to offset such taxable income, the Company may still be subject
to alternative minimum tax. To the extent that Dunkirk is deemed to be
insolvent immediately prior to such repayment by an amount which equals or
exceeds the amount of debt forgiveness, the Company will not recognize
taxable income from such repayment; however, certain of Dunkirk's tax
attributes (such as NOLs) would be subject to reduction and would not be
available to offset future income from operations, if any. For this
purpose, the amount of insolvency is defined to be the excess of Dunkirk's
liabilities over the fair value of its assets. An independent appraisal of
the fair value of Dunkirk' assets has not been completed at this time to
determine Dunkirk's solvency.
</FN>
</TABLE>
21
<PAGE>
The Company's capital lease payments were approximately $84,000 for the year
ended June 30, 1997 and are estimated to be approximately $41,000, $27,000 and
$23,000 for the fiscal years ending June 30, 1998, 1999 and 2000, respectively,
under current commitments. The Company's utility expenses average approximately
$35,000 per month at its current level of operations.
The Company's base annual fixed expenses include approximately $447,000 in
aggregate annual base compensation for the current executive officers of the
Company and debt service obligations relating to the Company's outstanding
indebtedness, which are estimated to aggregate approximately $489,000 for the
fiscal year ending June 30, 1998, excluding capital lease obligations.
The Company has federal net operating loss carryforwards that amounted to
approximately $20.6 million at June 30, 1997, which expire between 2006 and
2012. Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended
(the "Code"), utilization of net operating loss carryforwards is limited if
there has been a change in control (ownership) of the Company. Although a
comprehensive evaluation has not yet been performed, it is likely that due to
prior shifts in ownership (the Dunkirk merger and the completion of the IPO) and
anticipated shifts in ownership (the Preferred Stock offering), the Company's
ability to utilize its net operating loss carryforwards could be severly
limited.
Pending Accounting Pronouncements
- ---------------------------------
SFAS No. 128 "Earning Per Share," SFAS No. 130 "Reporting Comprehensive Income"
and SFAS No. 131 "Disclosure about segments of an Enterprise and Related
Information" are not effective for the Company until December 31, 1997, June 30,
1999 and June 30, 1999, respectively. Management believes these standards will
not have a material impact on the Company.
ITEM 7. FINANCIAL STATEMENTS
See Financial Statements annexed.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Portions of the Company's definitive Proxy Statement, which the Company will
file with the Securities and Exchange Commission on or before October 28, 1997,
are incorporated herein by reference as items 9 through 12 of Part III.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) 1. Financial Statements and Schedules
See Financial Statements annexed.
2. Exhibits
See Exhibits annexed.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on April 2, 1997 relating to its
private placement of preferred stock.
22
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
Dated: September 29, 1997 /s/ William L. Amt
------------------
William L. Amt
President and Chief Executive Officer
23
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this 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/ William L. Amt President, Chief Executive September 29, 1997
- --------------------------- Officer and Director
William L. Amt (principal executive officer)
/s/ John G. Murchie Controller(principal September 29, 1997
- --------------------------- accounting officer)
John G. Murchie
/s/ Eckardt C. Beck Chairman of the Board September 29, 1997
- ---------------------------
Eckardt C. Beck
/s/ Peter H. Gardner Director September 29, 1997
- ---------------------------
Peter H. Gardner
/s/ Alexander P. Haig Director September 29, 1997
- ---------------------------
Alexander P. Haig
/s/ Scott A. Katzmann Director September 29, 1997
- ---------------------------
Scott A. Katzmann
/s/Irwin M. Rosenthal, Esq. Director September 29, 1997
- ---------------------------
Irwin M. Rosenthal, Esq.
24
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Report of Independent Auditors...............................................F-2
Consolidated Balance Sheets of Conversion Technologies International,
Inc. and Subsidiaries as of June 30, 1997 and June 30, 1996...............F-3
Consolidated Statements of Operations of Conversion Technologies
International, Inc. and Subsidiaries for the years ended June 30, 1997
and June 30, 1996.........................................................F-4
Consolidated Statements of Stockholders' Equity of Conversion Technologies
International, Inc. and Subsidiaries for the years ended June 30,
1997 and June 30, 1996.................................................F-5
Consolidated Statements of Cash Flows of Conversion Technologies
International, Inc. and Subsidiaries for the years ended June 30, 1997
and June 30, 1996..........................................................F-6
Notes to Consolidated Financial Statements...................................F-8
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Conversion Technologies International, Inc.
We have audited the accompanying consolidated balance sheets of Conversion
Technologies International, Inc. and Subsidiaries (Company) at June 30, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Conversion
Technologies International, Inc. and Subsidiaries at June 30, 1997 and 1996, and
the consolidated results of their operations and cash flows for the years then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1, the
Company has generated only minimal revenue, has incurred significant losses, has
a working capital deficiency and has a stockholders' deficiency. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
possible inability of the Company to continue as a going concern.
Metro Park, New Jersey /s/ERNST & YOUNG LLP
September 18, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
Conversion Technologies International, Inc.
and Subsidiaries
Consolidated Balance Sheets
June 30,
------------------------------
1997 1996
------------- ------------
ASSETS
<S> <C> <C>
Cash and cash equivalents ........................................... $ 325,092 $ 4,539,464
Marketable securities ............................................... -- 2,009,632
Accounts receivable, less allowance for doubtful accounts
of $18,000 at June 30, 1997 and $25,000 at June 30, 1996 ....... 146,225 343,214
Inventories ......................................................... 521,060 337,736
Prepaid expenses and other current assets ........................... 188,525 205,984
------------ ------------
Total current assets ................................................ 1,180,902 7,436,030
Property, plant and equipment:
Land ........................................................... 75,000 75,000
Building and improvements ...................................... 1,578,293 1,609,832
Machinery and equipment ........................................ 6,713,599 11,573,933
Construction in progress ....................................... 29,500 1,008,480
------------ ------------
8,396,392 14,267,245
Less accumulated depreciation .................................. (1,456,610) (1,630,639)
------------ ------------
6,939,782 12,636,606
Deferred finance charges, less accumulated amortization of
$135,786 at June 30, 1997 and $81,272 at June 30, 1996 ......... 443,829 494,843
Other noncurrent assets ............................................. 3,100 38,304
Restricted assets
Project Fund ................................................... 158 72,859
Debt service reserve funds ..................................... 869,153 1,268,457
------------ ------------
$ 9,436,924 $ 21,947,099
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Accounts payable .................................................... $ 1,711,212 $ 1,279,280
Deferred revenue .................................................... 491,944 557,907
Reserve for disposal ................................................ 713,100 737,000
Accrued expenses .................................................... 858,447 778,306
Investment tax credit payable ....................................... 235,000 --
Current portion of capital lease obligations 35,495 72,914
Current portion of long-term debt ................................... 530,258 437,285
------------ ------------
Total current liabilities ........................................... 4,575,456 3,862,692
Capital lease obligations, less current portion ..................... 39,414 74,693
Long-term debt, less current portion ................................ 10,784,343 11,281,715
Stockholders' equity (deficiency):
Class A common stock, $.00025 par value, authorized 25,000,000
shares, issued and outstanding 5,539,745 shares at June 30,
1997 and 5,449,745 shares at June 30, 1996 .................. 1,385 1,362
Additional paid-in capital ..................................... 24,186,932 23,905,705
Unearned Stock Compensation .................................... (116,369) --
Accumulated deficit ............................................ (30,034,237) (17,179,068)
------------ ------------
Total stockholders' equity (deficiency) ............................. (5,962,289) 6,727,999
------------ ------------
$ 9,436,924 $ 21,947,099
============ ============
See accompanying notes.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
Conversion Technologies International, Inc.
and Subsidiaries
Consolidated Statements of Operations
Year ended June 30,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenue ........................... $ 1,429,008 $ 2,679,987
Cost of goods sold ................ 3,952,374 3,093,560
------------ ------------
Gross loss on sales ............... (2,523,366) (413,573)
Selling, general and administrative 3,918,726 1,821,179
Process development costs ......... -- 996,259
Write-off of fixed assets ......... 5,711,567 --
------------ ------------
Loss from operations .............. (12,153,659) (3,231,011)
Interest expense .................. (1,277,310) (1,076,077)
Interest income ................... 226,505 114,326
Other income ...................... 349,295 81,811
------------ ------------
Loss before extraordinary item .... (12,855,169) (4,110,951)
Extraordinary item ................ -- 442,000
------------ ------------
Net loss .......................... $(12,855,169) $ (4,552,951)
============ ============
Net loss per common share
before extraordinary item .... $ (2.69) $ (2.64)
============ ============
Net loss per common share ......... $ (2.69) $ (2.92)
============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
Conversion Technologies International, Inc.
and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years ended June 30, 1997 and June 30, 1996
Preferred Stock Class A Common Stock
------------------------------------------ ----------------------------------------
Additional Additional
Number Paid-In Number Paid-In
of Shares Amount Capital of Shares Amount Capital
--------- ------ ------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1995 ........ 2,958,000 $ 2,958 $5,994,271 909,404 $ 227 4,427,710
Issuance of Class A
common stock ............ 3,527,050 882 13,526,159
Converted to Common Stock . (2,958,000) (2,958) (5,994,271) 1,023,054 255 5,996,974
Surrendered and canceled .. (7,308) (1) (98,999)
Repurchased and canceled .. (2,455) (1) (12,889)
Debt discount on Bridge ... 66,750
Net Loss ..................
--------- ---------- ---------- --------- ------ ------------
Balance at June 30, 1996 ....... -- -- -- 5,449,745 1,362 23,905,705
Issuance of Class A
common stock ............ 90,000 23
Stock Compensation ........ 281,227
Net Loss ..................
--------- ---------- ---------- --------- ------ ------------
Balance at June 30, 1997 ....... -- $ -- $ -- 5,539,749 $1,385 $ 24,186,932
========= ========== ========== ========= ====== ============
Total
Unearned Stockholders'
Stock Accumulated Equity
Compensation Deficit (Deficiency)
------------ ----------- ------------
Balance at July 1, 1995 ........ $ -- $(12,626,117) $ (2,200,951)
Issuance of Class A
common stock ............ 13,527,041
Converted to Common Stock . --
Surrendered and canceled .. (99,000)
Repurchased and canceled .. (12,890)
Debt discount on Bridge ... 66,750
Net Loss .................. (4,552,951) (4,552,951)
--------- ------------ ------------
Balance at June 30, 1996 ....... -- (17,179,068) 6,727,999
Issuance of Class A
common stock ............ 23
Stock Compensation ........ (116,369) 164,858
Net Loss .................. (12,855,169) (12,855,169)
--------- ------------ ------------
Balance at June 30, 1997 ....... $(116,369) $(30,034,237) $ (5,962,289)
========= ============ ============
See accompanying notes.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Conversion Technologies International, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
Year ended June 30,
-------------------------------
1997 1996
------------- -------------
OPERATING ACTIVITIES
<S> <C> <C>
Net loss ................................................... $(12,855,169) $ (4,552,951)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation expense .................................. 1,036,416 886,863
Amortization of deferred financing and patent costs ... 54,514 54,302
Write-down of fixed assets ............................ 5,711,567 --
Write-off of inventories .............................. 96,752 --
Stock compensation expense ............................ 164,858 --
Settlement with former officer ........................ (99,000)
Debt discount on Bridge Notes ......................... 66,750
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable ......... 196,989 (59,643)
Increase in inventories ............................ (280,076) (110,012)
Decrease (increase) in other current assets ........ 17,459 (72,952)
Decrease (increase) in other noncurrent assets ..... 35,204 (7,038)
Decrease in deferred revenue ....................... (65,963) (386,323)
Increase (decrease) in accounts payable, reserve
for disposal and other accrued expenses ...... 723,173 (811,824)
------------ ------------
Net cash used in operating activities ...................... (5,164,276) (5,091,828)
INVESTING ACTIVITIES
Sale (purchase) of marketable securities ................... 2,009,632 (2,009,632)
Capital expenditures ....................................... (1,051,159) (4,396,016)
------------ ------------
Net cash provided by (used in) investing activities ........ 958,473 (6,405,648)
FINANCING ACTIVITIES
Increase in deferred finance and registration costs ........ (3,500) (40,427)
Issuance of notes payable .................................. -- 2,675,000
Payment of notes payable ................................... -- (3,061,500)
Issuance of long-term debt ................................. 8,282 3,056,476
Decrease (increase) in restricted assets ................... 472,005 (347,408)
Principal payments on long-term debt ....................... (412,681) (399,445)
Principal payments under capital lease obligations ......... (72,698) (93,750)
Issuance of common stock ................................... 23 13,514,151
------------ ------------
Net cash (used in) provided by financing activities ........ (8,569) 15,303,097
------------ ------------
(Decrease) increase in cash and cash equivalents ........... (4,214,372) 3,805,621
Cash and cash equivalents at beginning of period ........... 4,539,464 733,843
------------ ------------
Cash and cash equivalents at end of period ................. $ 325,092 $ 4,539,464
============ ============
See accompanying notes.
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
Conversion Technologies International, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Year ended June 30,
----------------------------
1997 1996
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<S> <C> <C>
Interest paid, net of amount capitalized ............. $ 1,320,882 $ 1,009,746
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON CASH TRANSACTIONS
Surrender and cancellation of common stock ........... -- (99,000)
Issuance of warrants in connection with bridge notes.. -- 66,750
See accompanying notes.
</TABLE>
F-7
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. Organization
------------
Conversion Technologies International, Inc. (the "Company") is engaged in the
business of manufacturing, recycling and processing various substrates and
advanced materials. These substrates and materials include (i) industrial
abrasives which can be used for surface cleaning and surface preparation
applications such as in cleaning steel structures, railcars, aircraft parts, and
equipment in loose grain blasting operations; (ii) decorative particles that
visually enhance structural materials such as plasters, tiles, grouts, wall
systems and roofing and flooring; and (iii) performance aggregates which can be
used as structural and textural enhancers, fillers and additives and to
strengthen and add consistency to materials such as cements, plasters, grouts,
roofing and flooring and glass and ceramic materials. The Company is also
engaged in the business of recycling cathode ray tube ("CRT") glass produced in
the manufacture of televisions for resale to such manufacturers and others.
Although substantially all of the Company's revenues to date have been derived
from its CRT recycling operations, the Company intends to focus its efforts on
its substrates and advanced materials products. The Company's revenue streams
are a combination of waste conversion fees and manufactured product sales.
On November 9, 1995, the Board of Directors approved an approximate
0.1218-for-one reverse split of its common stock. The accompanying consolidated
financial statements have been retroactively restated to reflect this reverse
stock split.
On May 16, 1996 the Company completed its initial public offering ("IPO"). The
funds generated by this offering became available at the closing on May 21,
1996, and included the proceeds from 3,067,000 shares of common stock sold at
$4.40 per share, 3,067,000 Class A Warrants sold at $0.05 each and 3,067,000
Class B Warrants sold at $0.05 each. On June 7, 1996 the Company closed on the
underwriter's over-allotment option for sales of 460,050 of each of the
foregoing securities at identical pricing. (See Note 7).
In November 1996, the Company entered into an Agreement and Plan of
Reorganization with Octagon, Inc. ("Octagon") pursuant to which a wholly-owned
subsidiary of the Company would be merged with and into Octagon (the "Merger"),
whereby, Octagon would become a wholly-owned subsidiary of the Company. On June
30, 1997, the Company and Octagon mutually terminated the Merger. Pursuant to
the terms of a Termination Agreement, the Company agreed to forgive remaining
bridge loans, including interest, in the approximate amount of $630,000 it made
to Octagon in fiscal 1997 in payment for certain services provided by Octagon to
the Company prior to the termination of the Merger and Octagon agreed to provide
certain services to the Company. This amount is included in Selling, General and
Administrative expenses in the Consolidated Statement of Operations.
F-8
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. Organization (continued)
------------------------
The accompanying consolidated financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the liquidation
of liabilities in the ordinary course of business. The Company has had limited
revenue and has incurred significant losses which has resulted in a working
capital deficiency and a stockholders' deficiency. In view of the foregoing,
there is a substantial doubt about the Company's ability to continue as a going
concern. The accompanying consolidated financial statements do not include any
adjustments relating to the realization of assets and liquidation of liabilities
that might be necessary should the Company be unable to continue as a going
concern.
In late fiscal 1997 and early fiscal 1998 the Company engaged new management.
The Company's new management team has initiated a plan to reverse the history of
limited revenues and continued losses through a series of deliberate actions
based upon the following five elements. Long term debt has been renegotiated to
reduce interest expense (see Note 9). Raw material costs are being cut through
the use of third party tollers and the application of lower cost alternative
substrates. Revenues from colored substrates are anticipated to increase as the
Company's decorative particle production facility in St. Augustine, Florida
becomes fully operational. Investments in product development have been
curtailed and investments in sales and marketing will be increased.
Manufacturing and operating overheads have been reduced. Although management
believes the foregoing course of action would allow the Company to continue as a
going concern for the next year, there are no assurances that management will be
successful in implementing the plans and eliminating the substantial doubt as to
its ability to continue as a going concern.
2. Summary of Significant Accounting Policies
------------------------------------------
Basis of Presentation
- ---------------------
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and include the
accounts of Conversion Technologies International, Inc. and its wholly-owned
subsidiaries, Dunkirk International Glass and Ceramics Corporation and Advanced
Particle Technologies, Inc. Intercompany accounts and transactions have been
eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
which affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
F-9
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
2. Summary of Significant Accounting Policies (continued)
------------------------------------------------------
Revenue Recognition
- -------------------
The Company derives most of its revenue from a combination of fees charged to
accept waste materials and from the sale of its products. Revenue recognition of
the fees charged to accept the waste material is deferred until the material is
placed through the conversion process.
For the year ended June 30, 1997, 61.2% of the Company's revenue was derived
from two major customers. Revenue generated from each of these customers
amounted to $621,830 and $252,686 which represents 43.5% and 17.7% of total
revenue, respectively. For the year ended June 30, 1996, 87.6% of the Company's
revenue was derived from three major customers. Revenue generated from each of
these customers amounted to $1,395,568, $677,648 and $273,709 which represents
52.1%, 25.3% and 10.2% of total revenue, respectively. The Company's customer
who generated the 17.7% and 25.3% of the total revenue for fiscal 1997 and 1996,
respectively, ceased shipping CRT glass and purchasing recycled CRT glass from
the Company in March 1997.
Reserve for Disposal
- --------------------
Dunkirk began accepting waste materials (primarily CRT glass) in early 1994.
Upon accepting the waste materials, Dunkirk established a reserve for the
potential disposal costs for the waste materials accepted, in the event that the
conversion processes being developed were not successful. From July 1, 1995 to
June 30, 1996, the Company reduced the reserve by approximately $623,000, and
from July 1, 1996 to June 30, 1997 the Company further reduced the reserve by
approximately $24,000. The decreases in the reserve, which substantially
resulted from changes in the volume of inventory, have been credited against
operations. The Company intends to adjust the reserve when the conversion
processes prove commercially successful.
Inventories
- -----------
Inventories are valued at the lower of cost or market, with cost determined by
the first-in, first-out (FIFO) method.
Inventories consisted of the following:
June 30,
------------------------
1997 1996
---- ----
Raw materials ....... $ 61,949 $ 79,237
Work-in-process...... 111,961 135,536
Finished goods....... 347,150 122,963
-------- --------
$521,060 $337,736
======== ========
F-10
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
2. Summary of Significant Accounting Policies (continued)
------------------------------------------------------
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment is stated at cost. The Company capitalized
interest costs of $439,932 in the year ended June 30, 1996 with respect to the
construction of certain long-term assets. Depreciation and amortization is
computed on the straight-line method over the estimated useful lives of the
assets. Amortization on assets under capital leases is provided on a
straight-line basis over the lesser of the useful lives of the related assets or
the terms of the leases.
During fiscal 1997, the Company experienced reduced levels of revenue and
increased costs. Also in fiscal 1997 the Company shut down its melter and
certain related equipment which it does not intend to use in the foreseeable
future and as such, the Company adjusted the asset values to their estimated
fair value. As a result, the Company has taken a charge in the fourth quarter
pursuant to SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of" in the amount of $5,711,567.
Cash Equivalents
- ----------------
The Company considers all highly-liquid investments with an original maturity of
three months or less to be cash equivalents.
Marketable Securities
- ---------------------
The Company considers all marketable securities to be available for sale. These
securities were carried at cost which approximated fair value at June 30, 1996.
Deferred Financing Costs
- ------------------------
Deferred costs include costs related to obtaining debt financing, and are being
amortized under the interest method of accounting. (See Note 9).
Income Taxes
- ------------
Deferred income tax assets and liabilities are recorded for differences between
the financial statement and tax bases of assets and liabilities that will result
in taxable or deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
F-11
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
2. Summary of Significant Accounting Policies (continued)
------------------------------------------------------
Process Development Costs
- -------------------------
Process development costs represent research and development associated with the
Company's CRT glass processing and ALUMAGLASS(TM) product lines (technologies)
in fiscal 1996. No such costs were incurred in fiscal 1997.
Investment Tax Credit
- ---------------------
The Company received a gross cash refund of $566,547 related to a New York State
investment tax credit in June 1997. However, the Company has recorded a $235,000
reserve against this amount as the Company may be required to refund such amount
pursuant to a recapture provision. The net amount of $331,547 is included in
"Other Income."
Extraordinary Item
- ------------------
The consolidated statement of operations for the fiscal year ended June 30, 1996
includes an extraordinary charge of $442,000, representing the costs of
obtaining bridge financing in the form of Bridge Notes totaling $2,225,000 which
were repaid out of the proceeds of the Company's IPO (see Note 4).
Net Loss Per Common Share
- -------------------------
The net loss per common share is based on the net loss for the year, divided by
the weighted average number of common shares outstanding during the year
(excluding the common shares that were deposited into escrow in connection with
the Company's initial public offering-see Note 7). Common Stock equivalents such
as stock options and warrants are not included as their effect is anti-dilutive.
However, immediately prior to the closing of the Company's initial public
offering, the Company's Series A Preferred Stock was converted into 1,023,054
shares of common stock (see Note 7). The weighted average number of these
converted shares, at June 30, 1997 and 1996 were 1,023,054, and they have been
included in the related net loss per common share calculation. Therefore, the
weighted average number of common shares outstanding at June 30, 1997 and 1996
were 4,773,311 and 1,559,908, respectively.
Employee Stock Option Plan
- --------------------------
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
Interpretations in accounting for its employee stock options. Under APB 25, when
the exercise price of the Company's employee stock options equals or is greater
than the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
F-12
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
2. Summary of Significant Accounting Policies (continued)
------------------------------------------------------
Pending Accounting Pronouncements
- ---------------------------------
SFAS No. 128 "Earnings Per Share," SFAS No. 130 "Reporting Comprehensive Income"
and SFAS No. 131 "Disclosure about segments of an Enterprise and Related
Information" are not effective for the Company until December 31, 1997, June 30,
1999 and June 30, 1999, respectively. Management believes these standards will
not have a material impact on the Company.
3. Debt
----
Long-term debt consists of the following obligations as of June 30, 1997 and
1996:
<TABLE>
<CAPTION>
June 30,
------------------------
1997 1996
----------- ----------
<S> <C> <C>
Dunkirk--Chautauqua Region Industrial Development
Corporation (CRIDA) mortgage note (collateralized by a
mortgage on real property having a carrying value of
approximately $1,510,100 at June 30, 1997) payable in
monthly installments of $4,285 including interest at a
variable rate (6% at June 30, 1997) through October 1,
2004. $ 304,432 $ 336,529
Dunkirk--Term loans with a bank payable in 84 monthly
installments of $40,944 including principal and
interest at the prime rate (8.50% at June 30, 1997)
through December 27, 2001. Collateral for this loan is
a first purchase money lien on the Company's machinery
and equipment, and repayment is guaranteed by the
former Dunkirk president and the New York State Job
Development Authority (JDA). (See Note 9). 1,887,871 2,192,379
Dunkirk--Subordinated mortgage note (collateralized by a
mortgage on real property having a carrying value of
approximately $1,510,100 at June 30, 1997) payable in
monthly installments of $4,956 including interest at
10% through January 21, 2004. 288,516 317,517
Dunkirk--Chautauqua County Industrial Development
Agency (CCIDA) subordinated note payable in monthly
payments of $1,485 including interest at 7% through
June 1, 1999. The note contains various restrictive
covenants, is guaranteed by the former Dunkirk
president and is collateralized by a subordinated
security interest in certain machinery and equipment
having a carrying value of approximately $5,163,200. 33,170 49,295
F-13
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
3. Debt (continued)
----------------
June 30,
------------------------
1997 1996
----------- ----------
Dunkirk--Southern Tier Enterprise Development Organization
(STEDO) subordinated note payable in monthly payments
of $1,169 including interest at 8% through July 1,
2002. The note contains various restrictive covenants,
is guaranteed by the former Dunkirk president and is
collateralized by a subordinated security interest in
certain equipment having a carrying value of
approximately $5,163,200. 48,727 59,974
Dunkirk--New York Job Development Authority (Al Tech)
subordinated note payable in monthly payments of $1,887
including interest at 5% through September 1, 1999. The
note contains various restrictive covenants, is
guaranteed by the former Dunkirk president and is
collateralized by a subordinated security interest in
certain equipment having a carrying value of
approximately $5,163,200. 48,096 67,799
Dunkirk--Chautauqua County Industrial Development Agency
solid waste disposal facility bonds payable in
quarterly payments of interest only through September
1, 1998 at a rate of 11.5% subject to adjustment upon
the achievement of stated debt service coverage ratio.
Beginning December 1, 1998 and annually through
December 1, 2010 principal payments which increase from
$325,000 to $1,025,000 are payable with interest
continuing to be paid quarterly. The bond security
agreement contains various restrictive covenants and is
collateralized by a security interest in the equipment
acquired with the proceeds (see Notes 5 and 9). 8,000,000 8,000,000
F-14
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
3. Debt (continued)
----------------
June 30,
------------------------
1997 1996
----------- ----------
Dunkirk--Subordinated unsecured debt from various electronic
companies; OI-NEG TV Products, Inc. (Techneglas),
Thomson Consumer Electronics, Sanyo Manufacturing
Corp., Toshiba Display Devices and Hitachi Electronic
Devices (USA), begin with quarterly payments of
interest only at prime plus 2% (10.50% at June 30,
1997) through a range of dates ending January 1, 1999.
Beginning between March 31, 1998 and April 1, 1999 and
going through a range of dates with the final
subordinate debt issue ending January 1, 2004 quarterly
installments of principal plus interest at prime plus
2% are payable. The first five quarterly interest
payments for a portion of the debt has been converted
by the Company into subordinated notes ($43,789
converted at June 30, 1997) payable in quarterly
payments of interest only at 8% for nineteen quarters
and the principal amount plus interest being due
between April 1, 1999 through April 1, 2000. 703,789 695,507
----------- -----------
Total Debt 11,314,601 11,719,000
Less current maturities 530,258 437,285
----------- -----------
$10,784,343 $11,281,715
=========== ===========
</TABLE>
The Company has agreed to indemnify and hold harmless the former Dunkirk
president with respect to guarantees made by him for obligations of Dunkirk. In
addition, the Company has agreed to use its reasonable efforts to cause the
release of such guarantees.
Maturities on long-term debt for the next five years are as follows (see Note
9):
June 30,
1998 $ 530,258
1999 1,044,448
2000 1,107,982
2001 990,836
2002 865,939
Thereafter 6,775,138
------------
$ 11,314,601
============
F-15
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
3. Debt (continued)
----------------
The carrying amounts and fair values of long-term borrowings consisted of the
following at June 30, 1997:
Carrying Amount Fair Value
--------------- ----------
5% subordinated note .............. $ 48,096 $ 45,206
6% mortgage note .................. 304,432 262,189
7% subordinated note .............. 33,170 32,023
8% subordinated note .............. 48,727 46,420
8.50% secured bank loan ........... 1,887,871 1,887,871
10% subordinated mortgage note .... 288,516 284,256
Variable rate debt ................ 703,789 703,789
11.5% solid waste disposal bonds .. 8,000,000 8,000,000
----------- -----------
Total Long-Term Borrowings ... $11,314,601 $11,261,754
=========== ===========
The fair values of fixed long-term borrowings were calculated as the present
value of future cash flows discounted at the Company's estimated current
borrowing rate of the respective issues ranging from prime plus 2% to prime plus
3% (See Note 9).
4. Notes Payable
-------------
During the period commencing September 1995 and ending November 1995, the
Company issued $700,000 of 6% convertible promissory notes, in anticipation of
additional equity financing, of which $50,000 was paid during fiscal 1996 (see
below).
During the period commencing December 7, 1995 and ending December 15, 1995, the
Company obtained additional bridge financing ("bridge loan") in the principal
amount of $2,225,000, (recorded, net of the value assigned to the attached
warrants, at $2,158,250) which includes the conversion of $650,000 of the
$700,000 convertible promissory notes discussed above. The bridge loan was
issued through a private placement arranged by the underwriter of the Company's
IPO. This bridge loan was comprised of bridge units, each consisting of a bridge
note in the principal amount of $50,000 bearing interest at the rate of 10% per
annum, and warrants to purchase 25,000 shares of the Company's common stock at
an exercise price of $4.00 per share commencing one year from the date of
issuance and expiring three years after the initial closing date of the bridge
loan offering.
F-16
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
4. Notes Payable (continued)
-------------------------
In March 1996, the Company issued $200,000 of promissory notes, due upon the
earlier of the closing of the IPO and six months from the date issued, to
certain directors, officers and security holders which bore interest at 10% per
annum. In May 1996, the Company issued an additional $200,000 of promissory
notes to a securityholder with identical terms to the notes issued in March
1996.
All of the outstanding bridge notes and promissory notes were repaid at the
closing of the IPO from the proceeds thereof. Concurrent with the closing of the
offering, the common stock warrants issued to the bridge note holders were
converted into an equivalent number (1,112,500) of Class A warrants, each of
which entitles the holder to purchase, at an exercise price of $5.85, subject to
adjustment, one share of common stock and one Class B warrant. Each Class B
warrant entitles the holder to purchase one share of common stock at an exercise
price, subject to adjustment, of $7.80 (see Note 7).
During fiscal 1996 Dunkirk repaid a $262,500 balance plus accrued interest to
close a $300,000 line of credit arrangement with a bank. In June, 1996 Dunkirk
repaid a $124,000 demand note plus accrued interest payable to a bank.
5. Restricted Assets
-----------------
Dunkirk has $158 and $72,859 of project funds available at June 30, 1997 and
June 30, 1996, respectively, for the acquisition of qualified machinery and
equipment from the unexpended balance on the sale of the solid waste disposal
facility bonds. In addition, a debt service reserve fund equivalent to 10% of
the bonds plus interest is required to be deposited in escrow ($419,963 at June
30, 1997 and $840,442 at June 30, 1996), and may be released under certain
conditions (see Note 9).
Dunkirk also has a debt service reserve fund of $449,190 at June 30, 1997 and
$428,015 at June 30, 1996, including interest, deposited in escrow as required
by the JDA for payment of the final installments due on the related debt (see
Note 9).
6. Commitments and Contingencies
-----------------------------
The Company is a party to litigation commenced by the Company in the Supreme
Court of New York, County of Chautauqua, against a general contractor hired to
construct the improved abrasives finishing area, which was a part of the
Company's capital expansion program. The contractor commenced work in April
1995, but was asked to stop work in November 1995 following significant cost
overruns, problems and delays in construction and disputes with the Company over
the scope of the work to be performed by the contractor. The Company has served
the contractor with its complaint, alleging, among other things, breach of
contract, fraud and defamation, and seeks damages in excess of $1,000,000. The
contractor has served an answer with affirmative defenses and counterclaims
against the Company for
F-17
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
6. Commitments and Contingencies (continued)
-----------------------------------------
breach of contract. The aggregate amount of the claims by the contractor against
the Company is $483,000 plus interest.
The Company does not believe that there will be a material adverse outcome in
the foregoing dispute.
The Company has entered into capital leases for machinery and equipment that may
be purchased on expiration of the leases on various dates through 2000. The net
asset value of property under capitalized leases, included in property, plant
and equipment, is as follows:
June 30,
------------------------
1997 1996
---- ----
Machinery and equipment ............ $353,686 $354,352
Less accumulated amortization....... 289,382 217,375
-------- --------
$ 64,304 $136,977
======== ========
Lease amortization of $72,637 and $101,531 for the years ended June 30, 1997 and
1996, respectively, is included in cost of goods sold.
Future minimum lease payments together with the present value of the net minimum
lease payments for capitalized leases as of June 30, 1997 is as follows:
Capitalized Operating
Leases Leases
----------- ---------
June 30,
1998......................................... $41,486 $75,780
1999......................................... 27,179 75,780
2000......................................... 22,854 50,520
2001......................................... -- --
2002......................................... -- --
-------- --------
Total net minimum lease payments............. 91,519 $202,080
========
Less amount representing interest............ 16,610
-------
Present value of net minimum lease payments.. $74,909
=======
Total rent expense of the Company for the periods ended June 30, 1997 and 1996
was $73,674 and $99,530, respectively.
F-18
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
7. Capital Stock
-------------
On May 16, 1996, the Company completed an initial public offering of the
Company's common stock, Class A warrants and Class B warrants. Concurrent with
the closing of the IPO, the Company's Preferred Stock ($.001 par value,
authorized 15,000,000 shares) was converted into 1,023,054 shares of common
stock as a result of the restatement of the Company's Certificate of
Incorporation which adjusted the Preferred Stock conversion ratio due to
anti-dilution provisions. In addition, preferred stock warrants became
exercisable for common stock (adjusted for a 0.1218-for-one reverse common stock
split-see Note 1) and the number of common shares into which certain common
stock warrants and all preferred stock warrants are convertible increased by a
factor of approximately 2.84 upon the effective date of the IPO due to the fact
that those warrants had protection against the dilutive effect of the valuation
placed on the Company upon the IPO. Also, upon the effective date of the IPO,
the Company adjusted the exercise price of all the options and warrants
outstanding prior to the IPO to $4.40 with some warrants having an exercise
price equal to $4.40 plus a premium in certain circumstances. All amounts
disclosed related to options and warrants have been restated to reflect the
adjusted exercise prices.
In connection with the IPO, 740,559 shares of the Company's common stock and
options to purchase 71,923 shares of Common Stock (the "Escrow Securities") were
deposited into escrow by the holders thereof. The Escrow Securities will only be
released from escrow when the Company attains certain earnings levels or the
market price of the Company's common stock achieves certain levels. These Escrow
Securities are subject to cancellation if such conditions are not achieved.
The Company has issued the following common stock purchase warrants, all of
which expire between the fifth and seventh anniversary of the date of grant:
F-19
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
7. Capital Stock (continued)
-------------------------
<TABLE>
<CAPTION>
Number of Exercise
Shares Price
--------- --------
<S> <C> <C> <C>
Outstanding at July 1, 1995 ........................... 316,771 4.77-5.28
Granted July 21, 1995 through December 15, 1995 .... 1,114,933 4.00-4.40
Canceled ........................................... (1,112,500) 4.00
----------
Outstanding at June 30, 1996 .......................... 319,204 4.40-5.28
Granted July 1, 1996 through June 30, 1997 ......... -- --
Canceled July 1, 1996 through June 30, 1997 ........ -- --
----------
Outstanding at June 30, 1997 .......................... 319,204 4.40-5.28
==========
</TABLE>
In conjunction with its initial public offering, the Company has issued the
following Class A and Class B warrants, all of which expire on the fifth
anniversary of the date issued:
<TABLE>
<CAPTION>
Class A Class B
---------------------- ----------------------
Number of Exercise Number of Exercise
Shares Price Shares Price
--------- -------- --------- --------
<S> <C>
Outstanding at July 1, 1995 ............ -- -- -- --
Issued May 16, 1996 and June 7, 1996.. 4,639,550 $ 5.85 3,527,050 $ 7.80
--------- ---------
Outstanding at June 30, 1997 and 1996... 4,639,550 3,527,050
========= =========
</TABLE>
The Company maintains an Employee Stock Option Plan (the "Employee Plan") and a
Non-Employee Director Stock Option Plan (the "Non-Employee Plan"). Stock options
may be granted at the discretion of the Board of Directors. The Company has
reserved 440,000 and 70,400 shares of its common stock for issuance upon the
exercise of options granted under the Employee and Non-Employee Plans,
respectively. The Non-Employee Plan options are exercisable in full one year
after the date of grant and expire ten years from the date of grant. The
Employee Plan options primarily vest one-third on each of the first three
anniversaries of the date of grant and expire on the seventh anniversary of the
date of grant. The Company grants stock options at exercise prices equal to or
greater than the fair market value of the Company's common stock on the date of
grant.
On April 21, 1996, the Company granted, effective as of the effective date of
the IPO, non-qualified options to purchase 50,000 shares of its common stock at
an exercise price of $4.40 per share to an executive officer and director. These
options are not part of the Employee Plan and Non-Employee Plan, and were
canceled in June of 1997 with the resignation of the executive officer and
director.
F-20
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
7. Capital Stock (continued)
-------------------------
The following table summarizes the activity in options under the Employee and
Non-Employee Plans, plus options granted on a non-qualified basis:
Weighted
Average
Number Exercise
of Shares Price
--------- --------
EMPLOYEE PLAN OPTIONS
Outstanding at July 1, 1995... 38,083 4.40
Granted ................... 38,424 4.40
Canceled and expired ...... (6,884) 4.40
-------
Outstanding at June 30, 1996.. 69,623 4.40
Granted ................... 148,000 4.40
Canceled .................. (48,543) 4.40
-------
Outstanding at June 30, 1997.. 169,080 4.40
=======
NON-EMPLOYEE PLAN OPTIONS
Outstanding at July 1, 1995 6,266 4.40
Granted ................... 1,217 4.40
-------
Outstanding at June 30, 1996 7,483 4.40
Granted ................... 50,847 3.16
-------
Outstanding at June 30, 1997.. 58,330 3.32
=======
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
at June 30, 1997 At June 30, 1997
----------------------------------- ----------------------------
Weighted Average
Number of Weighted Average Contractual Life Number of Weighted Average
Range Shares Exercise Price (Years) Shares Exercise Price
--------- ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$3.125 50,000 $3.13 10.00
$4.40-$5.00 177,410 4.40 6.39 75,557 $4.40
------- ------
TOTAL 227,410 $4.12 7.18 75,557 $4.40
======= ======
</TABLE>
Of the total options outstanding under the plans, 75,557 and 24,081 were
exercisable at June 30, 1997 and 1996, respectively.
F-21
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
7. Capital Stock (continued)
-------------------------
At June 30, 1997, the Company has reserved 510,400 shares of Common Stock for
the exercise of options.
Pro forma information regarding net loss and net loss per share is required by
SFAS No. 123, and has been determined as if the Company had been accounting for
its employee and non-employee director stock options under the fair value method
of that Statement. The fair value of these options was estimated at the date of
grant using a Black-Scholes option pricing model for 1997 and the Minimum Value
Method for 1996 prior to becoming a public company in May 1996, with the
following assumptions for 1997 and 1996, respectively: weighted-average
risk-free interest rate of 6.0% for both years; volatility factors of the
expected market price of the Company's common stock of .778 for fiscal 1997 and
a weighted average expected life of the options of 7.36 for fiscal 1997 and 6.08
for fiscal 1996.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee and non-employee director stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
and non-employee director options.
For purposes of pro forma disclosures, the estimated fair value of the options
granted in 1997 and 1996 is amortized to expense over the options' vesting
period. The weighted-average grant date fair value of options granted during
fiscal years 1997 and 1996 were $2.79 and $1.30, respectively. The Company's pro
forma information follows:
1997 1996
---- ----
Pro Forma net loss..................... $(13,127,518) $(4,576,091)
Pro Forma loss per common share........ $(2.75) $(2.93)
The pro forma disclosures presented above for fiscal year 1996 reflect
compensation expense only for options granted in fiscal 1996 and for fiscal 1997
only for options granted in fiscal years 1996 and 1997. These amounts may not
necessarily be indicative of the pro forma effect of SFAS No. 123 for future
periods in which options may be granted.
F-22
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
7. Capital Stock (continued)
-------------------------
Effective as of August 26, 1996 ("Effective Date"), the Company approved and
adopted the 1996 Long-Term Employee Incentive Plan (the "Plan"). Under the Plan,
payment of awards may be in cash or the common stock of the Company or a
combination of both, at the option of the Company. The maximum number of shares
of the Company's common stock available for awards under the Plan is 800,000,
subject to adjustments as provided in the Plan. The Plan will terminate without
further action of the board of directors on the tenth anniversary of the
Effective Date. In October 1996, the Company issued a total of 90,000 shares (at
par value and, accordingly, compensation expense is being recognized) to two
former officers of the Company under the Plan which shares vest January 1, 1998.
Effective in July 1997, the Company issued a total of 600,000 options to two
officers of the Company which vest 20% at date of grant and 20% for each of the
next four years.
8. Income Taxes
------------
There was no income tax expense/benefit for the Company for the years ended June
30, 1997 and 1996.
Following is a reconciliation of income tax expense (credit) to the amount based
on the U.S. statutory rate of 34% for the years ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
For the year ended June 30,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Income tax benefit based on U.S. statutory rate... $(4,370,758) $(1,548,003)
Current year addition to the (federal) valuation
allowance ...................................... 4,370,758 1,548,003
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
The significant components of the Company's deferred tax assets and liabilities
are as follows:
June 30,
---------------------------
1997 1996
----------- -----------
Deferred tax assets:
Deferred revenue ..................... $ 196,778 $ 223,163
Reserve for disposal ................. 285,240 294,800
Start-up costs ....................... 57,334 86,000
Fixed assets ......................... 1,422,000
Tax loss carryforward ................ 8,228,700 4,584,808
----------- -----------
Total deferred tax assets .............. 10,190,052 5,188,771
Valuation allowances (federal & state).. 10,190,052 5,188,771
----------- -----------
Net deferred tax assets ................ $ -- $ --
=========== ===========
F-23
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
8. Income Taxes (continued)
------------------------
The above net deferred tax assets have been reserved because it is not more
likely than not that they would be recognized.
At June 30, 1997, the Company has approximately $20.6 million of net operating
loss carryforwards, which expire between 2006 and 2012. The Tax Reform Act of
1986 enacted a complex set of rules (Section 382) limiting the potential
utilization of net operating loss carryforwards in periods following a corporate
"ownership change". In general, an ownership change is deemed to occur if the
percentage of stock of a loss corporation owned (actually, constructively and,
in some cases, deemed) by one or more "5% shareholders" has increased by more
than 50 percentage points over the lowest percentage of such stock owned during
a three year testing period. Although a comprehensive evaluation has not yet
been performed, it is likely that due to prior shifts in ownership (the Dunkirk
merger and the completion of the IPO) and anticipated shifts in ownership (See
Note 9), the Company's ability to utilize its net operating loss carryforwards
could be severly limited.
9. Subsequent Events
-----------------
In September 1997 the beneficial holders of Dunkirk's $8,000,000 Chautauqua
County Industrial Development Agency Solid Waste Disposal Facility Bonds (the
"IDA Bonds") retired the IDA Bonds in exchange for receipt of a cash payment of
$1,620,000 and the remaining balance of a related debt service reserve fund
which has been reduced for interest payments made to the beneficial holders
during fiscal 1997 through September 1, 1997. The cash payment was made
utilizing proceeds from the private placement discussed below. This retirement
will result in a net pretax gain to the Company of approximately $6,190,000
which will be recorded in the first quarter of fiscal 1998. The Company will
also write-off approximately $330,000 of deferred financing costs relating to
such debt. If Dunkirk is deemed to be solvent immediately prior to the time of
such repayment, the Company will recognize taxable income for the debt
forgiveness in its tax year ending June 30, 1998. The amount of such income may
be offset by net operating loss carryforwards ("NOLs"), subject to the possible
limitations discussed in Note 8. Even if sufficient NOLs were available to
offset such taxable income after the limitations described below, the Company
may still be subject to alternative minimum tax. To the extent that Dunkirk is
deemed to be insolvent immediately prior to such repayment by an amount which
equals or exceeds the amount of debt forgiveness, the Company will not recognize
taxable income from such repayment; however, certain of Dunkirk's tax attributes
(such as NOLs) would be subject to reduction and would not be available to
offset future income from operations, if any. For this purpose, the amount of
insolvency is defined to be the excess of Dunkirk's liabilities over the fair
value of its assets. An independent appraisal of the fair value of Dunkirk's
assets has not been completed at this time to determine Dunkirk's solvency.
The New York State Job Development Authority (JDA) issued its guaranties (the
"Guaranties)") in favor of Key Bank of New York ("Key Bank") with respect to two
promissory notes (the "term loans") issued by Dunkirk and payable to the order
of Key Bank. The JDA has agreed to exercise its option under the
F-24
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
9. Subsequent Events (continued)
-----------------------------
Guaranties to make the payments required under the term loans directly to Key
Bank, provided that Key Bank applies the amount currently held in the Company's
related debt service reserve fund to reduce the principal amount of the term
loans. Upon the assignment of the term loans and related loan documents to the
JDA, the JDA has also agreed to defer monthly payments of principal and interest
due from Dunkirk under each term loan through January 1998 until the maturity
date of such loans. Interest will continue to accrue on the principal amount and
interest so deferred will be payable at maturity.
In July and August 1997, the Company borrowed an aggregate of $500,000 (the
"1997 Bridge Loan") for general working capital purposes. In connection with the
1997 Bridge Loan, the Company issued warrants to purchase 100,000 shares of
Common Stock at an exercise price equal to $1 5/16. The 1997 Bridge Loan was
repaid in full plus accrued interest at 12% per annum on September 8, 1997 from
proceeds from the private placement discussed below.
The Company has entered into a placement agency agreement for a private
placement of the Company's preferred stock. The private placement consists of a
minimum of 300,000 and a maximum of 500,000 shares of Series A Convertible
Preferred Stock (the "Preferred Stock") with an option for the Placement Agent
to sell up to an additional 300,000 shares to cover over-allotments, if any,
(the Preferred Stock is to be sold in units of 10,000) with a par value of $.001
per share and a stated value of $10 per share. Each share of Preferred Stock is
initially convertible into eight shares of common stock at a conversion price of
$1.25 per share, subject to adjustment based on the lesser of $1.25 and the
prevailing average market price of the common stock immediately preceding any
subsequent closing, if any. Commencing 12 months from the final closing of the
private placement, the holders of the Preferred Stock are entitled to receive
dividends payable in cash or, at the option of the Company, in additional shares
of Preferred Stock at the rate of 10% per annum. The Placement Agent is entitled
to receive a cash commission of 9% and a non-accountable expense allowance of 4%
of the total proceeds. The Placement Agent is also entitled to receive warrants
to purchase shares of the Company's Preferred Stock equal to 10% of the total
shares issued at an exercise price equal to 110% of the offering price of such
shares. Through September 18, 1997, 414,500 shares of Preferred Stock had been
sold, with net proceeds (after deducting the placement agent commissions and
expenses - see above) to the Company of $3,606,150.
In August 1997, The Company's Board of Directors authorized an increase of the
authorized number of the Company's common shares of up to a maximum of 60
million. This is subject to ratification of the Company's stockholders.
F-25
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------- ----------------------
2.1* Agreement and Plan of Reorganization dated August 16, 1994, among
the Company, CTI Acquisition Corporation, Dunkirk International
Glass and Ceramics Corporation ("Dunkirk") and certain
shareholders of Dunkirk listed on the signature pages thereto
3.1* Amended and Restated Certificate of Incorporation of the Company
3.2 Certificate of Designation of Series A Convertible Preferred
Stock
3.3* By-laws of the Company
4.1* Form of Warrant Agreement, including Form of Class A and Class B
Warrant Certificates
4.2* Form of Underwriter's Unit Purchase Option
4.3* Term Note No. 2 dated as of January 27, 1995, between Key Bank of
New York and Dunkirk
4.4* Security Agreement dated as of January 27, 1995, between Key Bank
of New York and Dunkirk
4.5* Debt Service Reserve Agreement dated as of January 27, 1995,
between Key Bank of New York and Dunkirk
10.1* Conversion Technologies International, Inc. 1994 Employee Stock
Option Plan, As Amended
10.2* Conversion Technologies International, Inc. 1994 Stock Option
Plan for Non-Employee Directors, As Amended
10.3 Conversion Technologies International, Inc. 1996 Long-Term
Employee Incentive Plan, As Amended
10.4 Consulting Agreement dated March 1, 1995 between the Company and
Eckardt C. Beck, As Amended
10.5 Employment Agreement dated as of August 1, 1997 between the
Company and William L. Amt
10.6 Employment Agreement dated as of July 2, 1997 between the Company
and Jack D. Hays, Jr.
10.7 Employment Agreement dated as of July 2, 1997 between the Company
and Richard H. Hughes
10.8 Consulting Agreement dated as of June 4, 1997, between the
Company and Harvey Goldman
10.9* Form of Indemnification Agreement
10.10 Termination of Lease Agreement dated as of September 4, 1997
between County of Chautauqua Industrial Development Agency and
Dunkirk
<PAGE>
Exhibit
Number Description of Exhibit
------- ----------------------
10.11 Bill of Sale dated as of September 4, 1997 between County
Chautauqua Industrial Development Agency and Dunkirk
10.12 Termination of Security Agreement dated as of September 4, 1997
between County of Chautauqua Industrial Development Agency and
Dunkirk
10.13 Release of Company Guaranty dated as of September 4, 1997 between
United States Trust Company of New York and Dunkirk
10.14 Release of Corporate Guaranty dated as of September 4, 1997
between United States Trust Company of New York and the Company
10.15 Lease Agreement dated July 15, 1997 between Koger Equity, Inc.
and the Company
10.16 Termination Agreement dated as of June 30, 1997 between the
Company, CTI Acqsub-II, Inc., and Octagon, Inc.
10.17* Sludge and Mixed Cullet Purchase Agreement dated January 1994,
between Toshiba Display Devices, Inc. and Dunkirk
10.18* Clean Cullet Sale Agreement dated as of August 27, 1993, between
OI-Neg TV Products, Inc. and Dunkirk
10.19 Technology Purchase Agreement dated as of June 30, 1997 between
Advanced Particle Technologies, Inc. and Vangkoe Industries, Inc.
10.20 Distributor Agreement dated as of June 30, 1997 between Advanced
Particle Technologies, Inc. and Vangkoe Industries, Inc.
10.21* Consulting Agreement dated as of May 5, 1995, among the Company,
Technology Funding Partners III, L.P. and Technology Funding
Venture Partners V, An Aggressive Growth Fund, L.P.
10.22* Registration Rights Agreement dated as of May 5, 1995, among the
Company, Technology Funding Partners III, L.P. and Technology
Funding Venture Partners V, An Aggressive Growth Fund, L.P.
10.23* Registration Rights Agreement dated as of April 21, 1994, among
the Company, Palmetto Partners, Ltd., Harvey Goldman and Donald
R. Kendall, Jr.
10.24* Registration Rights Agreement dated as of August 19, 1994, among
the Company and certain former Dunkirk stockholders
10.25* Warrant for the Purchase of Shares of Series A Convertible
Preferred Stock issued to Paramount Capital, Inc. by the Company
10.26* Series A Preferred Stock Purchase Agreement dated as of May 5,
1995, among the Company, Technology Funding Partners III, L.P.
and Technology Funding Venture Partners V, An Aggressive Growth
Fund, L.P.
- 2 -
<PAGE>
Exhibit
Number Description of Exhibit
------- ----------------------
10.27 Form of Placement Agency Agreement between the Company and
Placement Agent
10.28 Form of Subscription Agreement between the Company and various
subscribers of Series A Preferred Stock
10.29 Form of Placement Agent Warrant
10.30 Form of Financial Advisory Services Agreement between the Company
and Placement Agent
10.31 Form of Warrant issued in connection with Senior Secured Line of
Credit Agreement
10.32 Letter from Empire State Development Corporation ("ESDC") to
Dunkirk dated July 22, 1997 confirming its guarantee of the Key
Bank Note
10.33 Letter from Key Bank to ESDC dated July 30, 1997 confirming that
it will not exercise any remedies under the Key Bank Note and
will execute documents to assign the Key Bank Note to ESDC
11.0 Statement of Computation of Net Loss Per Share
21 Subsidiaries of the Company
27 Financial Data Schedule for the year ended June 30, 1997
* Incorporated by reference to the exhibits to the Company's Registration
Statement on form SB-2, Registration No. 333-00756.
All other Exhibits filed herewith.
- 3 -
CERTIFICATE OF DESIGNATION
of
SERIES A CONVERTIBLE PREFERRED STOCK
of
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
CONVERSION TECHNOLOGIES INTERNATIONAL, INC., a corporation organized
and existing under the laws of the State of Delaware (the "Corporation"), does
hereby certify that, pursuant to the authority conferred on the Board of
Directors of the Corporation by the Amended and Restated Certificate of
Incorporation, as amended to date (the "Certificate of Incorporation"), of the
Corporation and in accordance with Section 151 of the General Corporation Law of
the State of Delaware, the Board of Directors of the Corporation adopted the
following resolution establishing a series of 880,000 shares of Preferred Stock
of the Corporation designated as "Series A Convertible Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the Board of
Directors of this Corporation by the Certificate of Incorporation, a series
of Preferred Stock, par value, $.001 per share, of the Corporation is
hereby established and created, and that the designation and number of
shares thereof and the voting and other powers, preferences and relative,
participating, optional or other rights of the shares of such series and
the qualifications, limitations and restrictions thereof are as follows:
Series A Convertible Preferred Stock
------------------------------------
1. Designation and Amount, and Definitions.
----------------------------------------
(a) There shall be a series of Preferred Stock designated as "Series A
Convertible Preferred Stock" and the number of shares constituting such series
shall be 880,000, subject to adjustment as provided herein. Such series is
referred to herein as the "Series A Preferred Stock". Such number of shares may
be increased prior to the Final Closing Date (as defined below) or decreased by
resolution of the Board of Directors of the Corporation; provided, however, that
no decrease shall reduce the number of shares of Series A Preferred Stock to
fewer than the number of shares then issued and outstanding.
<PAGE>
(b) As used in this Certificate of Designation, the following terms
shall have the following meanings, unless the context otherwise requires:
(i) "Market Price" shall mean the average Closing Bid Price (as
defined below), for the thirty (30) consecutive trading days (as
defined below), ending with the trading day prior to the date as of
which the Market Price is being determined, provided that if the
prices referred to in the definition of Closing Bid Price cannot be
determined for such period, "Market Price" shall mean Fair Market
Value (as defined below).
(ii) "Fair Market Value" of any asset (including any security) means
the fair market value thereof as mutually determined by the
Corporation and the holders of a majority of the Series A Preferred
Stock then outstanding.
(iii) "Stock Market" shall mean, with respect to any security, the
principal national securities exchange on which such security is
listed or admitted to trading or, if such security is not listed or
admitted to trading on any national securities exchange, The Nasdaq
National Market System or The Nasdaq SmallCap Market (collectively,
"Nasdaq") or, if such security is not quoted on Nasdaq, the OTC
Bulletin Board or, if such security is not quoted on the OTC Bulletin
Board, the over-the-counter market as furnished by any NASD member
firm selected from time to time by the Corporation for that purpose.
(iv) The "Closing Bid Price" of any security, for each trading day,
shall mean the price at which such security was last exchanged on the
Stock Market during such trading day or, if there were no transactions
on such trading day, the average of the reported closing bid and asked
prices, regular way, of such security on the Stock Market on such
trading day.
(v) A "trading day" shall mean a day on which the Stock Market is open
for the transaction of business.
2. Dividends and Distributions.
----------------------------
(a) Commencing on the Reset Date (as defined in Subsection 4(a)
below), the holders of the Series A Preferred Stock shall be entitled to receive
cumulative dividends on each share of Series A Preferred Stock, payable in cash,
or at the option of the Company, in kind, at the rate of 10% per annum (computed
on the basis of a 360-day year of twelve 30 day months) of the Dividend Base
Amount (as defined below), payable semi-annually in arrears. If the Company
elects to pay in kind, such dividends shall be paid in additional duly
authorized, fully paid and non assessable shares of Series A Preferred Stock.
Such dividends shall accrue and accumulate whether or not they have been
declared and whether or not there are profits, surplus or other funds of the
Corporation legally available for the payment of dividends. The "Dividend Base
Amount" shall be $10.00 (subject to appropriate adjustment to reflect any stock
split, combination, reclassification or reorganization of the Series A Preferred
Stock).
-2-
<PAGE>
(b) In addition to the foregoing, subject to the prior and superior
rights of the holders of any shares of any series or class of capital stock
ranking prior and superior to the shares of Series A Preferred Stock with
respect to dividends, the holders of shares of Series A Preferred Stock shall be
entitled to receive, as, when and if declared by the Board of Directors of the
Corporation, out of assets legally available for that purpose, dividends or
distributions in cash, stock or otherwise.
(c) The Corporation shall not declare any dividend or distribution on
any Junior Stock, unless the Corporation shall have paid all accrued cumulative
dividends on the Series A Preferred Stock pursuant to Subsection 2(a), if any,
and shall, concurrently with the declaration of such dividend or distribution on
the Junior Stock, declare a like dividend or distribution, as the case may be,
on the Series A Preferred Stock in an amount per share equal to (x) the amount
of the dividend or distribution per share of Common Stock multiplied by (y) the
effective Conversion Rate at the time of such dividend or distribution.
(d) Any dividend or distribution (other than that referenced in
Subsection 2(a)) payable to the holders of the Series A Preferred Stock pursuant
to this Section 2 shall be paid to such holders at the same time as the dividend
or distribution on the Junior Stock or any other capital stock of the
Corporation by which it is measured is paid.
(e) All dividends or distributions declared upon the Series A
Preferred Stock shall be declared pro rata per share.
(f) Any reference to "distribution" contained in this Section 2 shall
not be deemed to include any distribution made in connection with or in lieu of
any Liquidation Event (as defined below).
(g) "Junior Stock" shall mean the Common Stock and any shares of
preferred stock of any series or class of the Corporation, whether presently
outstanding or hereafter issued, which are junior to the shares of Series A
Preferred Stock with respect to (i) the distribution of assets on any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, (ii)
dividends or (iii) voting.
3. Liquidation Preference.
-----------------------
(a) In the event of a (i) liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, (ii) a sale or other
disposition of all or substantially all of the assets of the Corporation or
(iii) any consolidation, merger, combination, reorganization or other
transaction in which the Corporation is not the surviving entity or shares of
Common Stock constituting in excess of 50% of the voting power of the
Corporation are exchanged for or changed into stock or securities of another
entity, cash and/or any other property (a "Merger Transaction") (items (i), (ii)
and (iii) of this sentence being collectively referred to as a "Liquidation
Event"), after payment or provision for payment of debts and other liabilities
of the Corporation, the holders of the Series A Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, whether such assets are capital, surplus or
earnings, before any payment or declaration and setting apart
-3-
<PAGE>
for payment of any amount shall be made in respect of any Junior Stock, an
amount equal to $13.50 per share plus an amount equal to all declared and/or
accrued unpaid dividends thereon; provided, however, in the case of a Merger
Transaction, such amount per share may be paid in cash, property (valued as
provided in Subsection 3(b)) and/or securities (valued as provided in Subsection
3(b)) of the entity surviving such Merger Transaction. If upon any Liquidation
Event, whether voluntary or involuntary, the assets to be distributed to the
holders of the Series A Preferred Stock shall be insufficient to permit the
payment to such stockholders of the full preferential amounts aforesaid, then
all of the assets of the Corporation to be distributed shall be so distributed
ratably to the holders of the Series A Preferred Stock on the basis of the
number of shares of Series A Preferred Stock held. A consolidation or merger of
the Corporation with or into another corporation, other than in a transaction
described in this Subsection 3(a) above, shall not be considered a liquidation,
dissolution or winding up of the Corporation or a sale or other disposition of
all or substantially all of the assets of the Corporation and accordingly the
Corporation shall make appropriate provision to ensure that the terms of this
Certificate of Designation survive any such transaction. All shares of Series A
Preferred Stock shall rank as to payment upon the occurrence of any Liquidation
Event senior to the Common Stock as provided herein and, unless the terms of
such series shall provide otherwise, senior to all other series of the
Corporation's preferred stock.
(b) Any securities or other property to be delivered to the holders of
the Series A Preferred Stock pursuant to Subsection 3(a) hereof shall be valued
as follows:
(i) In the case of securities not subject to an investment letter or
other similar restriction on free marketability:
(A) If traded on the Stock Market, the value shall be deemed to be
the Market Price of such securities as of the third day prior to
the date of valuation.
(B) If not traded on the Stock Market, the value shall be the Fair
Market Value of such securities.
(ii) In the case of securities for which there is an active public
market but which are subject to an investment letter or other
restrictions on free marketability, the value shall be the Fair Market
Value thereof, determined by discounting appropriately the Market
Price thereof.
(iii) In the case of all other securities and property, the value
shall be the Fair Market Value thereof.
If the holders of a majority of the Series A Preferred Stock and the Corporation
are unable to reach agreement on any valuation matter, such valuation shall be
submitted to and determined by a nationally recognized independent investment
bank selected by the Board of Directors of the Corporation and the holders of a
majority of the Series A Preferred Stock then outstanding (or, if such selection
cannot be agreed upon promptly, or in any event within ten days, then such
valuation shall be made by a nationally recognized independent investment
banking firm selected
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<PAGE>
by the American Arbitration Association in New York City in accordance with its
rules), the costs of which valuation shall be paid for by the Corporation.
4. Conversion.
-----------
(a) Right of Conversion. The shares of Series A Preferred Stock shall
be convertible, in whole or in part, at the option of the holder thereof and
upon notice to the Corporation as set forth in Subsection 4(b) below, into fully
paid and nonassessable shares of Common Stock and such other securities and
property as hereinafter provided. The initial conversion price per share of
Common Stock shall be equal to the lesser of (i) $1.25 and (ii) the Market Price
of the Common Stock as of the initial closing date of the issuance and sale of
the Series A Preferred Stock (the "Conversion Price") and shall be subject to
adjustment as provided herein. The rate at which each share of Series A
Preferred Stock is convertible at any time into Common Stock (the "Conversion
Rate") shall be determined by dividing the then existing Conversion Price into
$10.00.
Subject to adjustment pursuant to the provisions of Subsection 4(c)
below, in the event that the Conversion Price in effect at the time of each
Interim Closing Date (as defined below) and the Final Closing Date (as defined
below) is greater than the Market Price of the Common Stock as of (x) any
interim closing date of the issuance and sale of the Series A Preferred Stock
(each an "Interim Closing Date") or (y) the final closing date of the issuance
and sale of the Series A Preferred Stock (the "Final Closing Date"), then the
Conversion Price shall be adjusted to equal the lesser of any such Market Price.
If there is any change in the Conversion Price as a result of the preceding
sentence, then the Conversion Rate shall be changed accordingly as set forth
above.
The Board of Directors of the Corporation, or a committee designated
by it for such purpose, may specify an initial conversion price applicable to
the shares of Series A Preferred Stock issued at any closing lower than the
initial conversion price that would otherwise obtain pursuant to the preceding
paragraphs and, in the event an initial conversion price is so specified, it
shall be applicable to all shares of the Series A Preferred Stock.
The Corporation shall prepare a certificate signed by the Chief
Executive Officer or President, and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary, of the Corporation setting forth the
Conversion Rate as of the Final Closing Date, showing in reasonable detail the
facts upon which such adjusted Conversion Rate is based, and such certificate
shall forthwith be filed with the transfer agent of the Series A Preferred
Stock. A notice stating that the Conversion Rate has been adjusted pursuant to
the second preceding paragraph, or that no adjustment is necessary, and setting
forth the Conversion Rate in effect as of the Final Closing Date shall be mailed
as promptly as practicable after the Final Closing Date by the Corporation to
all record holders of the Series A Preferred Stock at their last addresses as
they shall appear in the stock transfer books of the Corporation.
The Conversion Price (subject to adjustments pursuant to the
provisions of Subsection 4(c) below) in effect immediately prior to the date
that is 12 months after the Final Closing Date of the issuance and sale of the
Series A Preferred Stock (the "Reset Date") shall be
-5-
<PAGE>
adjusted and reset effective as of the Reset Date if the average Closing Bid
Price of the Common Stock for the twenty (20) consecutive trading days
immediately preceding the Reset Date (the "12-Month Trading Price") is less than
135% of the then applicable Conversion Price (a "Reset Event"). Upon the
occurrence of a Reset Event, the Conversion Price shall be reduced to be equal
to the greater of (A) the 12-Month Trading Price divided by 1.35, and (B) 50% of
the then applicable Conversion Price. If there is any change in the Conversion
Price as a result of the preceding sentence, then the Conversion Rate shall be
changed accordingly as set forth above. The Corporation shall prepare a
certificate signed by the principal financial officer of the Corporation setting
forth the Conversion Rate as of the Reset Date, showing in reasonable detail the
facts upon which such Conversion Rate is based, and such certificate shall
forthwith be filed with the transfer agent of the Series A Preferred Stock. A
notice stating that the Conversion Rate has been adjusted pursuant to this
paragraph, or that no adjustment is necessary, and setting forth the Conversion
Rate in effect as of the Reset Date shall be mailed as promptly as practicable
after the Reset Date by the Corporation to all record holders of the Series A
Preferred Stock at their last addresses as they shall appear in the stock
transfer books of the Corporation.
(b) Conversion Procedures. Any holder of shares of Series A Preferred
Stock desiring to convert such shares into Common Stock shall surrender the
certificate or certificates evidencing such shares of Series A Preferred Stock
at the office of the transfer agent for the Series A Preferred Stock, which
certificate or certificates, if the Corporation shall so require, shall be duly
endorsed to the Corporation or in blank, or accompanied by proper instruments of
transfer to the Corporation or in blank, accompanied by irrevocable written
notice to the Corporation that the holder elects so to convert such shares of
Series A Preferred Stock and specifying the name or names (with address) in
which a certificate or certificates evidencing shares of Common Stock are to be
issued. The Corporation need not deem a notice of conversion to be received
unless the holder complies with all the provisions hereof. The Corporation will
instruct the transfer agent (which may be the Corporation) to make a notation of
the date that a notice of conversion is received, which date shall be deemed to
be the date of receipt for purposes hereof.
The Corporation shall, as soon as practicable after such deposit of
certificates evidencing shares of Series A Preferred Stock accompanied by the
written notice and compliance with any other conditions herein contained,
deliver at such office of such transfer agent to the person for whose account
such shares of Series A Preferred Stock were so surrendered, or to the nominee
or nominees of such person, certificates evidencing the number of full shares of
Common Stock to which such person shall be entitled as aforesaid, together with
a cash payment for adjustment of any fraction of a share as hereinafter
provided. Subject to the following provisions of this paragraph, such conversion
shall be deemed to have been made as of the date of such surrender of the shares
of Series A Preferred Stock to be converted, and the person or persons entitled
to receive the Common Stock deliverable upon conversion of such Series A
Preferred Stock shall be treated for all purposes as the record holder or
holders of such Common Stock on such date; provided, however, that the
Corporation shall not be required to convert any shares of Series A Preferred
Stock while the stock transfer books of the Corporation are closed for any
purpose, but the surrender of Series A Preferred Stock for conversion during any
period while such books are so closed shall become effective for conversion
immediately upon the reopening of such books as if the surrender had been made
on the date of such reopening, and the
-6-
<PAGE>
conversion shall be at the conversion rate in effect on such date. No
adjustments in respect of any dividends on shares surrendered for conversion or
any dividend on the Common Stock issued upon conversion shall be made upon the
conversion of any shares of Series A Preferred Stock.
All notices of conversion shall be irrevocable; provided, however,
that if the Corporation has sent notice of an event pursuant to Subsection 4(g)
hereof, a holder of Series A Preferred Stock may, at its election, provide in
its notice of conversion that the conversion of its shares of Series A Preferred
Stock shall be contingent upon the occurrence of the record date or
effectiveness of such event (as specified by such holder), provided that such
notice of conversion is received by the Corporation prior to such record date or
effective date, as the case may be.
(c) Adjustment of Conversion Rate and Conversion Price.
(i) Except as otherwise provided herein, in the event the Corporation
shall, at any time or from time to time after the original issue date
of the Series A Preferred Stock, (1) sell or issue any shares of
Common Stock for a consideration per share less than either (i) the
Conversion Price in effect on the date of such sale or issuance or
(ii) the Market Price of the Common Stock as of the date of the sale
or issuance, (2) issue any shares of Common Stock as a stock dividend
to the holders of Common Stock, or (3) subdivide or combine the
outstanding shares of Common Stock into a greater or lesser number of
shares (any such sale, issuance, subdivision or combination being
herein called a "Change of Shares"), then, and thereafter upon each
further Change of Shares, the Conversion Price in effect immediately
prior to such Change of Shares shall be changed to a price (rounded to
the nearest cent) determined by multiplying the Conversion Price in
effect immediately prior thereto by a fraction, the numerator of which
shall be the sum of the number of shares of Common Stock outstanding
immediately prior to the sale or issuance of such additional shares or
such subdivision or combination and the number of shares of Common
Stock which the aggregate consideration, if any, received (determined
as provided in subsection 4(c)(v)(E) below) for the issuance of such
additional shares would purchase at the greater of (i) the Conversion
Price in effect on the date of such issuance or (ii) the Market Price
of the Common Stock as of such date, and the denominator of which
shall be the number of shares of Common Stock outstanding immediately
after the sale or issuance of such additional shares or such
subdivision or combination. Such adjustment shall be made successively
whenever such an issuance is made.
(ii) In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Corporation with or into another entity
(other than a consolidation or merger in which the Corporation is the
continuing entity and which does not result in any reclassification,
capital reorganization or other change of outstanding shares of Common
Stock other than the number thereof), or in case of any sale or
conveyance to another entity of the property of the Corporation as, or
substantially as, an entirety (other than a sale/leaseback, mortgage
or other
-7-
<PAGE>
financing transaction), the Corporation shall cause effective
provision to be made so that each holder of a share of Series A
Preferred Stock shall be entitled to receive, upon conversion of such
share of Series A Preferred Stock, the kind and number of shares of
stock or other securities or property (including cash) receivable upon
such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock into which such share of Series A Preferred
Stock was convertible immediately prior to such reclassification,
capital reorganization or other change, consolidation, merger, sale or
conveyance. Any such provision shall include provision for adjustments
that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Subsection 4(c). The Corporation
shall not effect any such consolidation, merger or sale unless prior
to, or simultaneously with, the consummation thereof the successor (if
other than the Corporation) resulting from such consolidation or
merger or the entity purchasing assets or other appropriate entity
shall assume, by written instrument executed and delivered to the
transfer agent for the Series A Preferred Stock (the "Transfer
Agent"), the obligation to deliver to the holder of each share of
Series A Preferred Stock such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holders may be
entitled to receive and the other obligations under this Agreement.
The foregoing provisions shall similarly apply to successive
reclassifications, capital reorganizations and other changes of
outstanding shares of Common Stock and to successive consolidations,
mergers, sales or conveyances.
(iii) If, at any time or from time to time, the Corporation shall
issue or distribute to the holders of shares of Common Stock evidence
of its indebtedness, any other securities of the Corporation or any
cash, property or other assets (excluding an issuance or distribution
governed by one of the preceding subsections of this Subsection 4(c)
and also excluding cash dividends or cash distributions paid out of
net profits legally available therefor in the full amount thereof (any
such non-excluded event being herein called a "Special Dividend")),
then in each case the holders of the Series A Preferred Stock shall be
entitled to a proportionate share of any such Special Dividend as
though they were the holders of the number of shares of Common Stock
of the Corporation into which their shares of Series A Preferred Stock
are convertible as of the record date fixed for the determination of
the holders of Common Stock of the Corporation entitled to receive
such Special Dividend.
(iv) After each adjustment of the Conversion Price pursuant to this
Subsection 4(c), the Corporation will promptly prepare a certificate
signed by the Chief Executive Officer or President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary, of the Corporation setting forth: (i) the Conversion Price
as so adjusted, (ii) the Conversion Rate corresponding to such
Conversion Price and (iii) a brief statement of the facts accounting
for such adjustment. The Corporation will promptly file such
certificate with the Transfer Agent and cause a brief summary thereof
to be sent by ordinary first class mail to
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<PAGE>
each registered holder of Series A Preferred Stock at his or her last
address as it shall appear on the registry books of the Transfer
Agent. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of such adjustment. The
affidavit of an officer of the Transfer Agent or the Secretary or an
Assistant Secretary of the Corporation that such notice has been
mailed shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. The Transfer Agent may rely on the information
in the certificate as true and correct and has no duty or obligation
to independently verify the amounts or calculations set forth therein.
(v) For purposes of Paragraph 4(c)(i), the following provisions (A) to
(E) shall also be applicable:
(A) No adjustment of the Conversion Price shall be made unless such
adjustment would require an increase or decrease of at least $.01
in such price; provided that any adjustments which by reason of
this Subparagraph 4(c)(v)(A) are not required to be made shall be
carried forward and shall be made at the time of and together
with the next subsequent adjustment which, together with
adjustments so carried forward, shall require an increase or
decrease of at least $.01 in the Conversion Price then in effect
hereunder.
(B) In case of (1) the sale by the Corporation (including as a
component of a unit) of any rights or warrants to subscribe for
or purchase, or any options for the purchase of, Common Stock or
any securities convertible into or exchangeable for Common Stock
(such securities convertible, exercisable or exchangeable into
Common Stock being herein called "Convertible Securities"), or
(2) the issuance by the Corporation, without the receipt by the
Corporation of any consideration therefor, of any rights or
warrants to subscribe for or purchase, or any options for the
purchase of, Common Stock or Convertible Securities, whether or
not such rights, warrants or options, or the right to convert or
exchange such Convertible Securities, are immediately
exercisable, and the consideration per share for which Common
Stock is issuable upon the exercise of such rights, warrants or
options or upon the conversion or exchange of such Convertible
Securities (determined by dividing (x) the minimum aggregate
consideration, as set forth in the instrument relating thereto
without regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such amount,
payable to the Corporation upon the exercise of such rights,
warrants or options, plus the consideration received by the
Corporation for the issuance or sale of such rights, warrants or
options, plus, in the case of such Convertible Securities, the
minimum aggregate amount, as set forth in the instrument relating
thereto without regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such amount, of
additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by
(y) the
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<PAGE>
total maximum number, as set forth in the instrument relating
thereto without regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such amount, of
shares of Common Stock issuable upon the exercise of such rights,
warrants or options or upon the conversion or exchange of such
Convertible Securities issuable upon the exercise of such rights,
warrants or options) is less than either the Conversion Price or
the Market Price of the Common Stock as of the date of the
issuance or sale of such rights, warrants or options, then such
total maximum number of shares of Common Stock issuable upon the
exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities (as of the
date of the issuance or sale of such rights, warrants or options)
shall be deemed to be "Common Stock" for purposes of Paragraph
4(c)(i) hereof and shall be deemed to have been sold for an
amount equal to such consideration per share and shall cause an
adjustment to be made in accordance with Paragraph 4(c)(i).
(C) In case of the sale or other issuance by the Corporation of any
Convertible Securities, whether or not the right of conversion or
exchange thereunder is immediately exercisable, and the price per
share for which Common Stock is issuable upon the conversion or
exchange of such Convertible Securities (determined by dividing
(x) the total amount of consideration received by the Corporation
for the sale of such Convertible Securities, plus the minimum
aggregate amount, as set forth in the instrument relating thereto
without regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such amount, of
additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by
(y) the total maximum number, as set forth in the instrument
relating thereto without regard to any antidilution or similar
provisions contained therein for a subsequent adjustment of such
amount, of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities) is less than either the
Conversion Price or the Market Price of the Common Stock as of
the date of the sale of such Convertible Securities, then such
total maximum number of shares of Common Stock issuable upon the
conversion or exchange of such Convertible Securities (as of the
date of the sale of such Convertible Securities) shall be deemed
to be "Common Stock" for purposes of Paragraph 4(c)(i) and shall
be deemed to have been sold for an amount equal to such
consideration per share and shall cause an adjustment to be made
in accordance with Paragraph 4(c)(i).
(D) In case the Corporation shall modify the rights of conversion,
exchange or exercise of any of the securities referred to in
Subparagraphs (B) or (C) of this Paragraph 4(c)(v) or any other
securities of the Corporation convertible, exchangeable or
exercisable for shares of Common Stock, for any reason other than
an event that would require adjustment to prevent dilution, so
that the consideration per share received by the Corporation
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<PAGE>
after such modification is less than either the Conversion Price
or the Market Price of the Common Stock as of the date prior to
such modification, then such securities, to the extent not
theretofore exercised, converted or exchanged, shall be deemed to
have expired or terminated immediately prior to the date of such
modification and the Corporation shall be deemed for purposes of
calculating any adjustments pursuant to this Subsection 4(c) to
have issued such new securities upon such new terms on the date
of modification. Such adjustment shall become effective as of the
date upon which such modification shall take effect. On the
expiration or cancellation of any such right, warrant or option
or the termination or cancellation of any such right to convert
or exchange any such Convertible Securities, the Conversion Price
then in effect hereunder shall forthwith be readjusted to such
Conversion Price as would have obtained (a) had the adjustments
made upon the issuance or sale of such rights, warrants, options
or Convertible Securities been made upon the basis of the
issuance of only the number of shares of Common Stock theretofore
actually delivered (and the total consideration received
therefor) upon the exercise of such rights, warrants or options
or upon the conversion or exchange of such Convertible Securities
and (b) had adjustments been made on the basis of the Conversion
Price as adjusted under clause (a) for all transactions (which
would have affected such adjusted Conversion Price) made after
the issuance or sale of such rights, warrants, options or
Convertible Securities.
(E) In case of the sale of any shares of Common Stock, any
Convertible Securities, any rights or warrants to subscribe for
or purchase, or any options for the purchase of, Common Stock or
Convertible Securities, the consideration received by the
Corporation therefor shall be deemed to be the gross sales price
therefor without deducting therefrom any expense paid or incurred
by the Corporation or any underwriting discounts or commissions
or concessions paid or allowed by the Corporation in connection
therewith. In the event that any securities shall be issued in
connection with any other securities of the Corporation, together
comprising one integral transaction in which no specific
consideration is allocated among the securities, then each of
such securities shall be deemed to have been issued for such
consideration as the Board of Directors of the Corporation
determines in good faith; provided, however, that if holders of
more than 25% of the then outstanding Series A Preferred Stock
disagree with such determination, the Corporation shall retain,
at its own expense, an independent investment banking firm for
the purpose of obtaining an appraisal.
(iv) Notwithstanding any other provision hereof, no adjustment to the
Conversion Price will be made:
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(A) upon (i) the exercise of any of the options outstanding on the
date hereof under the Corporation's existing stock option plans
or (ii) the issuance or exercise of options which may hereafter
be granted with the approval of the Board of Directors, or
exercised, under any bona fide employee benefit plan of the
Corporation approved by the Board of Directors to officers,
directors, consultants or employees, but only with respect to
such options as are exercisable at prices no lower than the
Closing Bid Price (or, if the prices referenced in the definition
of Closing Bid Price cannot be determined, the Fair Market Value)
of the Common Stock as of the date of grant thereof; or
(B) upon the sale of any shares of Common Stock, warrants to purchase
Common Stock or Convertible Securities in a firm commitment
underwritten public offering, including, without limitation,
shares sold upon the exercise of any overallotment option granted
to the underwriters in connection with such offering; or
(C) upon issuance or exercise of the Placement Warrants (as defined
in the Placement Agency Agreement between the Corporation and
Paramount Capital, Inc., dated as of April 1, 1997, the
"Placement Warrants"), or upon the issuance, conversion or
exercise of the Series A Preferred Stock included in the Premium
Preferred Units of the Corporation issued (i) on or prior to the
Final Closing Date (plus any such Units issued pursuant to the
over-allotment option granted pursuant to such Placement Agency
Agreement) or (ii) pursuant to the exercise of the Placement
Warrants or the conversion or exercise of the securities
underlying such Placement Warrants; or
(D) upon the issuance or sale of Common Stock or Convertible
Securities pursuant to the exercise of any rights, options or
warrants to receive, subscribe for or purchase, or any options
for the purchase of, Common Stock or Convertible Securities,
whether or not such rights, warrants or options were outstanding
on the date of the original sale of the Series A Preferred Stock
or were thereafter issued or sold, provided that an adjustment
was either made or not required to be made in accordance with
Paragraph 4(c)(i) in connection with the issuance or sale of such
securities or any modification of the terms thereof; or
(E) upon the issuance or sale of Common Stock upon conversion or
exchange of any Convertible Securities, provided that any
adjustments required to be made upon the issuance or sale of such
Convertible Securities or any modification of the terms thereof
were so made, and whether or not such Convertible Securities were
outstanding on the date of the original sale of the Series A
Preferred Stock or were thereafter issued or sold.
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Subparagraph 4(c)(v)(D) shall nevertheless apply to any modification of the
rights of conversion, exchange or exercise of any of the securities
referred to in Subparagraph (A) or, to the extent effected with respect to
less than all of the outstanding Series A Preferred Stock, as the case may
be, (C) of this Paragraph 4(c)(vi).
(vii) As used in this Subsection 4(c), the term "Common Stock" shall mean
and include the Corporation's Common Stock authorized on the date of the
original issue of the Series A Convertible Preferred Stock and shall also
include any capital stock of any class of the Corporation thereafter
authorized which shall not be limited to a fixed sum or percentage in
respect of the rights of the holders thereof to participate in dividends
and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Corporation; provided, however, that the
shares issuable upon conversion of the Series A Preferred Stock shall
include only shares of such class designated in the Corporation's
Certificate of Incorporation as Common Stock on the date of the original
issue of the Series A Convertible Preferred Stock or (i) in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Paragraph 4(c)(ii) hereof, the stock, securities
or property provided for in such section or (ii) in the case of any
reclassification or change in the outstanding shares of Common Stock
issuable upon conversion of the Series A Preferred Stock as a result of a
subdivision or combination or consisting of a change in par value, or from
par value to no par value, or from no par value to par value, such shares
of Common Stock as so reclassified or changed.
(viii) Any determination as to whether an adjustment in the Conversion
Price in effect hereunder is required pursuant to Subsection 4(c), or as to
the amount of any such adjustment, if required, shall be binding upon the
holders of the Series A Preferred Stock and the Corporation if made in good
faith by agreement of the Corporation and the holders of a majority of the
Preferred Stock then outstanding. If the holders of a majority of the
Preferred Stock then outstanding and the Corporation shall disagree as to
any adjustment, then the issue shall be submitted to and determined by an
arbitration panel of the American Arbitration Association in New York City
in accordance with its rules, the cost of which arbitration shall be paid
for by the Corporation.
(d) No Fractional Shares. No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon conversion of Series A
Preferred Stock. If more than one certificate evidencing shares of Series A
Preferred Stock shall be surrendered for conversion at one time by the same
holder, the number of full shares issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series A Preferred
Stock so surrendered. Instead of any fractional share of Common Stock which
would otherwise be issuable upon conversion of any shares of Series A Preferred
Stock, the Corporation shall pay a cash adjustment in respect of such fractional
interest in an amount equal to the same fraction of the Market Price of the
Common Stock as of the close of business on the day of conversion.
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(e) Grant of Rights, Warrants or Options in Lieu of Adjustment. If and
whenever the Corporation shall grant to the holders of Common Stock, as such,
rights or warrants to subscribe for or to purchase, or any options for the
purchase of, Common Stock or securities convertible into or exchangeable for or
carrying a right, warrant or option to purchase Common Stock, the Company may at
its option elect concurrently therewith to grant, to each holder (as of the
record date for such transaction) of Series A Preferred Stock then outstanding,
the rights, warrants or options to which each such holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, such holder were
the holder of record of the number of whole shares of Common Stock then issuable
upon conversion of his or her Series A Preferred Stock. If the Company shall so
elect under this Subsection 4(e), then such grant by the Company to the holders
of the Series A Preferred Stock shall be in lieu of any adjustment which
otherwise may be called for pursuant to Subsection 4(c).
(f) Reservation of Shares; Transfer Taxes; Etc. The Corporation shall
at all times reserve and keep available, out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the Series A Preferred Stock, such number of shares of its Common Stock free of
preemptive rights as shall be sufficient to effect the conversion of all shares
of Series A Preferred Stock from time to time outstanding (including, without
limitation, shares of Common Stock issuable upon conversion of the Series A
Preferred Stock in the case of a Reset Event). The Corporation shall use its
best efforts from time to time, in accordance with the laws of the State of
Delaware, to increase the authorized number of shares of Common Stock if at any
time the number of shares of authorized, unissued and unreserved Common Stock
shall not be sufficient to permit the conversion of all the then-outstanding
shares of Series A Preferred Stock.
The Corporation shall pay any and all issue or other taxes that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of the Series A Preferred Stock. The Corporation shall not, however,
be required to pay any tax which may be payable in respect of any transfer
involved in the issue or delivery of Common Stock (or other securities or
assets) in a name other than that in which the shares of Series A Preferred
Stock so converted were registered, and no such issue or delivery shall be made
unless and until the person requesting such issue has paid to the Corporation
the amount of such tax or has established, to the satisfaction of the
Corporation, that such tax has been paid.
(g) Prior Notice of Certain Events. In case:
(i) the Corporation shall declare any dividend (or any other
distribution); or
(ii) the Corporation shall authorize the granting to the holders of
Common Stock of rights or warrants to subscribe for or purchase any
shares of stock of any class or of any other rights or warrants; or
(iii) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a
change in par value, or from par value to no par value, or from no par
value to par value); or
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<PAGE>
(iv) of any consolidation or merger (including, without limitation, a
Merger Transaction) to which the Corporation is a party and for which
approval of any stockholders of the Corporation shall be required, or
of the sale or transfer of all or substantially all of the assets of
the Corporation or of any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or other property; or
(v) of the voluntary or involuntary dissolution, liquidation or
winding up of the Corporation (including, without limitation, a
Liquidation Event);
then the Corporation shall cause to be filed with the Transfer Agent,
and shall cause to be mailed to the holders of record of the Series A Preferred
Stock, at their last addresses as they shall appear upon the stock transfer
books of the Corporation, at least 20 days prior to the applicable record date
hereinafter specified, a notice stating (x) the date on which a record (if any)
is to be taken for the purpose of such dividend, distribution or granting of
rights or warrants or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution,
rights or warrants are to be determined and a description of the cash,
securities or other property to be received by such holders upon such dividend,
distribution or granting of rights or warrants or (y) the date on which such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding up or other Liquidation Event is expected to
become effective, the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such exchange, dissolution,
liquidation or winding up or other Liquidation Event and the consideration,
including securities or other property, to be received by such holders upon such
exchange; provided, however, that no failure to mail such notice or any defect
therein or in the mailing thereof shall affect the validity of the corporate
action required to be specified in such notice.
(h) Other Changes in Conversion Rate. The Corporation from time to
time may increase the Conversion Rate by any amount for any period of time if
the period is at least 20 days and if the increase is irrevocable during the
period. Whenever the Conversion Rate is so increased, the Corporation shall mail
to holders of record of the Series A Preferred Stock a notice of the increase at
least 15 days before the date the increased Conversion Rate takes effect, and
such notice shall state the increased Conversion Rate and the period it will be
in effect.
The Corporation may make such increases in the Conversion Rate, in
addition to those required or allowed by this Section 4, as shall be determined
by it, as evidenced by a resolution of the Board of Directors, to be advisable
in order to avoid or diminish any income tax to holders of Common Stock
resulting from any dividend or distribution of stock or issuance of rights or
warrants to purchase or subscribe for stock or from any event treated as such
for income tax purposes.
Notwithstanding anything to the contrary herein, in no case shall the
Conversion Price be adjusted to an amount less than $.00025 per share, the
current par value of the Common Stock into which the Series A Preferred Stock is
convertible.
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<PAGE>
(i) Ambiguities/Errors. The holders of a majority of the Series A
Preferred Stock outstanding and the Corporation shall have the power to resolve
by agreement any ambiguity or correct any error in the provisions relating to
the convertibility of the Series A Preferred Stock, and their actions in so
doing shall be final and conclusive. If the holders of a majority of the Series
A Preferred Stock then outstanding and the Corporation shall disagree as to any
ambiguity or correction of any error in the provisions relating to the
convertibility of the Series A Preferred Stock then the issue shall be submitted
to and determined by an arbitration panel of the American Arbitration
Association in New York City in accordance with its rules, the cost of which
arbitration shall be paid for by the Corporation.
5. Mandatory Conversion. At any time on or after the Reset Date, the
Corporation, at its option, may cause the Series A Preferred Stock to be
converted in whole, or in part, on a pro rata basis, into fully paid and
nonassessable shares of Common Stock at the then effective Conversion Rate and
such other securities and property as herein provided if the closing bid price
of the Common Stock shall have exceeded 200% of the then applicable Conversion
Price for at least 20 trading days in any 30 consecutive trading day period
ending three (3) days prior to the date of notice of conversion. Any shares of
Series A Preferred Stock so converted shall be treated as having been
surrendered by the holder thereof for conversion pursuant to Section 4 on the
date of such mandatory conversion (unless previously converted at the option of
the holder).
No greater than 60 nor fewer than 20 days prior to the date of any
such mandatory conversion, notice by first class mail, postage prepaid, shall be
given to the holders of record of the Series A Preferred Stock to be converted,
addressed to such holders at their last addresses as shown on the stock transfer
books of the Corporation. Each such notice shall specify the date fixed for
conversion, the place or places for surrender of shares of Series A Preferred
Stock, and the then effective Conversion Rate pursuant to Section 4.
Any notice which is mailed as herein provided shall be conclusively
presumed to have been duly given by the Corporation on the date deposited in the
mail, whether or not the holder of the Series A Preferred Stock receives such
notice; and failure properly to give such notice by mail, or any defect in such
notice, to the holders of the shares to be converted shall not affect the
validity of the proceedings for the conversion of any other shares of Series A
Preferred Stock. On or after the date fixed for conversion as stated in such
notice, each holder of shares called to be converted shall surrender the
certificate evidencing such shares to the Corporation at the place designated in
such notice for conversion. Notwithstanding that the certificates evidencing any
shares properly called for conversion shall not have been surrendered, the
shares shall no longer be deemed outstanding and all rights whatsoever with
respect to the shares so called for conversion (except the right of the holders
to convert such shares upon surrender of their certificates therefor) shall
terminate.
6. Voting Rights.
--------------
(a) General. Except as otherwise provided herein, in the Certificate
of Incorporation or the By-laws, the holders of shares of Series A Preferred
Stock, the holders of shares of Common Stock and the holders of any other class
or series of shares entitled to vote with the Common Stock shall vote together
as one class on all matters submitted to a vote of stockholders
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of the Corporation. In any such vote, each share of Series A Preferred Stock
shall entitle the holder thereof to cast the number of votes equal to the number
of votes which could be cast in such vote by a holder of the Common Stock into
which such share of Series A Preferred Stock is convertible on the record date
for such vote, or if no record date has been established, on the date such vote
is taken. Any shares of Series A Preferred Stock held by the Corporation or any
entity controlled by the Corporation shall not have voting rights hereunder and
shall not be counted in determining the presence of a quorum.
(b) Class Voting Rights. In addition to any vote specified in Section
6(a), so long as 50% of the shares of Series A Preferred Stock (including those
shares of Series A Preferred Stock issued or issuable upon the exercise of the
Placement Warrants or any other warrants or options for the purchase of Series A
Preferred Stock) shall be outstanding, the affirmative vote or consent of the
holders of at least 66.67% of all outstanding Series A Preferred Stock voting
separately as a class shall be necessary to permit or effect any one or more of
the following: (i) the amendment, alteration or repeal of any provision of the
Certificate of Incorporation, or the Bylaws of the Corporation so as adversely
to affect the relative rights, preferences, qualifications, limitations or
restrictions of the Series A Preferred Stock, (ii) the authorization or
issuance, or increase of the authorized amount of, any security ranking prior
to, or on a parity with, the Series A Preferred Stock (A) upon a Liquidation
Event or (B) with respect to the payment of any dividends or distributions or
(C) with respect to voting rights, (iii) the amendment, alteration or repeal of
any provision of or the rights, preferences, or privileges of the Series A
Preferred Stock, (iv) any liquidation, dissolution or sale of all or
substantially all of the assets of the Corporation, (v) the incurrence of
indebtedness in excess of $100,000 in the aggregate (other than non-recourse
equipment lease lines secured solely by the purchased equipment and indebtedness
incurred for working capital purposes secured solely by the receivables and
inventory of the Corporation) or (vi) the repurchase of any of the securities of
the Corporation (other than repurchases from employees of the Corporation of
restricted securities issued pursuant to employee benefit plans approved by the
Corporation's Board of Directors in connection with termination of employment at
prices no greater than the prices paid by any such employees for such restricted
securities). The vote as contemplated herein shall specifically not be required
for (x) issuances of Common Stock, (y) the authorization, issuance or increase
in the amount of the Series A Preferred Stock prior to the Final Closing Date or
(z) any consolidation or merger of the Corporation with or into another
corporation in which the Corporation is not the surviving entity, a sale or
transfer of all or part of the Corporation's assets for cash, securities or
other property, or a compulsory share exchange.
7. Outstanding Shares. For purposes of this Certificate of
Designation, all issued shares of Series A Preferred Stock shall be deemed
outstanding except (i) from the date, or the deemed date, of surrender of
certificates evidencing shares of Series A Preferred Stock, all shares of Series
A Preferred Stock converted into Common Stock, (ii) from the date of
registration of transfer, all shares of Series A Preferred Stock held of record
by the Corporation or any subsidiary of the Corporation and (iii) any and all
shares of Series A Preferred Stock held in escrow prior to delivery of such
stock by the Corporation to the initial beneficial owners thereof.
8. Status of Acquired Shares. Shares of Series A Preferred Stock
received upon conversion pursuant to Section 4 or Section 5 or otherwise
acquired by the Corporation will be
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restored to the status of authorized but unissued shares of Preferred Stock,
without designation as to class, and may thereafter be issued, but not as shares
of Series A Preferred Stock.
9. Preemptive Rights. The Series A Preferred Stock is not entitled to
any preemptive or subscription rights in respect of any securities of the
Corporation.
10. No Amendment or Impairment. The Corporation shall not amend its
Certificate of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the rights of the holders of the Series A Preferred Stock
against impairment.
11. Severability of Provisions. Whenever possible, each provision
hereof shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid under
applicable law.
* * * * * * *
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IN WITNESS WHEREOF, Conversion Technologies International, Inc., has caused
this certificate to be signed on its behalf by William L. Amt, its President,
this 29th day of August, 1997.
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
By: /s/ William L. Amt
------------------
Name: William L. Amt
Title: President and Chief Executive Officer
ATTEST:
/s/ Jack D. Hays, Jr.
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Jack D. Hays, Jr.
Secretary
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
1996 LONG-TERM EMPLOYEE INCENTIVE PLAN
Article I. Purpose, Adoption and Term of the Plan
1.01 Purpose. The purpose of the Conversion Technologies International,
Inc. 1996 Long-Term Employee Incentive Plan (hereinafter referred to as the
"Plan") is to assist the Company (as hereinafter defined) and its subsidiaries
in attracting and retaining individuals to serve as officers and key employees
who will contribute to the success of the Company and its subsidiaries and to
provide incentives to such individuals to achieve long-term objectives which
will inure to the benefit of all stockholders of the Company.
1.02 Adoption and Term. The Plan has been approved and adopted by the Board
(as hereinafter defined), acting through its Executive Committee, effective as
of August 26, 1996 (the "Effective Date"). The Plan shall terminate without
further action of the Board on the tenth anniversary of the Effective Date.
Article II. Definitions
For purposes of this Plan, capitalized terms shall have the following
meanings:
<PAGE>
2.01 Award means any grant to a Participant of any one or a combination of
Restricted Shares described in Article VI, Performance Awards described in
Article VII or any other award made under the terms of the Plan.
2.02 Award Agreement means a written agreement between the Company and a
Participant or a written acknowledgment from the Company specifically setting
forth the terms and conditions of an Award granted to a Participant under the
Plan.
2.03 Award Period means, with respect to an Award, the period of time, if
any, set forth in the Award Agreement during which specified target performance
goals must be achieved or other conditions set forth in the Award Agreement must
be satisfied.
2.04 Beneficiary means an individual, trust or estate who or which, by will
or the laws of descent and distribution, succeeds to the rights and obligations
of a Participant under the Plan and an Award Agreement upon the Participant's
death.
2.05 Board means the Board of Directors of the Company.
2.06 Business Day means any day on which banking institutions in the State
of New York are not authorized or obligated by law or executive order to close.
2
<PAGE>
2.07 Change in Control means any of the events set forth below; provided,
however, that the Committee, in its sole discretion, may specify a more
restrictive definition of Change in Control in any Award Agreement, which shall
apply to the Award granted under such Award Agreement:
(a) The acquisition in one or more transactions, other than from the
Company, by any individual, entity or group (within the meaning of Section 13
(d) (3) or 14 (d) (2) of the Exchange Act) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of a number of Company
Voting Securities in excess of 50% of the Company Voting Securities unless such
acquisition has been approved by the Board; or
(b) Any election has occurred of persons to the Board that causes
two-thirds of the Board to consist of persons other than (i) persons who were
members of the Board on August 16, 1996 and (ii) persons who were nominated for
elections as members of the board at a time when two-thirds of the Board
consisted of persons who were members of the Board on August 16, 1996; provided,
however, that any person nominated for election by a Board at least two-thirds
of whom constituted persons described in clauses (i) and/or (ii) or by persons
who were themselves nominated by such Board shall, for this purpose, be deemed
to have been nominated by a Board comprised of persons described in clause (i);
or
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<PAGE>
(c) Approval by the stockholders of the Company of a reorganization, merger
or consolidation, unless, following such reorganization, merger or
consolidation, all or substantially all of the individuals and entities who were
the respective beneficial owners of the Outstanding Shares and Company Voting
Securities immediately prior to such reorganization, merger or consolidation,
following such reorganization, merger or consolidation beneficially own,
directly or indirectly, more than 50% of, respectively, of the then outstanding
shares of Common Stock and the combined voting power of the then outstanding
Company Voting Securities entitled to vote generally in the election of
directors of the entity resulting from such reorganization, merger or
consolidation in substantially the same proportion as their ownership of the
Outstanding Shares and Company Voting Securities immediately prior to such
reorganization, merger or consolidation, as the case may be; or
(d) Approval by the stockholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) a sale or other disposition of
all or substantially all the assets of the Company.
2.08 Code means the Internal Revenue Code of 1986, as amended from time to
time, or any successor thereto. References to a section of the Code shall
include that
4
<PAGE>
section and any comparable section or sections of any future legislation that
amends, supplements or supersedes said section.
2.09 Committee means the Compensation Committee of the Board or such other
Committee as may be designated by the Board or, if the Board shall administer
this Plan, the term "Committee" shall mean the Board. The Committee shall have
the power and authority to administer the Plan in accordance with Section 3.01.
2.10 Common Stock means the Common Stock, par value $0.00025 per share, of
the Company.
2.11 Company means Conversion Technologies International, Inc., a
corporation organized under the laws of the State of Delaware, and its
successors.
2.12 Company Voting Securities means the combined voting power of all
outstanding voting securities of the Company entitled to vote generally in the
election of the Board.
2.13 Date of Grant means the date designated by the Committee as the date
as of which it grants an Award, which shall not be earlier than the date on
which the Committee approves the granting of such Award.
5
<PAGE>
2.14 Disability means any physical or mental impairment or disability which
prevents a Participant from performing the duties of his or her employment for a
period of 180 days in a 360-day period.
2.15 Disability Date means the date which is 120 days after the date on
which a Participant is first absent from active employment with the Company (or
any of its subsidiaries) by reason of a Disability.
2.16 Exchange Act means the Securities Exchange Act of 1934, as amended.
2.17 Fair Market Value means, as of any given date, with respect to any
Awards granted hereunder, the average of the high and low trading prices of the
Common Stock on such date as reported on the New York Stock Exchange or, if the
Common Stock is not then traded on the New York Stock Exchange, on such other
national securities exchange on which the Common Stock is admitted to trade, or,
if none, on the Nasdaq Stock Market ("Nasdaq") if the Common Stock is admitted
for quotation thereon; provided, however, if there were no sales reported as of
such date, Fair Market Value shall be computed as of the last date preceding
such date on which a sale was reported; provided, further, that if any such
exchange or quotation system is closed on any day on which Fair Market Value is
to be determined, Fair Market Value shall be determined as of the first date
immediately preceding such date on which such exchange or quotation system was
open for trading. In the event the Common Stock is not admitted to trade on
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<PAGE>
a securities exchange or quoted on Nasdaq, the Fair market Value as of any given
date shall be as determined in good faith by the Committee.
2.18 Outstanding Shares means, at any time, the issued and outstanding
shares of Common Stock.
2.19 Participant shall mean any employee of the Company or any of its
subsidiaries selected by the Committee to receive an Award under the Plan in
accordance with Article V.
2.20 Performance Award means an Award, granted in accordance with Article
VII, of the right to receive an award, payable in cash or Common Stock or a
combination of both at the end of a specified performance period.
2.21 Plan means the Conversion Technologies International, Inc. 1996
Long-Term Incentive Plan as set forth herein, and as the same may be amended
from time to time.
2.22 Restricted Shares means shares of Common Stock subject to restrictions
imposed in connection with Awards granted under Article VI.
7
<PAGE>
2.23 Termination of Employment means the voluntary or involuntary
termination of a Participant's employment with the Company or any of its
subsidiaries for any reason, including death, Disability, retirement or as the
result of the sale or other divestiture of the Participant's employer or any
similar transaction in which the Participant's employer ceases to be the Company
or one of its subsidiaries. Whether entering military or other government
service shall constitute Termination of Employment, and whether a Termination of
Employment is a result of Disability, shall be determined in each case by the
Committee.
Article III. Administration
3.01 Committee. The Plan shall be administered by the Committee, which
shall have exclusive and final authority in each determination, interpretation
or other action affecting the Plan and its Participants. The Committee shall
have the sole and absolute discretion to interpret the Plan, to establish and
modify administrative rules for the Plan, to select the officers and other key
employees to whom Awards may be granted, to determine all claims for benefits
under the Plan, to impose such conditions and restrictions on Awards as it
determines appropriate and to take such steps in connection with the Plan and
Awards granted hereunder as it may deem necessary or advisable.
8
<PAGE>
Article IV. Shares
4.01 Number of Shares Issuable. Subject to adjustments as provided in
Section 9.07, the maximum number of shares of Common Stock available for Awards
under the Plan shall be 800,000 shares of Common Stock. Any and all shares may
be issued in respect of any of the types of Awards. The Common Stock to be
offered under the Plan shall be authorized and unissued Common Stock, or issued
Common Stock which shall have been reacquired by the Company and held in its
treasury.
4.02 Shares Subject to Terminated Awards. Any Common Stock forfeited as
provided in Section 7.02(a) and Common Stock subject to any Awards which are
otherwise surrendered by the Participant without receiving any payment or other
benefit with respect thereto may again be subject to new Awards under the Plan.
Common Stock issued in payment of Performance Awards which are denominated in
cash amounts shall not again be available for the grant of Awards under the
Plan.
Article V. Participation
5.01 Eligible Participants. Participants in the Plan shall be such officers
and other key employees of the Company or its subsidiaries, whether or not
Directors, as the Committee, in its sole discretion, may designate from time to
time. The
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<PAGE>
Committee's designation of a Participant in any year shall not require the
Committee to designate such person to receive Awards or grants in any other
year. The designation of a Participant to receive Awards or grants under one
portion of the Plan shall not require the Committee to include such Participant
under other portions of the Plan. The Committee shall consider such factors as
it deems pertinent in selecting Participants and in determining the type and
amount of their respective Awards. More than one type of Award may be granted to
a Participant at one time or at different times.
Article VI. Restricted Shares
6.01 Restricted Share Awards. Restricted Shares may be issued either alone
or in addition to other Awards granted under the Plan. The Committee may grant
to any Participant an Award of Common Stock in such number, and subject to such
terms and conditions relating to forfeitability and restrictions on delivery and
transfer (whether based on performance standards, periods of service or
otherwise) as the Committee shall establish. The terms of any Restricted Share
Award granted under this Plan shall be set forth in an Award Agreement which
shall contain provisions determined by the Committee and not inconsistent with
this Plan. The provisions of Restricted Share Awards need not be the same for
each Participant receiving such Awards.
(a) Issuance of Restricted Shares. As soon as practicable after the Date of
Grant of a Restricted Share Award by the Committee, the Company shall cause to
be
10
<PAGE>
transferred on the books of the Company Common Stock, registered on behalf of
the Participant, evidencing the Restricted Shares covered by the Award, but
subject to forfeiture to the Company retroactive to the Date of Grant if an
Award Agreement delivered to the Participant by the Company with respect to the
Restricted Shares covered by the Award is not duly executed by the Participant
and timely returned to the Company. All Common Stock covered by Awards under
this Article VI shall be subject to the restrictions, terms and conditions
contained in the Plan and the Award Agreement entered into by and between the
Company and the Participant. Until the lapse or release of all restrictions
applicable to an Award of Restricted Shares, the stock certificates representing
such Restricted Shares shall be held in custody by the Company or its designee.
Upon the lapse or release of all restrictions with respect to an Award as
described in Section 6.01(d), one or more stock certificates, registered in the
name of the Participant, for an appropriate number of shares of Common Stock as
provided in Section 6.01 (d), free of any restrictions set forth in the Plan and
the Award Agreement, shall be delivered to the Participant.
(b) Stockholder Rights. Beginning on the Date of Grant of the Restricted
Share Award and subject to execution of the Award Agreement as provided in
Section 6.01 (a), the Participant shall become a stockholder of the Company with
respect to all Common Stock subject to the Award Agreement and shall have all of
the rights of a stockholder, including, but not limited to, the right to vote
such Common Stock and the right to receive dividends (or dividend equivalents);
provided, however, that any
11
<PAGE>
Common Stock distributed as a dividend or otherwise with respect to any
Restricted Shares as to which the restrictions have not yet lapsed shall be
subject to the same restrictions as such Restricted Shares and shall be held as
prescribed in Section 6.01(a).
(c) Restriction on Transferability. None of the Restricted Shares may be
assigned or transferred (other than by will or the laws of descent and
distribution), pledged or sold prior to lapse or release of the restrictions
applicable thereto.
(d) Delivery of Shares Upon Release of Restrictions. Upon expiration or
earlier termination of the forfeiture period without a forfeiture and the
satisfaction of or release from any other conditions prescribed by the
Committee, the restrictions applicable to the Restricted Shares shall lapse. As
promptly as administratively feasible thereafter, subject to the requirements of
Section 11.06, the Company shall deliver to the Participant or, in case of the
Participant's death, to the Participant's Beneficiary, one or more stock
certificates for the appropriate number of shares of Common Stock, free of all
such restrictions, except for any restrictions that may be imposed by law.
6.02 Terms of Restricted Shares.
(a) Forfeiture of Restricted Shares. Subject to Section 6.02(b) and except
as otherwise may be set forth in any Award Agreement, all Restricted Shares
shall be forfeited and returned to the Company and all rights of the Participant
with respect to
12
<PAGE>
such Restricted Shares shall terminate unless the Participant continues in the
service of the Company or one of its subsidiaries as an employee until the
expiration of the forfeiture period for such Restricted Shares and satisfies any
and all other conditions set forth in the Award Agreement. The Committee, in its
sole discretion, shall determine the forfeiture period (which may, but need not,
lapse in installments) and any other terms and conditions applicable with
respect to any Restricted Share Award.
(b) Waiver of Forfeiture Period. Notwithstanding anything contained in this
Article VI to the contrary, the Committee may, in its sole discretion, waive the
forfeiture period and any other conditions set forth in any Award Agreement
under appropriate circumstances (including the death, disability or retirement
of the Participant or a material change in circumstances arising after the date
of an Award) and subject to such terms and conditions (including forfeiture of a
proportionate number of the Restricted Shares) as the Committee shall deem
appropriate.
Article VII. Performance Awards
7.01 Performance Awards.
(a) Award Periods. Performance Awards may be granted either alone or in
addition to other Awards granted under the Plan. A Performance Award shall
consist of the right to receive a payment (measured by (i) the Fair Market Value
of a specified
13
<PAGE>
number of shares of Common Stock at the end of the Award Period or (ii) the
increase in the Fair Market Value of a specified number of shares of Common
Stock during the Award Period or (iii) a fixed cash amount payable at the end of
the Award Period) contingent upon the extent to which certain predetermined
performance targets have been met during an Award Period. The Committee shall
determine the Participants to whom Performance Awards shall be awarded, the
number of Performance Awards to be awarded to any Participant, the duration of
the Award Period during which the Performance Awards will be vested and the
other terms and conditions of the Award.
(b) Performance Targets. The Performance targets may include individual
performance standards or specified levels of revenue, funds from operations,
positive cash flow, earnings per share, return on investment, return on
stockholder equity and/or such other goals related to the performance of the
Company and/or its subsidiaries as may be established by the Committee in its
sole discretion. The performance targets established by the Committee may vary
for different Award Periods and need not be the same for each Participant
receiving a Performance Award in an Award Period. The Committee, in its sole
discretion, but only under circumstances when events or transactions occur to
cause the performance targets to be an inappropriate measure of achievement as
determined by the Committee, may change the performance targets for any Award
Period at any time prior to the final determination of the Award.
14
<PAGE>
(c) Earning Performance Awards. The Committee at the Date of Grant shall
prescribe a formula to determine the percentage of the Performance Award to be
earned based upon the degree of attainment of performance targets. The degree of
attainment of performance targets shall be determined as of the last day of the
Award Period. In the event the minimum performance targets established by the
Committee are not achieved, no payment shall be made to the Participant. In the
event the performance targets are fully achieved, 100% of the Performance Award
shall be paid to the Participant. The Committee, in its sole discretion, may
provide for grants up to a maximum of 150% of Performance Awards for achievement
exceeding performance targets.
(d) Payment of Earned Performance Awards. Payments of earned Performance
Awards shall be made in cash or Common Stock (based on the Fair Market Value of
the Common Stock on the last day of the Award Period), or a combination of cash
and Common Stock at the sole discretion of the Committee. Payment normally will
be made as soon as is practicable following the end of an Award Period; the
Committee, however, may permit deferral of the payment of all or a portion of a
Performance Award payable in cash upon the request of the Participant timely
made in accordance with rules prescribed by the Committee. Deferred amounts may
generate earnings for the Participant under the conditions of a separate
agreement approved by the Committee and executed by the Participant. The
Committee, in its sole discretion, may define in the
15
<PAGE>
Award Agreement such other conditions of payment of earned Performance Awards as
it may deem desirable in carrying out the purposes of the Plan.
7.02 Terms of Performance Awards. Unless otherwise provided by the
Committee, in its sole discretion, in the Award Agreement, the following
provisions shall apply to Performance Awards:
(a) Termination of Employment. Unless otherwise provided below, in the case
of a Participant's Termination of Employment prior to the end of an Award
period, the Participant will not be entitled to any Performance Awards.
(b) Disability, Death or Retirement. Unless otherwise provided by the
Committee, in its sole discretion, in the Award Agreement, if a Participant's
Disability Date or Termination of Employment by reason of death or retirement
occurs following at least six months of participation in any Award Period, but
prior to the end of an Award Period, the Participant or such Participant's
Beneficiary, as the case may be, shall be entitled to receive a pro-rata share
of his or her Award as determined under Subsection (c).
(c) Pro-Rata Payment. The amount of any payment made to a Participant (or
Beneficiary) under circumstances described in subsection (b) will be the amount
determined by multiplying the amount of the Performance Award which would have
been
16
<PAGE>
earned, determined at the end of the Award Period, had such employment not been
terminated, by a fraction, the numerator of which is the number of whole months
such Participant was employed during the Award Period, and the denominator of
which is the total number of months of the Award Period. Any such payment shall
be made as soon as practicable after the end of the respective Award Period, and
shall relate to attainment of performance targets over the entire Award Period.
(d) Other Events. Notwithstanding anything to the contrary in this Article
VII, the Committee may, in its sole and exclusive discretion, determine to pay
all or any portion of a Performance Award to a Participant who has terminated
employment prior to the end of an Award Period under certain circumstances
including a material change in circumstances arising after the Date of Grant,
and subject to such terms and conditions as the Committee shall deem
appropriate, provided that the Participant shall have completed, at his or her
Termination of Employment, at least one year of employment after the Date of
Grant.
Article VIII. Other Stock-Based Awards
8.01 Grant of Other Awards. Other Awards, valued in whole or in part by
reference to, or otherwise based on, Common Stock may be granted either alone or
in addition to or in conjunction with other Awards under the Plan. Subject to
the provisions of the Plan, the Committee shall have sole and complete authority
to determine the
17
<PAGE>
persons to whom and the time or times at which such Awards shall be made, the
number of shares of Common Stock to be granted pursuant to such Awards and all
other conditions of the Awards. Any such Award shall be confirmed by an Award
Agreement executed by the Committee and the Participant, which Award Agreement
shall contain such provisions as the Committee determines to be necessary or
appropriate to carry out the intent of this Plan with respect to such Award.
8.02 Terms of Other Awards. In addition to the terms and conditions
specified in the Award Agreement, Awards made pursuant to this Article VIII
shall be subject to the following:
(a) Any Common Stock subject to Awards made under this Article VIII may not
be sold, assigned, transferred, pledged or otherwise encumbered prior to the
date on which the Common Stock is issued, or, if later, the date on which any
applicable restriction or performance or deferral period lapses; and
(b) If specified by the Committee in the Award Agreement, the recipient of
an Award under this Article VIII shall be entitled to receive, currently or on a
deferred basis, dividends or dividend equivalents with respect to the Common
Stock covered by the Award, and the Committee, in its sole discretion, may
provide in the Award Agreement that such amounts be reinvested in additional
shares of Common Stock; and
18
<PAGE>
(c) The Award Agreement with respect to any Award shall contain provisions
dealing with the disposition of such Award in the event of a Termination of
Employment prior to the exercise, realization or payment of such Award, whether
such termination occurs because of retirement, Disability, death or other
reason, with such provisions to take account of the specific nature and purpose
of the Award, as well as appropriate provisions regarding acceleration of
exercise, realization or payment of such Award upon the occurrence of a Change
in Control, and the Committee, in its sole discretion, may waive any or all of
the restrictions imposed with respect to any Award under this Article VIII.
(d) Common Stock issued as a bonus pursuant to this Article VIII shall be
issued for such consideration as the Committee shall determine in its sole
discretion.
Article IX. Terms Applicable to All Awards Granted Under the Plan
9.01 Effect of Change in Control. Unless otherwise provided in the relevant
Award Agreement, upon the occurrence of an event of Change in Control:
(a) Any restriction periods and restrictions imposed on Restricted Shares
shall lapse and within ten (10) business days after the occurrence of a Change
in Control the stock certificates representing Restricted Shares, without any
restrictions or legends thereon, shall be delivered to the applicable
Participant; and
19
<PAGE>
(b) The target values attainable under all Performance Awards shall be
deemed to have been fully earned for the entire Award Period as of the effective
date of the Change in Control.
9.02 Plan Provisions Control Award Terms. The terms of the Plan shall
govern all Awards granted under the Plan, and in no event shall the Committee
have the power to grant to a Participant any Award under the Plan which is
contrary to any provisions of the Plan. In the event any provision of any Award
granted under the Plan shall conflict with any of the terms in the Plan as
constituted on the Date of Grant of such Award, the terms in the Plan as
constituted on the Date of Grant of such Award shall control. Except as provided
in Section 9.04 or 7.01(b) or unless otherwise provided by the Committee, in its
sole discretion, in the Award Agreement, the terms of any Award granted under
the Plan may not be changed after the Date of Grant of such Award so as to
materially decrease the value of the Award without the express written approval
of the Participant.
9.03 Award Agreement. No person shall have any rights under any Award
granted under the Plan unless and until the Company and the Participant to whom
such Award shall have been granted shall have executed and delivered an Award
Agreement or received any other Award acknowledgment authorized by the Committee
expressly granting the Award to such person and containing provisions setting
forth the terms of the
20
<PAGE>
Award. If there is any conflict between the provisions of an Award Agreement and
the terms of the Plan, the terms of the Plan shall control.
9.04 Modification of Award After Grant. Except as provided in Section
7.01(b) unless otherwise provided by the Committee, in its sole discretion, in
the Award Agreement, no Award granted under the Plan to a Participant may be
modified (unless such modification does not materially decrease the value of the
Award) after the Date of Grant except by express written agreement between the
Company and the Participant, provided that any such change (a) shall not be
inconsistent with the terms of the Plan, and (b) shall be approved by the
Committee.
9.05 Limitations on Transfer. The rights and interest of a Participant
under the Plan may not be assigned or transferred other than by will or the laws
of descent and distribution. During the lifetime of a Participant, only the
participant personally may exercise rights under the Plan. Except as otherwise
specifically provided in the Plan, a Participant's Beneficiary may exercise the
Participant's rights only to the extent they were exercisable under the Plan at
the date of the death of the Participant and are otherwise currently
exercisable.
9.06 Taxes. The Company shall be entitled, if the Committee deems it
necessary or desirable, to withhold (or secure payment from the Participant in
lieu of withholding) the amount of any withholding or other tax required by law
to be withheld
21
<PAGE>
or paid by the Company with respect to any amount payable and/or Common Stock
issuable under such Participant's Award, or with respect to any income
recognized upon the lapse of restrictions applicable to an Award, and the
Company may defer payment or issuance of the cash or Common Stock upon the
grant, exercise or vesting of an Award unless indemnified to its satisfaction
against any liability for any such tax. The amount of such withholding or tax
payment shall be determined by the Committee or its delegate and shall be
payable by the Participant at such time as the Committee determines. The
Committee may prescribe in each Award Agreement one or more methods by which the
Participant will be permitted to satisfy his or her tax withholding obligation,
which methods may include, without limitation, the payment of cash by the
Participant to the Company and the withholding from the Award, at the
appropriate time, of a number of shares of Common Stock sufficient, based upon
the Fair Market Value of such Common Stock to satisfy such tax withholding
requirements. The Committee shall be authorized, in its sole discretion, to
establish such rules and procedures relating to any such withholding methods as
it deems necessary or appropriate.
9.07 Adjustments to Reflect Capital Changes. The number and kind of shares
subject to outstanding Awards, the purchase price or exercise price of such
Awards, and the number and kind of shares available for Awards subsequently
granted under the Plan shall be appropriately adjusted to reflect any stock
dividend, stock split, combination or exchange of shares, merger, consolidation
or other change in capitalization with a similar substantive effect upon the
Plan or the Awards granted under
22
<PAGE>
the Plan. The Committee shall have the power and sole discretion to determine
the nature and amount of the adjustment to be made in each case. In no event
shall any adjustment be made under the provisions of this Section 9.07(a) to any
previous grant of Restricted Shares if an adjustment has been or will be made to
the Common Stock awarded to the Participant in such person's capacity as a
stockholder.
9.08 Loans. The Company shall be entitled, if the Committee in its sole
discretion deems it necessary or desirable, to lend money to a Participant for
purposes of (a) exercising his or her rights under an Award hereunder or (b)
paying any income tax liability related to an Award. Such a loan shall be
evidenced by a promissory note payable to the order of the Company executed by
the Participant and containing such other terms and conditions as the Committee
may deem desirable.
9.09 Surrender of Awards. Any Award granted to a Participant under the Plan
may be surrendered to the Company for cancellation on such terms as the
Committee and the Participant approve.
9.10 No Right to Award; No Right to Employment. No employee or other person
shall have any claim of right to be granted an Award under this Plan. Neither
the Plan nor any action taken hereunder shall be construed as giving any
employee any right to be retained in the employ of the Company or any of its
subsidiaries.
23
<PAGE>
9.11 Awards Not Includable for Benefit Purposes. Income recognized by a
Participant pursuant to the provisions of the Plan shall not be included in the
determination of benefits under any employee pension benefit plan (as such term
is defined in Section 3(2) of the Employee Retirement Income Security Act of
1974) or group insurance or other benefit plans applicable to the Participant
which are maintained by the Company or any of its subsidiaries, except as may be
provided under the terms of such plans or determined by resolution of the Board.
9.12 Governing Law. The Plan and all determinations made and actions taken
pursuant to the Plan shall be governed by the laws of the State of Delaware
other than the conflict of laws provisions of such laws, and shall be construed
in accordance therewith.
9.13 No Strict Construction. No rule of strict construction shall be
implied against the Company, the Committee or any other person in the
interpretation of any of the terms of the Plan, any Award granted under the Plan
or any rule or procedure established by the Committee.
9.14 Captions. The captions (i.e., all Section headings) used in the Plan
are for convenience only, do not constitute a part of the Plan and shall not be
deemed to limit, characterize or affect in any way any provisions of the Plan,
and all provisions of the Plan shall be construed as if no captions have been
used in the Plan.
24
<PAGE>
9.15 Severability. Whenever possible, each provision in the Plan and every
Award at any time granted under the Plan shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of the Plan
or any Award at any time granted under the Plan shall be held to be prohibited
by or invalid under applicable law, then (a) such provision shall be deemed
amended to accomplish the objectives of the provision as originally written to
the fullest extent permitted by law and (b) all other provisions of the Plan and
every other Award at any time granted under the Plan shall remain in full force
and effect.
9.16 Legends. All certificates for Common Stock delivered under the Plan
shall be subject to such transfer restrictions set forth in the Plan and such
other restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange Commission,
any stock exchange upon which the Common Stock is then listed and any applicable
federal or state securities law, and the Committee may cause a legend or legends
to be put on any such certificates to make appropriate references to such
restrictions.
9.17 Amendment and Termination.
(a) Amendment. The Board shall have complete power and authority to amend
the Plan at any time it is deemed necessary or appropriate. No termination
25
<PAGE>
or amendment of the Plan may, without the consent of the Participant to whom any
Award shall theretofore have been granted under the Plan, adversely affect the
right of such individual under such Award; provided, however, that the Committee
may change performance targets as provided in Section 7.01(b) and make such
provision in the Award Agreement for amendments which, in its sole discretion,
it deems appropriate.
(b) Termination. The Board shall have the right and the power to terminate
the Plan at any time. No Award shall be granted under the Plan after the
termination of the Plan, but the termination of the Plan shall not have any
other effect and any Award outstanding at the time of the termination of the
Plan may be exercised after termination of the Plan at any time prior to the
expiration date of such Award to the same extent such Award would have been
exercisable had the Plan not terminated.
Adopted Effective as of August 26, 1996.
26
CONSULTING AGREEMENT dated as of March 1,
1995, between CONVERSION TECHNOLOGIES
INTERNATIONAL, INC., a Delaware corporation
(the "Company"), and ECKARDT C. BECK (the
"Consultant"), As Amended.
The Company is a specialty materials company engaged in the business of
developing and manufacturing advanced industrial abrasives, specialty glass and
glass-ceramic products utilizing, among other things, industrial waste stream
recycling and conversion technologies (the "Business"). The Company desires to
retain the Consultant to provide certain services to the Company and the
Consultant desires to provide such services to the Company in accordance with
the terms and conditions hereof.
NOW THEREFORE, in consideration of and for the mutual promises and
covenants contained herein, the parties hereto agree as follows:
1. Consulting Services.
-------------------
(a) Subject to the terms and conditions hereinafter set forth, the Company
retains the Consultant, and the Consultant hereby accepts such retention by the
Company, effective as of the date hereof, to undertake the following consulting
and advisory services:
(i) provide to the Company strategic and tactical advice and
services relating to, among other things, competitive positioning of
the Company and its subsidiaries within the markets in which they
compete, strategic fit and potential synergies of product lines of
others, organizational development of the Company and its
subsidiaries, joint venture and teaming opportunities, environmental
regulatory strategies, industry trends and identification of potential
acquisitions and joint venture candidates;
(ii) assist in strategic planning, in an effort to position CTI
toward profitability; fund
<PAGE>
raising and other capital structure activities; investor relations and
communications activities; and engage in business development
activities;
(iii) serve as the Company's chief environmental officer and
oversee, monitor and advise with respect to materials management at
the Company's facilities and environmental matters generally (in such
capacity, Mr. Beck is hereby authorized to confer with the New York
Job Development Authority, as may be required, as well as such other
agencies or parties deemed appropriate); and
(iv) such other matters that the Chief Executive Officer or the
Board of Directors of CTI may reasonably request that are within the
Consultant's areas of expertise and experience and that the Consultant
agrees to perform.
(b) The Company and the Consultant hereby acknowledges and agree that the
Consultant shall perform the services pursuant to paragraph (a) above
(collectively, the "Consulting Services") as an independent contractor and not
as an agent, employee or legal representative of the Company, and that the
Consultant shall not have authority to bind the Company in any manner. The
Consultant agrees that he shall use his best reasonable efforts in providing the
Consulting Services hereunder and shall keep the Company apprised of his
progress on the Consulting Services from time to time and when requested by the
Board of Directors or Chief Executive Officer of the Company.
(c) The Company and the Consultant agree that the Consultant may from time
to time be assigned special projects within the scope of the Consulting Services
as outlined above or as otherwise agreed to by the Consultant and the Chief
Executive Officer at additional compensation to be agreed upon by the parties.
(d) During the Term, the Consultant will visit the operating facilities of
the Company and its subsidiaries and be reasonably available for telephonic and
in person conferences and meetings commensurate with the compensation being paid
hereunder.
2
<PAGE>
2. Consideration for Consulting Services.
-------------------------------------
(a) In consideration of the Consultant's performance of the Consulting
Services during the Term of this agreement, the Company shall pay to the
Consultant a consulting fee of $8,000 per month, payable monthly in arrears,
commencing as of the date hereof. In addition, the Consultant will receive, in
lieu of the options contemplated by the February Amendment (which were not
issued), non-qualified options to purchase 300,000 shares of Common Stock of CTI
at an exercise price equal to $1.375, effective as of July 22, 1997, pursuant to
a meeting of the Compensation Committee of the Board of Directors as of such
date. Of such options, 60,000 will be vested immediately and 60,00 will vest on
each of the first, second, third and fourth anniversaries of the date hereof,
subject to the vesting provisions to be set forth in a non-qualified stock
option agreement to be entered into by the parties.
3. Reimbursement of Expenses.
-------------------------
The Company shall reimburse the Consultant for his reasonable out-of-pocket
expenses incurred in connection with the Consulting Services and approved in
advance by the Chief Executive Officer of the Company. Reimbursement for any
expenses as provided for herein shall be made to the Consultant within thirty
(30) days following receipt by the Company of satisfactory evidence of the
incurrence of such expenses and the Consultant's written request for such
reimbursement.
4. Term.
----
The term (the "Term") of this Agreement shall commence on August 7, 1997
and shall end on August 7, 2000; provided, however, that this Agreement may be
extended by the mutual written agreement of the parties hereto. Notwithstanding
the foregoing, this Agreement may be terminated by either party in the event of
a material breach by the other party if such breach is not cured (if curable)
within 30 days following written notice thereof. Notwithstanding anything
contained herein to the contrary, in the event that the Consultant is removed as
Chairman of the Board of the Company by the Board of Directors of the Company
(other than as a result of a breach of fiduciary
3
<PAGE>
duty, conviction of a felony or material breach of this Agreement), unless
otherwise agreed to by the parties, (i) this Agreement shall automatically
terminate, (ii) the Consultant shall receive a lump sum cash payment equal to
the amount of the then remaining money payments hereunder (calculated from the
date of termination through March 1, 2000) and (iii) all unvested options held
by the Consultant granted in accordance with Section 2 (a) of this Agreement
shall become immediately exercisable.
5. Nondisclosure of Confidential Information.
-----------------------------------------
(a) The Consultant acknowledges that the Company would be irreparably
harmed if confidential information relating to the business and strategies of
the Company and its subsidiaries were disclosed to competitors or potential
competitors of the Company and its subsidiaries. Accordingly, the Consultant
shall not (i) disclose to any person, firm, corporation, association or other
entity any Confidential Information (as defined below) for any reason or purpose
whatsoever or (ii) make use of any such Confidential Information for his own
purpose or for the benefit of any person, firm, corporation, association or
other entity except the Company or its subsidiaries. For purposes of this
Agreement, the term "Confidential Information" shall mean any information
relating to the Company or any of its subsidiaries that the Consultant may
acquire by reason of his association with the Company or any of its
subsidiaries, except for (i) information which is in the public domain at the
time of receipt thereof by the Consultant, (ii) information which, after receipt
thereof by the Consultant, becomes part of the public domain through no improper
act or omission of the Consultant, and (iii) information which was lawfully
within the Consultant's possession prior to the initial commencement of the
Consultant's association with the Company or any of its subsidiaries. The
foregoing provisions shall not preclude the use or disclosure by the Consultant
of Confidential Information (i) in the performance of his obligations hereunder
or (ii) to the extent required by law.
6. Restrictive Covenants.
---------------------
(a) The Consultant acknowledges the highly competitive nature of the
business conducted by the Company
4
<PAGE>
and its subsidiaries. Accordingly, as an inducement to the Company to enter into
this Agreement and in partial consideration of the amounts to be received
hereunder, the Consultant, shall not, during the term hereof and for the
two-year period thereafter, (i) directly or indirectly engage in or represent in
any way any business (such business being referred to herein as a "Competing
Business") competing with the business of the Company or any of its subsidiaries
of converting waste into glass and ceramic products, whether such engagement
shall be as an officer, director, owner, employee, partner, or other participant
in any Competing Business, (ii) assist others in engaging in any Competing
Business in the manner described in clause (i) above, (iii) induce any employees
of the Company or any of its subsidiaries to terminate their employment with the
Company or any such subsidiaries or to engage in any Competing Business or (iv)
induce any entity or person with which the Company or any of subsidiaries has a
business relationship to terminate or alter such business relationship;
provided, however, that nothing contained in this Section 6(a) shall prevent,
- -------- -------
restrain or otherwise restrict the Consultant from owning 5% or less of any
class of securities of any corporation so long as such securities are listed for
trade by NASDAQ in the over-the-counter market or are traded on a national
securities exchange.
(b) The Consultant understands that the foregoing restrictions may limit
his ability to earn a livelihood in a business similar to the Business of the
Company and its subsidiaries, but he nevertheless believes that he has received
and will receive sufficient consideration and other benefits as a Consultant of
the Company as provided hereunder to justify such restrictions.
7. Injunctive Relief.
-----------------
The Consultant acknowledges that damages may not be an adequate remedy for
a breach of Section 6 or 7 hereof and agrees that injunctive relief in favor of
the Company would be an appropriate remedy for such breach. Nothing herein
contained, however, shall be construed as prohibiting the Company from pursuing
any remedies which may be available to it for such breach or threatened breach
or any other breach of this consulting Agreement.
5
<PAGE>
8. No Breach of Duty.
-----------------
The Consultant represents and warrants to the Company that the performance
by him of this Agreement will not breach any agreement or duty to keep in
confidence proprietary information acquired by it in confidence or in trust
prior to the Consultant's engagement hereunder or any duty not to compete with
any party. The Consultant further agrees that it shall not enter into any
agreement in conflict herewith during the Term.
9. Assignment.
----------
This Agreement shall not be assignable by either party hereto without the
written consent of the other party hereto; provided, however, that the Company
-------- -------
may assign this Agreement to any successor of the Company, whether by merger,
consolidation, transfer of all or substantially all its assets or otherwise,
without the prior written consent of the Consultant.
10. Severability.
------------
Every provision of this Agreement is intended to be severable. If any term
or provision hereof is deemed unlawful or invalid in any jurisdiction for any
reason whatsoever, such unlawfulness or invalidity shall not affect the validity
of the remainder of this Agreement or the enforceability of such term or
provision in any other jurisdiction. To the extent that any such term or
provision is held to be unlawful or invalid, the parties agree to reform such
term or provision in such a way which will be enforceable in the jurisdiction to
which such holding applies, and which will reflect, as nearly as permissible,
the intention of the parties.
11. Notices.
-------
All notices and other communications required or permitted hereunder shall
be sufficient if delivered personally or sent by nationally recognized overnight
courier, by facsimile or by registered or certified mail, return receipt
requested and postage prepaid, addressed as follows:
6
<PAGE>
if to the Consultant, to
Eckardt C. Beck
6345 N.W. 26th Terr.
Boca Raton, Florida 33496
Telephone: (407) 997-9732
if to the Company, to:
Conversion Technologies International, Inc.
3452 Lake Lynda Drive, Suite 280
Orlando, Florida 32817
Telephone: (407) 207-5900
Facsimile: (407) 207-5955
Attention: William L. Amt;
with a copy to:
Buchanan Ingersoll
500 College Road East
Princeton, New Jersey 08540
Telephone: (609) 987-6800
Facsimile: (609) 520-0360
Attention: Perry A. Pappas, Esq.;
or to such other address as the party to whom notice is to be given may have
furnished to the other party. Any such notice or communication shall be deemed
to have been received (a) in the case of personal delivery, on the date of such
delivery, (b) in the case of nationally-recognized overnight courier, on the
next business day following dispatch, (c) in the case of facsimile transmission,
when received, and (d) in the case of mailing, on the fifth business day
following the day on which the piece of mail containing such communication is
posted.
12. Entire Agreement.
----------------
This Agreement constitutes the entire agreement and understanding between
the Company and the Consultant regarding the subject matter hereof and
supersedes any and all negotiations, prior discussions and preliminary and prior
agreements and understandings related to the subject matter hereof.
7
<PAGE>
13. Governing Law.
-------------
This Agreement shall in all respects be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed wholly therein.
14. Counterparts.
------------
This Agreement may be executed in one or more counterparts, each of which,
when so executed shall be deemed to be an original and all of which
counterparts, taken together, shall constitute one and the same instrument.
15. Modification.
------------
Neither this Agreement nor any term hereof may be amended, modified,
supplemented or waived unless in a written instrument executed by the Company
and the Consultant.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
CONVERSION TECHNOLOGIES
INTERNATIONAL, INC.
By: /s/Harvey Goldman
-------------------------------
Harvey Goldman
Chief Executive Officer
THE CONSULTANT:
/s/ Eckardt C. Beck
----------------------------------
Eckardt C. Beck
EMPLOYMENT AGREEMENT
Between
Conversion Technologies International, Inc. and
William L. Amt
THIS AGREEMENT, is made as of the 1st day of August, 1997 (the "Effective
Date"), between Conversion Technologies International, Inc., a Delaware
corporation (the "Company"), and William L. Amt (the "Employee").
WHEREAS, the Company wishes to engage the services of Employee to render
services for and on its behalf in accordance with the following terms,
conditions and provisions; and
WHEREAS, the Employee wishes to perform such services for and on behalf of
the Company, in accordance with the following terms conditions and provisions;
and
WHEREAS, the Board of Directors of the Company (the "Board") has approved
and authorized the entry into this Agreement with the Employee;
NOW, THEREFORE, it is agreed as follows:
1. Employment. From the Effective Date, the Employee shall serve as the
President and Chief Executive Officer of the Company. The Employee shall
also be nominated to serve as a director of the Company during the term of
this Agreement. The Employee's duties and responsibilities shall be
consistent with the duties of those performed by a President and Chief
Executive Officer in a contemporary public company of a similar size and
scale. The Employee shall report to the Board of Directors and shall serve
at the discretion of the Board of Directors. The Employee shall devote his
best efforts to the Company and his position, which shall include such
additional duties as the Board may from time to time reasonably direct and
that are reasonably consistent with the Employee's education, experience
and background. During the term of this Agreement, there shall be no
material increase or decrease in the duties and responsibilities of the
Employee other than as provided herein, unless the parties agree otherwise
in writing. During the term of this Agreement, the Employee shall not be
required to relocate.
2. Compensation.
(a) Salary. The Company agrees to pay the Employee during the term of
this Agreement a salary at an annual rate equal to $160,000 per year
($13,333.33 per month payable at the Company's standard payroll
periods). The Employee shall not receive an annual bonus or an
incentive bonus, except as may be provided by the Board.
<PAGE>
(b) Adjustment in Salary. The Employee's salary shall be increased at
the discretion of the Compensation Committee of the Board of
Directors of the Company. The salary of the Employee shall not be
decreased at any time during the term of this Agreement unless the
Employee agrees otherwise in writing. Participation in deferred
compensation, discretionary bonuses, retirement and other employee
benefit plans and fringe benefits shall not reduce the salary
payable to the Employee.
(c) Grant of Options. As of the Effective Date, the Employee will
receive non-qualified stock options to purchase 300,000 shares of
the Company's Common Stock at an exercise price equal to $1.375 per
share. Twenty percent (20%) of such options will be immediately
vested and twenty percent (20%) of such options will vest on each
anniversary of the date hereof, subject to the vesting and other
provisions to be set forth in a non-qualified stock option agreement
to be entered into by the parties.
3. Insurance, Retirement and Employee Benefit Plans: Fringe Benefits,
Business Expenses.
(a) Benefits and Perquisites. The Employee shall be entitled to
participate in any plan of the Company relating to stock options,
restricted stock, employee stock purchase or ownership, pension,
thrift, profit sharing, group life insurance, medical coverage,
education, or other retirement or employee benefit plans or
arrangements that the Company has adopted or may adopt for the
benefit of its employees or executive officers. The Employee shall
also be entitled to participate in, or enjoy the benefit of, any
other fringe benefits or perquisites that are now or may be or
become applicable to the Company's executive employees generally.
(b) Business Expenses. During the term of Employee's employment by the
Company, the Company shall promptly reimburse the Employee for all
reasonable and customary expenses incurred by the Employee in
performing services for the Company, including all expenses of
travel and living expenses while away from home on business or at
the request of and in the service of the Company, provided that such
expenses are incurred and accounted for in accordance with the
policies and procedures established by the Company.
(c) Stock Grant and Options. The Employee shall be entitled to
participate in a Board approved stock option incentive program that
is now or may become applicable to the Company's executive
employees.
4. Term. The initial term of this Agreement shall be twelve (12) months from
the Effective Date. This Agreement may not be terminated by the Company
without cause during the first twelve (12) months of the term. Thereafter,
the Company must provide the Employee with not less than six (6) months
written notice of intent to terminate this Agreement without cause. This
Agreement shall be automatically renewed for each additional year on each
anniversary date of the Effective Date, unless either party gives
- 2 -
<PAGE>
contrary written notice to the other party hereto not less than six (6)
months before such anniversary date. The initial term and all such renewal
terms are collectively referred to herein as the term of this Agreement.
5. Voluntary Absences: Vacations. The Employee shall be entitled, without
loss of pay, to be absent voluntarily for a reasonable period of time from
the performance of the duties and responsibilities under this Agreement.
All such voluntary absences shall count as paid vacation time, unless the
Board otherwise approves. The Employee shall be entitled to an annual paid
vacation of at least four weeks per year or such longer period as the
Board may approve. The timing of paid vacations shall be scheduled in a
reasonable manner by the Employee. The Employee shall not be entitled to
receive compensation in lieu of vacation if he is unable to utilize the
full amount of paid vacation time available to him in any year.
6. Termination of Employment. The Employee's employment may be terminated
without any breach of this Agreement only under the following
circumstances:
(a) Death. The Employee's employment shall terminate upon his death.
(b) Disability. The Company may terminate the Employee's employment
because of Disability. For this purpose, "Disability" shall mean the
inability of the Employee to perform his duties under this Agreement
because of physical illness or incapacity for a continuous period of
six months during which the Employee shall have been absent from his
duties under this Agreement on a substantially full-time basis.
(c) Cause. The Company may terminate the Employee's employment for
Cause. For purposes of this Agreement, the Company shall have
"Cause" to terminate the Employee's employment only in the event of
(1) the willful and continued failure by the Employee to
substantially perform his duties hereunder (other than any such
failure resulting from the Employee's inability to perform such
duties as a result of physical illness or incapacity or any such
actual or anticipated failure after the delivery of a Notice of
Termination, as defined in Section 6(e), by the Employee for Good
Reason, as defined, in Section 6(d)), after delivery to the Employee
of a written demand for substantial performance that specifically
identifies the manner in which the Company believes that the
Employee has not substantially performed his duties and a reasonable
opportunity to cure; (2) willful misconduct by the Employee that
causes actual and substantial damage to the business and operations
of the Company, the continuation of which, in the reasonable
judgment of the Board, will continue to substantially and materially
damage the Company; or (3) conviction of the Employee of a felony.
The Employee shall not be deemed to have been terminated for Cause
unless the Employee shall have been provided with (i) not less than
60 days written notice setting forth the reasons that the Company
believes constitute Cause for the termination of his employment;
(ii) a reasonable opportunity to be heard by the
- 3 -
<PAGE>
Board, after not less than 10 days following the Company's 60 day
notice; and (iii) a Notice of Termination, as defined in Section
6(e), from the Board finding that, in the reasonable good faith
opinion of the Board, Cause for the termination exists and
specifying the particulars thereof in reasonable detail.
(d) Termination by the Employee. The Employee may terminate his
employment (i) for Good Reason or (ii) for any other reason at any
time, in each case, by giving 60 days prior written notice to the
Company, unless the event giving rise to the Good Reason is cured
(if curable) within such 60-day period.
For this purpose, "Good Reason" shall mean:
(1) The assignment to the Employee of any duties inconsistent with
the Employee's status as stipulated in Section 1 of this
Agreement or any substantial adverse alteration in the nature
or status of the Employee's responsibilities;
(2) Any change in the Employee's reporting responsibility such
that the Employee is required to report other than to the
Board of Directors or serve at the discretion of the Board of
Directors;
(3) Any purported termination of the Employee's employment by the
Company that is not effected pursuant to a Notice of
Termination satisfying the requirements of Sections 6(c) and
(e) hereof;
(4) Any other failure by the Company to comply with any material
provision of this Agreement which failure continues for more
than ten days after written notice of such noncompliance from
the Employee; or
(5) Any notice given by the Company to the Employee under Section
4 hereof that this Agreement will not be renewed on any
anniversary date.
(e) Notice of Termination. Any termination of the Employee's employment
by the Company or by the Employee hereto shall be communicated to
the other party by a written Notice of Termination. Any Notice of
Termination given by a party shall specify the particular
termination provision of this Agreement relied upon by such party
and shall set forth in reasonable detail the facts and circumstances
relied upon as providing a basis for the termination under the
provision so specified.
(f) Termination Date. Termination Date shall mean (1) if the Employee's
employment is terminated by his death, the date of his death; (2) if
the Employee's employment is terminated pursuant to Section 6(b)
hereof, the date specified in the Notice of Termination, which shall
be after the expiration of the six month period specified in that
subsection; (3) if the Employee's employment is terminated by the
Company for Cause, the date specified in the Notice of
- 4 -
<PAGE>
Termination or the Board's determination confirming cause as
specified in Section 6(c), whichever is later, or (4) if the
Employee's employment is terminated for any other reason, sixty days
following the date on which the Notice of Termination is given.
7. Compensation Upon Termination of Employment.
(a) Termination for Cause or Without Good Reason. If the Employee's
employment is terminated by the Company for Cause, or by the
Employee other than for Good Reason, the Company shall pay the
Employee his salary through the Termination Date and the Company
shall have no further obligation to the Employee hereunder, except
with regard to obligations owed under Section 2(b) hereof and any
other benefits to which Employee may be entitled, as specified in
Section 7(c)(3) below.
(b) Termination Because of Disability. If the Employee's employment is
terminated by the Company because of Disability under Section 6(b)
hereof, the Employee shall be entitled to the benefits of the then
current disability policies of the Company. The Company will review
the Company's disability policies with respect to its senior
executives in good faith with respect to expanded coverage
opportunities that may be available on satisfactory economic terms.
(c) Termination Because of Death, Without Cause or With Good Reason. If
(i) in breach of this Agreement, the Company shall terminate the
Employee's employment other than (A) for Cause or (B) because of
Disability or (ii) the Employee shall terminate his employment for
Good Reason (other than pursuant to Section 6(d)(5)) or because of
his death, then:
(1) The Company shall pay the Employee or his estate his salary
through the Termination Date and all other unpaid and pro rata
amounts to which the Employee is entitled as of the
Termination Date under any compensation plan or program of the
Company, including, without limitation, any incentive
performance bonus and all accrued vacation time. Such payments
are to be made in a lump sum on or before the Termination
Date.
(2) The Company shall pay as liquidated damages to the Employee,
and in lieu of any further salary payments hereunder for
periods after the Termination Date, an amount equal to the
Employee's annual salary, specified in Section 2(a) hereof,
which amount shall be paid in a lump sum no later than fifteen
(15) days subsequent to the Termination Date.
(3) In addition to the liquidated damages amounts that are payable
to the Employee, the following shall apply: (A) the Employee
shall continue to participate in, and accrue benefits under,
all retirement, pension, profit sharing, employee stock,
ownership, thrift, and other deferred
- 5 -
<PAGE>
compensation plans of the Company for the remaining term of
this Agreement as if the termination of employment of the
Employee had not occurred (with Employee being deemed to
receive annually for the purposes of such plans the Employee's
then current salary (at the time of his termination) under
Section 2(a) of this Agreement), except to the extent that
such continued participation and accrual is expressly
prohibited by law, or to the extent such plan constitutes a
"qualified plan" under Section 401 of the Internal Revenue
Code of 1986, as amended ("the Code"), by the terms of the
plan, in which case the Company shall provide the Employee a
substantially equivalent, unfunded, nonqualified benefit; (B)
the Employee shall be entitled to continue to receive all
other employee benefits and then existing fringe benefits
referred to in Section 3(a) and (b) hereof for the remaining
term of this Agreement as if the termination of employment had
not occurred; (C) the Company shall, on the Termination Date,
establish an irrevocable trust that meets the guidelines set
forth in Rev. Proc. 92-64 published by the Internal Revenue
Service (as the same may be modified or supplemented from time
to time) (the "Trust"), the assets of which will be held,
subject to the claims of creditors of the Company, solely to
provide for the benefits that the Employee is entitled to
under this Section 7(c)(3); and the Company shall transfer to
the Trust an amount sufficient to provide for such benefits;
and (D) all insurance or other provisions for indemnification,
defense or hold-harmless of officers or directors of the
Company that are in effect on the date the Notice of
Termination is sent to the Employee shall continue for the
benefit of the Employee with respect to all of his acts and
omissions while an officer or director as fully and completely
as if such termination had not occurred, and until the final
expiration or running of all periods of limitation against
action which may be applicable to such acts or omissions; and
(4) The liquidation damages amount and other benefits provided for
in this Section 7(c) shall not be reduced by any compensation
or benefits that the Employee may receive for other employment
with the Company.
(d) Cost of Enforcement. In the event the employment of the Employee is
terminated by the Company because of Disability or without Cause or
by the Employee for Good Reason, and the Company fails to make
timely payment of the amounts owed to the Employee under this
Agreement, the Employee shall be entitled to reimbursement for all
reasonable costs, including attorney's fees, incurred by the
Employee in taking action to collect such amounts or otherwise to
enforce this Agreement, plus interest on such amounts at the rate of
one percent above the prime rate (defined as the base rate on
corporate loans at large U.S. money center commercial banks as
published by the Wall Street Journal), compounded monthly, for the
period from the date of employment termination until payment is
- 6 -
<PAGE>
made to the Employee. Such reimbursement and interest shall be in
addition to all rights to which the Employee is otherwise entitled
under this Agreement.
(e) Parachute Payment Limitation. If any payment or benefit to the
Employee under this Agreement would be considered a "parachute
payment" within the meaning of Section 280G9(b)(2) of the Code and
if, after reduction for any applicable federal excise tax imposed by
Section 4999 of the Code (the "Excise Tax") and federal income tax
imposed by the Code, the Employee's net proceeds of the amounts
payable and the benefits provided under this Agreement would be less
than the amount of the Employee's net proceeds resulting from the
payment of Reduced Amount described below, after reduction for
federal income taxes, then the amount payable and the benefits
provided under this Agreement shall be limited to the Reduced
Amount. The "Reduced Amount" shall be the largest amount that could
be received by the Employee under this Agreement such that no amount
paid to the Employee under this Agreement and any other agreement,
contract, or understanding heretofore or hereafter entered into
between the Employee and the Company (the "Other Agreement") and any
formal or informal plan or other arrangement heretofore or hereafter
adopted by the Company for the direct or indirect provision of
compensation to the Employee (including groups or classes of
participants of beneficiaries of which the Employee is a member),
whether or not such compensation is deferred, is in cash, or is
subject to the Excise Tax. In the event that the amount payable to
the Employee shall be limited to the Reduced Amount, then the
Employee shall have the right, in the Employee's sole discretion, to
designate those payments or benefits under this Agreement, any Other
Agreement, and/or any benefits plan, that should be reduced or
eliminated so as to avoid having the payment to the Employee under
this Agreement be subject to the Excise Tax.
8. Confidentiality. In consideration of the willingness of the Company to
employ the Employee and the compensation to be paid and benefits to be
received therefor, and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the Employee agrees
as follows:
(a) The Company Owns All of Employee's Work Which is Performed for
Company. Each party acknowledges that the Employee is a full time
employee and that work performed by the Employee for himself or
other employees will be owned by the Company. All improvements,
discoveries, inventions, designs, documents, licenses and patents,
or other data devised, conceived, made, developed, obtained, filed,
perfected, acquired, or first reduced to practice, in whole or in
part, or in the regular course of employment by the Employee during
the term of this Agreement, and related in any way to the business,
including development and research, of the Company or any subsidiary
or affiliate engaged in business substantially similar to that of
the Company shall be promptly disclosed to the Company. The Employee
hereby assigns and transfers to the Company all his right, interest
and title thereto, and such improvements, discoveries, inventions,
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<PAGE>
designs, documents, licenses and patents, or other data shall become
the property of the Company. During the term of this Agreement, and
at anytime thereafter, upon request of the Company, the Employee
will join and render assistance in any proceedings and execute any
papers necessary to file and prosecute applications for, and to
acquire, maintain and enforce, letters patent, trademarks,
registrations and/or copyrights, both domestic and foreign, with
respect to such improvements, discoveries, inventions, designs,
documents, licenses and patents, or other data as required for
vesting and maintaining title to same in the Company.
(b) Non-Disclosure of Confidential Information. The Employee agrees and
acknowledges that the term "Confidential and Proprietary
Information" shall mean any and all information not in the public
domain, in any form, emanating from or relating to the Company or
its subsidiaries and affiliates, including, but not limited to,
trade secrets, technical information, costs, designs, drawings,
processes, systems, methods of operation and procedures, formulae,
test data, know-how, improvements, price lists, financial data, code
books, invoices and other financial statements, computer programs,
discs and printouts, sketches, and plans (engineering, architectural
or otherwise), customer lists, telephone numbers, names, addresses,
information about equipment and processes (including specifications
and operating manuals), or any other compilation of information
written or unwritten that is used in the business of the Company or
any subsidiary or affiliate and that gives the Company or any
subsidiary or affiliate any opportunity to obtain an advantage over
competitors of the Company who do not know or use such information.
The Employee agrees and acknowledges that all Confidential and
Proprietary Information, in any form, and all copies and extracts
thereof, is and are and shall remain the sole and exclusive property
of the Company and, upon termination of his employment with the
Company hereby agrees to return to the Company the originals and all
copies of any Confidential and Proprietary Information provided to
or acquired by the Employee during the period of his employment.
Except as ordered by a court of competent jurisdiction, the Employee
expressly agrees never to disclose to any person (except to other
Company employees, and then only on a "need to know" basis) or
entity any Confidential or Proprietary Information either during the
term of this Agreement or at any time after the termination of his
employment, except with the express written authorization and
consent of the Company.
(c) Customers' Information. The Employee understands and acknowledges
that each customer of the Company or its subsidiaries or affiliates
will disclose information that will be within the Company's control
in connection with the Company's furnishing of services to its
customer. The Employee covenants and agrees to hold such information
in the strictest confidence and shall treat such information in the
same manner as if such information were "Confidential and
Proprietary Information", as defined herein.
- 8 -
<PAGE>
9. Other Contracts. Each party acknowledges that the Employee is employed on
a full time basis. The Employee may not accept employment with a third
party or undertake other activities for compensation at anytime during the
term of this Agreement which prevent the Employee from discharging his
duties hereunder.
10. Restrictive Covenant.
(a) The Employee acknowledges and recognizes that during the term hereof
he will be privy to trade secrets and confidential proprietary
information critical to the business of the Company and its
subsidiaries and affiliates and further acknowledges and recognizes
that the Company would find it extremely difficult to replace the
Employee. Accordingly, if the Employee terminates his employment
without a Good Reason, or the Company terminates the Employee for
Cause, the Employee shall not, during the term hereof and for the
one-year period following termination, (i) directly or indirectly
engage in, represent in any way, or be connected with, any business
(such business being referred to herein as a "Competing Business")
competing with the business of the Company or any of its
subsidiaries or affiliates within any state or country in which the
Company or any such subsidiary or affiliate transacts business,
whether such engagement shall be as an officer, director, owner,
employee, partner, affiliate or other participant in any Competing
Business, (ii) assist others in engaging in any Competing Business
in the manner described in clause (i) above, (iii) induce any
employees of the Company or any of its subsidiaries or affiliates to
terminate their employment with the Company or any such subsidiary
or affiliate, or to engage in any Competing Business, or (iv) induce
any entity or person with which the Company or any of its
subsidiaries or affiliates has a business relationship to terminate
or alter such business relationship; provided, however, that nothing
contained in this Section 10(a) shall prevent, restrain or otherwise
restrict the Employee from owning 5% or less of any class of
securities of any competitor of the Company so long as such
securities are listed for trade by NASDAQ in the over-the-counter
market or are traded on an organized securities exchange.
(b) The Company and the Employee expressly acknowledge and agree that no
restrictive covenants will be imposed upon the Employee if the
Employee terminates his employment for Good Reason or the Company
terminates the Employee without Cause. If the Company allegedly
terminates the Employee for Cause and the Employee does not agree
with such allegation, no restrictive covenants shall be imposed upon
the Employee unless and until a judicial decision finds that the
Company was justified in terminating the Employee for Cause.
(c) The Employee understands that the foregoing restrictions may limit
his ability to earn a livelihood in a business similar to the
business of the Company and its subsidiaries or affiliates, but he
nevertheless believes that he has received and will receive
sufficient consideration and other benefits as an employee of the
- 9 -
<PAGE>
Company as provided hereunder, to justify clearly such restrictions.
The Company reserves the right to provide additional compensation to
Employee to the extent necessary to enforce this restrictive
covenant.
11. Amendments or Additions; Action by the Board. No amendments or additions
to the Agreement shall be binding unless in writing and signed by all
parties hereto. The prior approval by a two-thirds affirmative vote of the
full Board shall be required in order for the Company to authorize any
amendments or additions to this Agreement, to give any consents or waivers
of provisions of this Agreement, or to take any other action under this
Agreement including any Notice of Termination.
12. Miscellaneous.
(a) Notices. Any notice required or permitted hereunder shall be given
in writing and shall be personally delivered or mailed by first
class registered or certified mail, postage prepaid, return receipt
requested, or transmitted by facsimile, telegram or telex addressed
to the Company or the Employee at the addresses set forth on the
signature page of this Agreement, or at such other address as such
party may designate by ten days advance written notice to the other
party.
Each notice or communication that shall have been transmitted in the
manner described above, or that shall have been delivered to a
telegraph company, shall be deemed sufficiently given, served, sent
or received for all purposes at such time as it is sent to the
addressee (with return receipt, delivery receipt or (with respect to
a telex) the answer back being deemed (conclusive, but not
exclusive, evidence of such sending) or at such time as delivery is
refused by the addressee upon presentation.
(b) Severability. Nothing in this Agreement shall be construed so as to
require the commission of any act contrary to law and wherever this
is a conflict between any provision of this Agreement and any law,
statute, ordinance, order or regulation, the latter shall prevail,
but in such event any provision of this Agreement shall be curtailed
and limited only to the extent necessary to bring it within
applicable legal requirements. If any provision of this Agreement
should be held invalid or unenforceable, the remaining provisions
shall be unaffected by such a holding.
(c) Complete Agreement. This Agreement contains the entire agreement and
understanding between the parties relating to the subject matter
hereof, and supersedes any prior understandings, agreements, or
representations by or between the parties, written or oral, relating
to the subject matter hereof.
(d) Successors and Assigns. This Agreement and the rights and
obligations of the parties hereto shall bind and inure to the
benefit of any successor or successors of the Company by way of
reorganization, merger or consolidation and any assignee of all or
substantially all of its business and assets, but except as to any
such successor or assignee of the Company, neither this Agreement
nor any rights or
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<PAGE>
benefits hereunder may be assigned by the Company or the Employee.
However, in the event of death of the Employee, all rights to
receive payments hereunder shall become the rights of the Employee's
estate.
(e) Section Headings. The Section headings used in this Agreement are
included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
(f) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State as such laws are applied to
contracts entered into and to be performed entirely within the State
of Delaware.
* * * * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
on the day and year first above written.
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
By: /s/ Eckhardt C. Beck
--------------------
Eckardt C. Beck
Chairman
WILLIAM L. AMT
/s/ William L. Amt
- ------------------
Address: 4425 Clear River Court
Orlando, Florida 32817
- 12 -
EMPLOYMENT AGREEMENT
Between
Conversion Technologies International, Inc. and
Jack D. Hays, Jr.
THIS AGREEMENT, is made as of the 2nd day of July, 1997 (the "Effective
Date"), between Conversion Technologies International, Inc., a Delaware
corporation (the "Company"), and Jack D. Hays, Jr. (the "Employee").
WHEREAS, the Company wishes to engage the services of Employee to render
services for and on its behalf in accordance with the following terms,
conditions and provisions; and
WHEREAS, the Employee wishes to perform such services for and on behalf of
the Company, in accordance with the following terms conditions and provisions;
and
WHEREAS, the Board of Directors of the Company (the "Board") has approved
and authorized the entry into this Agreement with the Employee;
NOW, THEREFORE, it is agreed as follows:
1. Employment. From the Effective Date, the Employee shall serve as the
Executive Vice President - Operations and Marketing of the Company. The
Employee's duties and responsibilities shall be consistent with the duties
of those performed by an Executive Vice President, Operations and
Marketing in a contemporary public company and of a similar size and
scale. The Employee shall report to the President and Chief Executive
Officer. The Employee shall devote his best efforts to the Company and his
position, which shall include such additional duties as the Board of
Directors, directly or through the President and Chief Executive Officer
of the Company, may from time to time reasonably direct and that are
reasonably consistent with the Employee's education, experience and
background. During the term of this Agreement, there shall be no material
increase or decrease in the duties and responsibilities of the Employee
other than as provided herein, unless the parties agree otherwise in
writing.
2. Compensation.
(a) Salary. The Company agrees to pay the Employee during the term of
this Agreement a salary at an annual rate equal to $125,000 per year
($10,416.67 per month payable at the Company's standard payroll
periods). The Employee shall not receive an annual bonus or an
incentive bonus, except as may be provided by the Board.
(b) Adjustment in Salary. The Employee's salary shall be increased at
the discretion of the Compensation Committee of the Board of
Directors of the Company. The salary of the Employee shall not be
decreased at any time during the term of this
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Agreement unless the Employee agrees otherwise in writing.
Participation in deferred compensation, discretionary bonuses,
retirement and other employee benefit plans and fringe benefits
shall not reduce the salary payable to the Employee.
(c) Grant of Options. As of the Effective Date, the Employee will
receive incentive stock options to purchase 100,000 shares of the
Company's Common Stock at an exercise price equal to $1.625 per
share. Twenty percent (20%) of such options will be immediately
vested and twenty percent (20%) of such options will vest on each
anniversary of the Effective Date, subject to the vesting and other
provisions to be set forth in an incentive stock option agreement to
be entered into by the parties.
3. Insurance, Retirement and Employee Benefit Plans: Fringe Benefits,
Business Expenses.
(a) Benefits and Perquisites. The Employee shall be entitled to
participate in any plan of the Company relating to stock options,
restricted stock, employee stock purchase or ownership, pension,
thrift, profit sharing, group life insurance, medical coverage,
education, or other retirement or employee benefit plans or
arrangements that the Company has adopted or may adopt for the
benefit of its employees or executive officers. The Employee shall
also be entitled to participate in, or enjoy the benefit of, any
other fringe benefits or perquisites that are now or may be or
become applicable to the Company's executive employees generally.
(b) Business Expenses. During the term of Employee's employment by the
Company, the Company shall promptly reimburse the Employee for all
reasonable and customary expenses incurred by the Employee in
performing services for the Company, including all expenses of
travel and living expenses while away from home on business or at
the request of and in the service of the Company, provided that such
expenses are incurred and accounted for in accordance with the
policies and procedures established by the Company.
(c) Stock Grant and Options. The Employee shall be entitled to
participate in a Board approved stock option incentive program that
is now or may become applicable to the Company's executive
employees.
4. Term. The initial term of this Agreement shall be twelve (12) months from
the Effective Date. This Agreement may not be terminated by the Company
without cause during the first twelve (12) months of the term. Thereafter,
the Company must provide the Employee with not less than six (6) months
written notice of intent to terminate this Agreement without cause. This
Agreement shall be automatically renewed for each additional year on each
anniversary date of the Effective Date, unless either party gives contrary
written notice to the other party hereto not less than six (6) months
before such anniversary date. The initial term and all such renewal terms
are collectively referred to herein as the term of this Agreement.
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<PAGE>
5. Vacations. The Employee shall be entitled to an annual paid vacation of at
least four weeks per year or such longer period as the Board may approve.
The timing of paid vacations shall be scheduled in a reasonable manner by
the Employee. The Employee shall not be entitled to receive compensation
in lieu of vacation if he is unable to utilize the full amount of paid
vacation time available to him in any year.
6. Termination of Employment. The Employee's employment may be terminated
without any breach of this Agreement only under the following
circumstances:
(a) Death. The Employee's employment shall terminate upon his death.
(b) Disability. The Company may terminate the Employee's employment
because of Disability. For this purpose, "Disability" shall mean the
inability of the Employee to perform his duties under this Agreement
because of physical illness or incapacity for a continuous period of
six months during which the Employee shall have been absent from his
duties under this Agreement on a substantially full-time basis.
(c) Cause. The Company may terminate the Employee's employment for
Cause. For purposes of this Agreement, the Company shall have
"Cause" to terminate the Employee's employment only in the event of
(1) the willful and continued failure by the Employee to
substantially perform his duties hereunder (other than any such
failure resulting from the Employee's inability to perform such
duties as a result of physical illness or incapacity or any such
actual or anticipated failure after the delivery of a Notice of
Termination, as defined in Section 6(e), by the Employee for Good
Reason, as defined, in Section 6(d)), after delivery to the Employee
of a written demand for substantial performance that specifically
identifies the manner in which the Company believes that the
Employee has not substantially performed his duties and a reasonable
opportunity to cure; (2) willful misconduct by the Employee that
causes actual and substantial damage to the business and operations
of the Company, the continuation of which, in the reasonable
judgment of the Board, will continue to substantially and materially
damage the Company; or (3) conviction of the Employee of a felony.
The Employee shall not be deemed to have been terminated for Cause
unless the Employee shall have been provided with (i) not less than
60 days written notice setting forth the reasons that the Company
believes constitute Cause for the termination of his employment;
(ii) a reasonable opportunity to be heard by the Board, after not
less than 10 days following the Company's 60 day notice; and (iii) a
Notice of Termination, as defined in Section 6(e), from the Board
finding that, in the reasonable good faith opinion of the Board,
Cause for the termination exists and specifying the particulars
thereof in reasonable detail.
(d) Termination by the Employee. The Employee may terminate his
employment (i) for Good Reason or (ii) for any other reason at any
time, in each case, by giving
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<PAGE>
60 days prior written notice to the Company, unless the event giving
rise to the Good Reason is cured (if curable) within such 60-day
period.
For this purpose, "Good Reason" shall mean:
(1) The assignment to the Employee of any duties inconsistent with
the Employee's status as stipulated in Section 1 of this
Agreement or any substantial adverse alteration in the nature
or status of the Employee's responsibilities;
(2) Any change in the Employee's reporting responsibility such
that the Employee is required to report other than to the
President and Chief Executive Officer of the Company;
(3) Any purported termination of the Employee's employment by the
Company that is not effected pursuant to a Notice of
Termination satisfying the requirements of Sections 6(c) and
(e) hereof;
(4) Any other failure by the Company to comply with any material
provision of this Agreement which failure continues for more
than ten days after written notice of such noncompliance from
the Employee; or
(5) Any notice given by the Company to the Employee under Section
4 hereof that this Agreement will not be renewed on any
anniversary date.
(e) Notice of Termination. Any termination of the Employee's employment
by the Company or by the Employee hereto shall be communicated to
the other party by a written Notice of Termination. Any Notice of
Termination given by a party shall specify the particular
termination provision of this Agreement relied upon by such party
and shall set forth in reasonable detail the facts and circumstances
relied upon as providing a basis for the termination under the
provision so specified.
(f) Termination Date. Termination Date shall mean (1) if the Employee's
employment is terminated by his death, the date of his death; (2) if
the Employee's employment is terminated pursuant to Section 6(b)
hereof, the date specified in the Notice of Termination, which shall
be after the expiration of the six month period specified in that
subsection; (3) if the Employee's employment is terminated by the
Company for Cause, the date specified in the Notice of Termination
or the Board's determination confirming cause as specified in
Section 6(c), whichever is later, or (4) if the Employee's
employment is terminated for any other reason, sixty days following
the date on which the Notice of Termination is given.
7. Compensation Upon Termination of Employment.
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<PAGE>
(a) Termination for Cause or Without Good Reason. If the Employee's
employment is terminated by the Company for Cause, or by the
Employee other than for Good Reason, the Company shall pay the
Employee his salary through the Termination Date and the Company
shall have no further obligation to the Employee hereunder, except
with regard to obligations owed under Section 2(b) hereof and any
other benefits to which Employee may be entitled, as specified in
Section 7(c)(3) below.
(b) Termination Because of Disability. If the Employee's employment is
terminated by the Company because of Disability under Section 6(b)
hereof, the Employee shall be entitled to the benefits of the then
current disability policies of the Company. The Company will review
the Company's disability policies with respect to its senior
executives in good faith with respect to expanded coverage
opportunities that may be available on satisfactory economic terms.
(c) Termination Because of Death, Without Cause or With Good Reason. If
(i) in breach of this Agreement, the Company shall terminate the
Employee's employment other than (A) for Cause or (B) because of
Disability or (ii) the Employee shall terminate his employment for
Good Reason (other than pursuant to Section 6(d)(5)) or because of
his death, then:
(1) The Company shall pay the Employee or his estate his salary
through the Termination Date and all other unpaid and pro rata
amounts to which the Employee is entitled as of the
Termination Date under any compensation plan or program of the
Company, including, without limitation, any incentive
performance bonus and all accrued vacation time. Such payments
are to be made in a lump sum on or before the Termination
Date.
(2) The Company shall pay as liquidated damages to the Employee,
and in lieu of any further salary payments hereunder for
periods after the Termination Date, an amount equal to the
Employee's annual salary, specified in Section 2(a) hereof,
which amount shall be paid in a lump sum no later than fifteen
(15) days subsequent to the Termination Date.
(3) In addition to the liquidated damages amounts that are payable
to the Employee, the following shall apply: (A) the Employee
shall continue to participate in, and accrue benefits under,
all retirement, pension, profit sharing, employee stock,
ownership, thrift, and other deferred compensation plans of
the Company for the remaining term of this Agreement as if the
termination of employment of the Employee had not occurred
(with Employee being deemed to receive annually for the
purposes of such plans the Employee's then current salary (at
the time of his termination) under Section 2(a) of this
Agreement), except to the extent that such continued
participation and accrual is expressly prohibited
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<PAGE>
by law, or to the extent such plan constitutes a "qualified plan"
under Section 401 of the Internal Revenue Code of 1986, as amended
("the Code"), by the terms of the plan, in which case the Company
shall provide the Employee a substantially equivalent, unfunded,
nonqualified benefit; (B) the Employee shall be entitled to continue
to receive all other employee benefits and then existing fringe
benefits referred to in Section 3(a) and (b) hereof for the
remaining term of this Agreement as if the termination of employment
had not occurred; (C) the Company shall, on the Termination Date,
establish an irrevocable trust that meets the guidelines set forth
in Rev. Proc. 92-64 published by the Internal Revenue Service (as
the same may be modified or supplemented from time to time) (the
"Trust"), the assets of which will be held, subject to the claims of
creditors of the Company, solely to provide for the benefits that
the Employee is entitled to under this Section 7(c)(3); and the
Company shall transfer to the Trust an amount sufficient to provide
for such benefits; and (D) all insurance or other provisions for
indemnification, defense or hold-harmless of officers or directors
of the Company that are in effect on the date the Notice of
Termination is sent to the Employee shall continue for the benefit
of the Employee with respect to all of his acts and omissions while
an officer or director as fully and completely as if such
termination had not occurred, and until the final expiration or
running of all periods of limitation against action which may be
applicable to such acts or omissions; and
(4) The liquidation damages amount and other benefits provided for in
this Section 7(c) shall not be reduced by any compensation or
benefits that the Employee may receive for other employment with
the Company.
(d) Cost of Enforcement. In the event the employment of the Employee is
terminated by the Company because of Disability or without Cause or
by the Employee for Good Reason, and the Company fails to make
timely payment of the amounts owed to the Employee under this
Agreement, the Employee shall be entitled to reimbursement for all
reasonable costs, including attorney's fees, incurred by the
Employee in taking action to collect such amounts or otherwise to
enforce this Agreement, plus interest on such amounts at the rate of
one percent above the prime rate (defined as the base rate on
corporate loans at large U.S. money center commercial banks as
published by the Wall Street Journal), compounded monthly, for the
period from the date of employment termination until payment is made
to the Employee. Such reimbursement and interest shall be in
addition to all rights to which the Employee is otherwise entitled
under this Agreement.
(e) Parachute Payment Limitation. If any payment or benefit to the
Employee under this Agreement would be considered a "parachute
payment" within the meaning of Section 280G9(b)(2) of the Code and
if, after reduction for any applicable federal excise tax imposed by
Section 4999 of the Code (the "Excise Tax") and
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<PAGE>
federal income tax imposed by the Code, the Employee's net proceeds
of the amounts payable and the benefits provided under this
Agreement would be less than the amount of the Employee's net
proceeds resulting from the payment of Reduced Amount described
below, after reduction for federal income taxes, then the amount
payable and the benefits provided under this Agreement shall be
limited to the Reduced Amount. The "Reduced Amount" shall be the
largest amount that could be received by the Employee under this
Agreement such that no amount paid to the Employee under this
Agreement and any other agreement, contract, or understanding
heretofore or hereafter entered into between the Employee and the
Company (the "Other Agreement") and any formal or informal plan or
other arrangement heretofore or hereafter adopted by the Company for
the direct or indirect provision of compensation to the Employee
(including groups or classes of participants of beneficiaries of
which the Employee is a member), whether or not such compensation is
deferred, is in cash, or is subject to the Excise Tax. In the event
that the amount payable to the Employee shall be limited to the
Reduced Amount, then the Employee shall have the right, in the
Employee's sole discretion, to designate those payments or benefits
under this Agreement, any Other Agreement, and/or any benefits plan,
that should be reduced or eliminated so as to avoid having the
payment to the Employee under this Agreement be subject to the
Excise Tax.
8. Confidentiality. In consideration of the willingness of the Company to
employ the Employee and the compensation to be paid and benefits to be
received therefor, and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the Employee agrees
as follows:
(a) The Company Owns All of Employee's Work Which is Performed for
Company. Each party acknowledges that the Employee is a full time
employee and that work performed by the Employee for himself or
other employees will be owned by the Company. All improvements,
discoveries, inventions, designs, documents, licenses and patents,
or other data devised, conceived, made, developed, obtained, filed,
perfected, acquired, or first reduced to practice, in whole or in
part, or in the regular course of employment by the Employee during
the term of this Agreement, and related in any way to the business,
including development and research, of the Company or any subsidiary
or affiliate engaged in business substantially similar to that of
the Company shall be promptly disclosed to the Company. The Employee
hereby assigns and transfers to the Company all his right, interest
and title thereto, and such improvements, discoveries, inventions,
designs, documents, licenses and patents, or other data shall become
the property of the Company. During the term of this Agreement, and
at anytime thereafter, upon request of the Company, the Employee
will join and render assistance in any proceedings and execute any
papers necessary to file and prosecute applications for, and to
acquire, maintain and enforce, letters patent, trademarks,
registrations and/or copyrights, both domestic and foreign, with
respect to such improvements,
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<PAGE>
discoveries, inventions, designs, documents, licenses and patents,
or other data as required for vesting and maintaining title to same
in the Company.
(b) Non-Disclosure of Confidential Information. The Employee agrees and
acknowledges that the term "Confidential and Proprietary
Information" shall mean any and all information not in the public
domain, in any form, emanating from or relating to the Company or
its subsidiaries and affiliates, including, but not limited to,
trade secrets, technical information, costs, designs, drawings,
processes, systems, methods of operation and procedures, formulae,
test data, know-how, improvements, price lists, financial data, code
books, invoices and other financial statements, computer programs,
discs and printouts, sketches, and plans (engineering, architectural
or otherwise), customer lists, telephone numbers, names, addresses,
information about equipment and processes (including specifications
and operating manuals), or any other compilation of information
written or unwritten that is used in the business of the Company or
any subsidiary or affiliate and that gives the Company or any
subsidiary or affiliate any opportunity to obtain an advantage over
competitors of the Company who do not know or use such information.
The Employee agrees and acknowledges that all Confidential and
Proprietary Information, in any form, and all copies and extracts
thereof, is and are and shall remain the sole and exclusive property
of the Company and, upon termination of his employment with the
Company hereby agrees to return to the Company the originals and all
copies of any Confidential and Proprietary Information provided to
or acquired by the Employee during the period of his employment.
Except as ordered by a court of competent jurisdiction, the Employee
expressly agrees never to disclose to any person (except to other
Company employees, and then only on a "need to know" basis) or
entity any Confidential or Proprietary Information either during the
term of this Agreement or at any time after the termination of his
employment, except with the express written authorization and
consent of the Company.
(c) Customers' Information. The Employee understands and acknowledges
that each customer of the Company or its subsidiaries or affiliates
will disclose information that will be within the Company's control
in connection with the Company's furnishing of services to its
customer. The Employee covenants and agrees to hold such information
in the strictest confidence and shall treat such information in the
same manner as if such information were "Confidential and
Proprietary Information", as defined herein.
9. Other Contracts. Each party acknowledges that the Employee is employed on
a full time basis. The Employee may not accept employment with a third
party or undertake other activities for compensation at anytime during the
term of this Agreement which prevent the Employee from discharging his
duties hereunder.
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<PAGE>
10. Restrictive Covenant.
(a) The Employee acknowledges and recognizes that during the term hereof
he will be privy to trade secrets and confidential proprietary
information critical to the business of the Company and its
subsidiaries and affiliates and further acknowledges and recognizes
that the Company would find it extremely difficult to replace the
Employee. Accordingly, if the Employee terminates his employment
without a Good Reason, or the Company terminates the Employee for
Cause, the Employee shall not, during the term hereof and for the
one-year period following termination, (i) directly or indirectly
engage in, represent in any way, or be connected with, any business
(such business being referred to herein as a "Competing Business")
competing with the business of the Company or any of its
subsidiaries or affiliates within any state or country in which the
Company or any such subsidiary or affiliate transacts business,
whether such engagement shall be as an officer, director, owner,
employee, partner, affiliate or other participant in any Competing
Business, (ii) assist others in engaging in any Competing Business
in the manner described in clause (i) above, (iii) induce any
employees of the Company or any of its subsidiaries or affiliates to
terminate their employment with the Company or any such subsidiary
or affiliate, or to engage in any Competing Business, or (iv) induce
any entity or person with which the Company or any of its
subsidiaries or affiliates has a business relationship to terminate
or alter such business relationship; provided, however, that nothing
contained in this Section 10(a) shall prevent, restrain or otherwise
restrict the Employee from owning 5% or less of any class of
securities of any competitor of the Company so long as such
securities are listed for trade by NASDAQ in the over-the-counter
market or are traded on an organized securities exchange.
(b) The Company and the Employee expressly acknowledge and agree that no
restrictive covenants will be imposed upon the Employee if the
Employee terminates his employment for Good Reason or the Company
terminates the Employee without Cause. If the Company allegedly
terminates the Employee for Cause and the Employee does not agree
with such allegation, no restrictive covenants shall be imposed upon
the Employee unless and until a judicial decision finds that the
Company was justified in terminating the Employee for Cause.
(c) The Employee understands that the foregoing restrictions may limit
his ability to earn a livelihood in a business similar to the
business of the Company and its subsidiaries or affiliates, but he
nevertheless believes that he has received and will receive
sufficient consideration and other benefits as an employee of the
Company as provided hereunder, to justify clearly such restrictions.
The Company reserves the right to provide additional compensation to
Employee to the extent necessary to enforce this restrictive
covenant.
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<PAGE>
11. Amendments or Additions; Action by the Board. No amendments or additions
to the Agreement shall be binding unless in writing and signed by all
parties hereto. The prior approval by a two-thirds affirmative vote of the
full Board shall be required in order for the Company to authorize any
amendments or additions to this Agreement, to give any consents or waivers
of provisions of this Agreement, or to take any other action under this
Agreement including any Notice of Termination.
12. Miscellaneous.
(a) Notices. Any notice required or permitted hereunder shall be given
in writing and shall be personally delivered or mailed by first
class registered or certified mail, postage prepaid, return receipt
requested, or transmitted by facsimile, telegram or telex addressed
to the Company or the Employee at the addresses set forth on the
signature page of this Agreement, or at such other address as such
party may designate by ten days advance written notice to the other
party.
Each notice or communication that shall have been transmitted in the
manner described above, or that shall have been delivered to a
telegraph company, shall be deemed sufficiently given, served, sent
or received for all purposes at such time as it is sent to the
addressee (with return receipt, delivery receipt or (with respect to
a telex) the answer back being deemed (conclusive, but not
exclusive, evidence of such sending) or at such time as delivery is
refused by the addressee upon presentation.
(b) Severability. Nothing in this Agreement shall be construed so as to
require the commission of any act contrary to law and wherever this
is a conflict between any provision of this Agreement and any law,
statute, ordinance, order or regulation, the latter shall prevail,
but in such event any provision of this Agreement shall be curtailed
and limited only to the extent necessary to bring it within
applicable legal requirements. If any provision of this Agreement
should be held invalid or unenforceable, the remaining provisions
shall be unaffected by such a holding.
(c) Complete Agreement. This Agreement contains the entire agreement and
understanding between the parties relating to the subject matter
hereof, and supersedes any prior understandings, agreements, or
representations by or between the parties, written or oral, relating
to the subject matter hereof.
(d) Successors and Assigns. This Agreement and the rights and
obligations of the parties hereto shall bind and inure to the
benefit of any successor or successors of the Company by way of
reorganization, merger or consolidation and any assignee of all or
substantially all of its business and assets, but except as to any
such successor or assignee of the Company, neither this Agreement
nor any rights or benefits hereunder may be assigned by the Company
or the Employee. However, in the event of death of the Employee, all
rights to receive payments hereunder shall become the rights of the
Employee's estate.
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<PAGE>
(e) Section Headings. The Section headings used in this Agreement are
included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
(f) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State as such laws are applied to
contracts entered into and to be performed entirely within the State
of Delaware.
* * * * * * *
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
on the day and year first above written.
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
By: /s/ Eckhardt C. Beck
--------------------
Eckardt C. Beck
Chairman
JACK D. HAYS, JR.
/s/ Jack D. Hays, Jr.
- -----------------------
Jack D. Hays, Jr.
Address:
----------------------------------------------
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EMPLOYMENT AGREEMENT
Between
Conversion Technologies International, Inc. and
Richard H. Hughes
THIS AGREEMENT, is made as of the 2nd day of July, 1997 (the "Effective
Date"), between Conversion Technologies International, Inc., a Delaware
corporation (the "Company"), and Richard H. Hughes (the "Employee").
WHEREAS, the Company wishes to engage the services of Employee to render
services for and on its behalf in accordance with the following terms,
conditions and provisions; and
WHEREAS, the Employee wishes to perform such services for and on behalf of
the Company, in accordance with the following terms conditions and provisions;
and
WHEREAS, the Board of Directors of the Company (the "Board") has approved
and authorized the entry into this Agreement with the Employee;
NOW, THEREFORE, it is agreed as follows:
1. Employment. From the Effective Date, the Employee shall serve as the Vice
President - Sales and Marketing of the Company. The Employee's duties and
responsibilities shall be consistent with the duties of those performed by
a Vice President - Sales and Marketing in a contemporary public company of
a similar size and scale. The Employee shall report to the Executive Vice
President - Operations and Marketing and the President and Chief Executive
Officer of the Company. The Employee shall devote his best efforts to the
Company and his position, which shall include such additional duties as
the Board of Directors, the President and Chief Executive Officer or the
Executive Vice President - Operations and Marketing may from time to time
reasonably direct and that are reasonably consistent with the Employee's
education, experience and background. During the term of this Agreement,
there shall be no material increase or decrease in the duties and
responsibilities of the Employee other than as provided herein, unless the
parties agree otherwise in writing.
2. Compensation.
(a) Salary. The Company agrees to pay the Employee during the term of
this Agreement a salary at an annual rate equal to $90,000 per year
($7,500 per month payable at the Company's standard payroll
periods). The Employee shall not receive an annual bonus or an
incentive bonus, except as may be provided by the Board.
(b) Adjustment in Salary. The Employee's salary shall be increased at
the discretion of the Compensation Committee of the Board of
Directors of the Company. The
<PAGE>
salary of the Employee shall not be decreased at any time during the
term of this Agreement unless the Employee agrees otherwise in
writing. Participation in deferred compensation, discretionary
bonuses, retirement and other employee benefit plans and fringe
benefits shall not reduce the salary payable to the Employee.
(c) Grant of Options. As of the Effective Date, the Employee will
receive incentive stock options to purchase 75,000 shares of the
Company's Common Stock at an exercise price equal to $1.625 per
share. Twenty percent (20%) of such options will be immediately
vested and twenty percent (20%) of such options will vest on each
anniversary of the date hereof, subject to the vesting and other
provisions to be set forth in an incentive stock option agreement to
be entered into by the parties.
3. Insurance, Retirement and Employee Benefit Plans: Fringe Benefits,
Business Expenses.
(a) Benefits and Perquisites. The Employee shall be entitled to
participate in any plan of the Company relating to stock options,
restricted stock, employee stock purchase or ownership, pension,
thrift, profit sharing, group life insurance, medical coverage,
education, or other retirement or employee benefit plans or
arrangements that the Company has adopted or may adopt for the
benefit of its employees or executive officers. The Employee shall
also be entitled to participate in, or enjoy the benefit of, any
other fringe benefits or perquisites that are now or may be or
become applicable to the Company's executive employees generally.
(b) Business Expenses. During the term of Employee's employment by the
Company, the Company shall promptly reimburse the Employee for all
reasonable and customary expenses incurred by the Employee in
performing services for the Company, including all expenses of
travel and living expenses while away from home on business or at
the request of and in the service of the Company, provided that such
expenses are incurred and accounted for in accordance with the
policies and procedures established by the Company.
(c) Stock Grant and Options. The Employee shall be entitled to
participate in a Board approved stock option incentive program that
is now or may become applicable to the Company's executive
employees.
4. Term. The initial term of this Agreement shall be twelve (12) months from
the Effective Date. This Agreement may not be terminated by the Company
without cause during the first twelve (12) months of the term. Thereafter,
the Company must provide the Employee with not less than six (6) months
written notice of intent to terminate this Agreement without cause. This
Agreement shall be automatically renewed for each additional year on each
anniversary date of the Effective Date, unless either party gives contrary
written notice to the other party hereto not less than six (6) months
before such
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<PAGE>
anniversary date. The initial term and all such renewal terms are
collectively referred to herein as the term of this Agreement.
5. Vacations. The Employee shall be entitled to an annual paid vacation of
four weeks per year or such longer period as the Board may approve. The
timing of vacations shall be scheduled in a reasonable manner by the
Employee. The Employee shall not be entitled to receive compensation in
lieu of vacation if he is unable to utilize the full amount of paid
vacation time available to him in any year.
6. Termination of Employment. The Employee's employment may be terminated
without any breach of this Agreement only under the following
circumstances:
(a) Death. The Employee's employment shall terminate upon his death.
(b) Disability. The Company may terminate the Employee's employment
because of Disability. For this purpose, "Disability" shall mean the
inability of the Employee to perform his duties under this Agreement
because of physical illness or incapacity for a continuous period of
six months during which the Employee shall have been absent from his
duties under this Agreement on a substantially full-time basis.
(c) Cause. The Company may terminate the Employee's employment for
Cause. For purposes of this Agreement, the Company shall have
"Cause" to terminate the Employee's employment only in the event of
(1) the willful and continued failure by the Employee to
substantially perform his duties hereunder (other than any such
failure resulting from the Employee's inability to perform such
duties as a result of physical illness or incapacity or any such
actual or anticipated failure after the delivery of a Notice of
Termination, as defined in Section 6(e), by the Employee for Good
Reason, as defined, in Section 6(d)), after delivery to the Employee
of a written demand for substantial performance that specifically
identifies the manner in which the Company believes that the
Employee has not substantially performed his duties and a reasonable
opportunity to cure; (2) willful misconduct by the Employee that
causes actual and substantial damage to the business and operations
of the Company, the continuation of which, in the reasonable
judgment of the Board, will continue to substantially and materially
damage the Company; or (3) conviction of the Employee of a felony.
The Employee shall not be deemed to have been terminated for Cause
unless the Employee shall have been provided with (i) not less than
60 days written notice setting forth the reasons that the Company
believes constitute Cause for the termination of his employment;
(ii) a reasonable opportunity to be heard by the Board, after not
less than 10 days following the Company's 60 day notice; and (iii) a
Notice of Termination, as defined in Section 6(e), from the Board
finding that, in the reasonable good faith opinion of the Board,
Cause for the termination exists and specifying the particulars
thereof in reasonable detail.
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<PAGE>
(d) Termination by the Employee. The Employee may terminate his
employment (i) for Good Reason or (ii) for any other reason at any
time, in each case, by giving 60 days prior written notice to the
Company, unless the event giving rise to the Good Reason is cured
(if curable) within such 60-day period.
For this purpose, "Good Reason" shall mean:
(1) The assignment to the Employee of any duties inconsistent with
the Employee's status as stipulated in Section 1 of this
Agreement or any substantial adverse alteration in the nature
or status of the Employee's responsibilities;
(2) Any change in the Employee's reporting responsibility such
that the Employee is required to report other than to the
Executive Vice President - Operations and Marketing or the
President and Chief Executive Officer of the Company.
(3) Any purported termination of the Employee's employment by the
Company that is not effected pursuant to a Notice of
Termination satisfying the requirements of Sections 6(c) and
(e) hereof;
(4) Any other failure by the Company to comply with any material
provision of this Agreement which failure continues for more
than ten days after written notice of such noncompliance from
the Employee; or
(5) Any notice given by the Company to the Employee under Section
4 hereof that this Agreement will not be renewed on any
anniversary date.
(e) Notice of Termination. Any termination of the Employee's employment
by the Company or by the Employee hereto shall be communicated to
the other party by a written Notice of Termination. Any Notice of
Termination given by a party shall specify the particular
termination provision of this Agreement relied upon by such party
and shall set forth in reasonable detail the facts and circumstances
relied upon as providing a basis for the termination under the
provision so specified.
(f) Termination Date. Termination Date shall mean (1) if the Employee's
employment is terminated by his death, the date of his death; (2) if
the Employee's employment is terminated pursuant to Section 6(b)
hereof, the date specified in the Notice of Termination, which shall
be after the expiration of the six month period specified in that
subsection; (3) if the Employee's employment is terminated by the
Company for Cause, the date specified in the Notice of Termination
or the Board's determination confirming cause as specified in
Section 6(c), whichever is later, or (4) if the Employee's
employment is terminated for any other reason, sixty days following
the date on which the Notice of Termination is given.
- 4 -
<PAGE>
7. Compensation Upon Termination of Employment.
(a) Termination for Cause or Without Good Reason. If the Employee's
employment is terminated by the Company for Cause, or by the
Employee other than for Good Reason, the Company shall pay the
Employee his salary through the Termination Date and the Company
shall have no further obligation to the Employee hereunder, except
with regard to obligations owed under Section 2(b) hereof and any
other benefits to which Employee may be entitled, as specified in
Section 7(c)(3) below.
(b) Termination Because of Disability. If the Employee's employment is
terminated by the Company because of Disability under Section 6(b)
hereof, the Employee shall be entitled to the benefits of the then
current disability policies of the Company. The Company will review
the Company's disability policies with respect to its senior
executives in good faith with respect to expanded coverage
opportunities that may be available on satisfactory economic terms.
(c) Termination Because of Death, Without Cause or With Good Reason. If
(i) in breach of this Agreement, the Company shall terminate the
Employee's employment other than (A) for Cause or (B) because of
Disability or (ii) the Employee shall terminate his employment for
Good Reason (other than pursuant to Section 6(d)(5)) or because of
his death, then:
(1) The Company shall pay the Employee or his estate his salary
through the Termination Date and all other unpaid and pro rata
amounts to which the Employee is entitled as of the
Termination Date under any compensation plan or program of the
Company, including, without limitation, any incentive
performance bonus and all accrued vacation time. Such payments
are to be made in a lump sum on or before the Termination
Date.
(2) The Company shall pay as liquidated damages to the Employee,
and in lieu of any further salary payments hereunder for
periods after the Termination Date, an amount equal to the
Employee's annual salary, specified in Section 2(a) hereof,
which amount shall be paid in a lump sum no later than fifteen
(15) days subsequent to the Termination Date.
(3) In addition to the liquidated damages amounts that are payable
to the Employee, the following shall apply: (A) the Employee
shall continue to participate in, and accrue benefits under,
all retirement, pension, profit sharing, employee stock,
ownership, thrift, and other deferred compensation plans of
the Company for the remaining term of this Agreement as if the
termination of employment of the Employee had not occurred
(with Employee being deemed to receive annually for the
purposes of such plans the Employee's then current salary (at
the time of his termination) under Section 2(a) of this
Agreement), except to the
- 5 -
<PAGE>
extent that such continued participation and accrual is
expressly prohibited by law, or to the extent such plan
constitutes a "qualified plan" under Section 401 of the
Internal Revenue Code of 1986, as amended ("the Code"), by the
terms of the plan, in which case the Company shall provide the
Employee a substantially equivalent, unfunded, nonqualified
benefit; (B) the Employee shall be entitled to continue to
receive all other employee benefits and then existing fringe
benefits referred to in Section 3(a) and (b) hereof for the
remaining term of this Agreement as if the termination of
employment had not occurred; (C) the Company shall, on the
Termination Date, establish an irrevocable trust that meets
the guidelines set forth in Rev. Proc. 92-64 published by the
Internal Revenue Service (as the same may be modified or
supplemented from time to time) (the "Trust"), the assets of
which will be held, subject to the claims of creditors of the
Company, solely to provide for the benefits that the Employee
is entitled to under this Section 7(c)(3); and the Company
shall transfer to the Trust an amount sufficient to provide
for such benefits; and (D) all insurance or other provisions
for indemnification, defense or hold-harmless of officers or
directors of the Company that are in effect on the date the
Notice of Termination is sent to the Employee shall continue
for the benefit of the Employee with respect to all of his
acts and omissions while an officer or director as fully and
completely as if such termination had not occurred, and until
the final expiration or running of all periods of limitation
against action which may be applicable to such acts or
omissions; and
(4) The liquidation damages amount and other benefits provided for
in this Section 7(c) shall not be reduced by any compensation
or benefits that the Employee may receive for other employment
with the Company.
(d) Cost of Enforcement. In the event the employment of the Employee is
terminated by the Company because of Disability or without Cause or
by the Employee for Good Reason, and the Company fails to make
timely payment of the amounts owed to the Employee under this
Agreement, the Employee shall be entitled to reimbursement for all
reasonable costs, including attorney's fees, incurred by the
Employee in taking action to collect such amounts or otherwise to
enforce this Agreement, plus interest on such amounts at the rate of
one percent above the prime rate (defined as the base rate on
corporate loans at large U.S. money center commercial banks as
published by the Wall Street Journal), compounded monthly, for the
period from the date of employment termination until payment is made
to the Employee. Such reimbursement and interest shall be in
addition to all rights to which the Employee is otherwise entitled
under this Agreement.
(e) Parachute Payment Limitation. If any payment or benefit to the
Employee under this Agreement would be considered a "parachute
payment" within the meaning of Section 280G9(b)(2) of the Code and
if, after reduction for any applicable
- 6 -
<PAGE>
federal excise tax imposed by Section 4999 of the Code (the "Excise
Tax") and federal income tax imposed by the Code, the Employee's net
proceeds of the amounts payable and the benefits provided under this
Agreement would be less than the amount of the Employee's net
proceeds resulting from the payment of Reduced Amount described
below, after reduction for federal income taxes, then the amount
payable and the benefits provided under this Agreement shall be
limited to the Reduced Amount. The "Reduced Amount" shall be the
largest amount that could be received by the Employee under this
Agreement such that no amount paid to the Employee under this
Agreement and any other agreement, contract, or understanding
heretofore or hereafter entered into between the Employee and the
Company (the "Other Agreement") and any formal or informal plan or
other arrangement heretofore or hereafter adopted by the Company for
the direct or indirect provision of compensation to the Employee
(including groups or classes of participants of beneficiaries of
which the Employee is a member), whether or not such compensation is
deferred, is in cash, or is subject to the Excise Tax. In the event
that the amount payable to the Employee shall be limited to the
Reduced Amount, then the Employee shall have the right, in the
Employee's sole discretion, to designate those payments or benefits
under this Agreement, any Other Agreement, and/or any benefits plan,
that should be reduced or eliminated so as to avoid having the
payment to the Employee under this Agreement be subject to the
Excise Tax.
8. Confidentiality. In consideration of the willingness of the Company to
employ the Employee and the compensation to be paid and benefits to be
received therefor, and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the Employee agrees
as follows:
(a) The Company Owns All of Employee's Work Which is Performed for
Company. Each party acknowledges that the Employee is a full time
employee and that work performed by the Employee for himself or
other employees will be owned by the Company. All improvements,
discoveries, inventions, designs, documents, licenses and patents,
or other data devised, conceived, made, developed, obtained, filed,
perfected, acquired, or first reduced to practice, in whole or in
part, or in the regular course of employment by the Employee during
the term of this Agreement, and related in any way to the business,
including development and research, of the Company or any subsidiary
or affiliate engaged in business substantially similar to that of
the Company shall be promptly disclosed to the Company. The Employee
hereby assigns and transfers to the Company all his right, interest
and title thereto, and such improvements, discoveries, inventions,
designs, documents, licenses and patents, or other data shall become
the property of the Company. During the term of this Agreement, and
at anytime thereafter, upon request of the Company, the Employee
will join and render assistance in any proceedings and execute any
papers necessary to file and prosecute applications for, and to
acquire, maintain and enforce, letters patent, trademarks,
registrations and/or copyrights, both domestic and foreign, with
respect to such improvements,
- 7 -
<PAGE>
discoveries, inventions, designs, documents, licenses and patents,
or other data as required for vesting and maintaining title to same
in the Company.
(b) Non-Disclosure of Confidential Information. The Employee agrees and
acknowledges that the term "Confidential and Proprietary
Information" shall mean any and all information not in the public
domain, in any form, emanating from or relating to the Company or
its subsidiaries and affiliates, including, but not limited to,
trade secrets, technical information, costs, designs, drawings,
processes, systems, methods of operation and procedures, formulae,
test data, know-how, improvements, price lists, financial data, code
books, invoices and other financial statements, computer programs,
discs and printouts, sketches, and plans (engineering, architectural
or otherwise), customer lists, telephone numbers, names, addresses,
information about equipment and processes (including specifications
and operating manuals), or any other compilation of information
written or unwritten that is used in the business of the Company or
any subsidiary or affiliate and that gives the Company or any
subsidiary or affiliate any opportunity to obtain an advantage over
competitors of the Company who do not know or use such information.
The Employee agrees and acknowledges that all Confidential and
Proprietary Information, in any form, and all copies and extracts
thereof, is and are and shall remain the sole and exclusive property
of the Company and, upon termination of his employment with the
Company hereby agrees to return to the Company the originals and all
copies of any Confidential and Proprietary Information provided to
or acquired by the Employee during the period of his employment.
Except as ordered by a court of competent jurisdiction, the Employee
expressly agrees never to disclose to any person (except to other
Company employees, and then only on a "need to know" basis) or
entity any Confidential or Proprietary Information either during the
term of this Agreement or at any time after the termination of his
employment, except with the express written authorization and
consent of the Company.
(c) Customers' Information. The Employee understands and acknowledges
that each customer of the Company or its subsidiaries or affiliates
will disclose information that will be within the Company's control
in connection with the Company's furnishing of services to its
customer. The Employee covenants and agrees to hold such information
in the strictest confidence and shall treat such information in the
same manner as if such information were "Confidential and
Proprietary Information", as defined herein.
9. Other Contracts. Each party acknowledges that the Employee is employed on
a full time basis. The Employee may not accept employment with a third
party or undertake other activities for compensation at anytime during the
term of this Agreement which prevent the Employee from discharging his
duties hereunder.
- 8 -
<PAGE>
10. Restrictive Covenant.
(a) The Employee acknowledges and recognizes that during the term hereof
he will be privy to trade secrets and confidential proprietary
information critical to the business of the Company and its
subsidiaries and affiliates and further acknowledges and recognizes
that the Company would find it extremely difficult to replace the
Employee. Accordingly, if the Employee terminates his employment
without a Good Reason, or the Company terminates the Employee for
Cause, the Employee shall not, during the term hereof and for the
one-year period following termination, (i) directly or indirectly
engage in, represent in any way, or be connected with, any business
(such business being referred to herein as a "Competing Business")
competing with the business of the Company or any of its
subsidiaries or affiliates within any state or country in which the
Company or any such subsidiary or affiliate transacts business,
whether such engagement shall be as an officer, director, owner,
employee, partner, affiliate or other participant in any Competing
Business, (ii) assist others in engaging in any Competing Business
in the manner described in clause (i) above, (iii) induce any
employees of the Company or any of its subsidiaries or affiliates to
terminate their employment with the Company or any such subsidiary
or affiliate, or to engage in any Competing Business, or (iv) induce
any entity or person with which the Company or any of its
subsidiaries or affiliates has a business relationship to terminate
or alter such business relationship; provided, however, that nothing
contained in this Section 10(a) shall prevent, restrain or otherwise
restrict the Employee from owning 5% or less of any class of
securities of any competitor of the Company so long as such
securities are listed for trade by NASDAQ in the over-the-counter
market or are traded on an organized securities exchange.
(b) The Company and the Employee expressly acknowledge and agree that no
restrictive covenants will be imposed upon the Employee if the
Employee terminates his employment for Good Reason or the Company
terminates the Employee without Cause. If the Company allegedly
terminates the Employee for Cause and the Employee does not agree
with such allegation, no restrictive covenants shall be imposed upon
the Employee unless and until a judicial decision finds that the
Company was justified in terminating the Employee for Cause.
(c) The Employee understands that the foregoing restrictions may limit
his ability to earn a livelihood in a business similar to the
business of the Company and its subsidiaries or affiliates, but he
nevertheless believes that he has received and will receive
sufficient consideration and other benefits as an employee of the
Company as provided hereunder, to justify clearly such restrictions.
The Company reserves the right to provide additional compensation to
Employee to the extent necessary to enforce this restrictive
covenant.
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<PAGE>
11. Amendments or Additions; Action by the Board. No amendments or additions
to the Agreement shall be binding unless in writing and signed by all
parties hereto. The prior approval by a two-thirds affirmative vote of the
full Board shall be required in order for the Company to authorize any
amendments or additions to this Agreement, to give any consents or waivers
of provisions of this Agreement, or to take any other action under this
Agreement including any Notice of Termination.
12. Miscellaneous.
(a) Notices. Any notice required or permitted hereunder shall be given
in writing and shall be personally delivered or mailed by first
class registered or certified mail, postage prepaid, return receipt
requested, or transmitted by facsimile, telegram or telex addressed
to the Company or the Employee at the addresses set forth on the
signature page of this Agreement, or at such other address as such
party may designate by ten days advance written notice to the other
party.
Each notice or communication that shall have been transmitted in the
manner described above, or that shall have been delivered to a
telegraph company, shall be deemed sufficiently given, served, sent
or received for all purposes at such time as it is sent to the
addressee (with return receipt, delivery receipt or (with respect to
a telex) the answer back being deemed (conclusive, but not
exclusive, evidence of such sending) or at such time as delivery is
refused by the addressee upon presentation.
(b) Severability. Nothing in this Agreement shall be construed so as to
require the commission of any act contrary to law and wherever this
is a conflict between any provision of this Agreement and any law,
statute, ordinance, order or regulation, the latter shall prevail,
but in such event any provision of this Agreement shall be curtailed
and limited only to the extent necessary to bring it within
applicable legal requirements. If any provision of this Agreement
should be held invalid or unenforceable, the remaining provisions
shall be unaffected by such a holding.
(c) Complete Agreement. This Agreement contains the entire agreement and
understanding between the parties relating to the subject matter
hereof, and supersedes any prior understandings, agreements, or
representations by or between the parties, written or oral, relating
to the subject matter hereof.
(d) Successors and Assigns. This Agreement and the rights and
obligations of the parties hereto shall bind and inure to the
benefit of any successor or successors of the Company by way of
reorganization, merger or consolidation and any assignee of all or
substantially all of its business and assets, but except as to any
such successor or assignee of the Company, neither this Agreement
nor any rights or benefits hereunder may be assigned by the Company
or the Employee. However, in the event of death of the Employee, all
rights to receive payments hereunder shall become the rights of the
Employee's estate.
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<PAGE>
(e) Section Headings. The Section headings used in this Agreement are
included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
(f) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State as such laws are applied to
contracts entered into and to be performed entirely within the State
of Delaware.
* * * * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
on the day and year first above written.
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
By: /s/ Eckardt C. Beck
-------------------
Eckardt C. Beck
Chairman
RICHARD H. HUGHES
/s/ Richard H. Hughes
- ---------------------
Richard H. Hughes
Address:
----------------------------------------------
- 12 -
CONSULTING AGREEMENT dated as of June
4, 1997, between CONVERSION TECHNOLOGIES
INTERNATIONAL, INC., a Delaware corporation
(the "Company"), and HARVEY GOLDMAN (the
"Consultant")
The Company is a specialty materials company engaged in the business
of developing and manufacturing advanced industrial abrasives, specialty glass
and glass-ceramic products utilizing, among other things, industrial waste
stream recycling and conversion technologies (the "Business"). The Company
desires to retain the Consultant to provide certain services to the Company and
the Consultant desires to provide such services to the Company in accordance
with the terms and conditions hereof.
The parties are entering into this Consulting Agreement in
connection with the consummation of the merger (the "Merger") of Octagon, Inc.
with and into the Company.
NOW THEREFORE, in consideration of and for the mutual promises and
covenants contained herein, the parties hereto agree as follows:
1. Termination of Employment Agreement; Releases.
---------------------------------------------
(a) Effective as of June 6, 1997, the Amended and Restated
Employment Agreement (the "Employment Agreement") dated as of June 9, 1994,
between the Company and the Consultant, as amended, is hereby terminated and
shall be of no further force or effect. The Consultant acknowledges that such
termination shall not constitute a "Termination" under Section 6 of the
Employment Agreement; provided, however, that, in the event of a default by the
Company in its obligation to provide the Consultant the consideration set forth
in Section 3 hereof (following notice and expiration of a 10-day cure period),
the Consultant shall retain any and all rights he may have had under the
Employment Agreement as of June 6, 1997, including, without limitation any
rights he may assert with respect to termination thereunder.
<PAGE>
(b) Subject to performance of this Consulting Agreement by the
Company in accordance with its terms, the Consultant hereby releases and
discharges forever the Company and its subsidiaries and their respective
officers, directors, stockholders and successors and assigns from any and all
causes of action, suits, claims, rights, debts, covenants, contracts, damages,
liabilities or other obligations whatsoever which the Consultant had, has or
hereafter may have against any of such releases arising from, relating to or in
connection with any matter, occurrence or thing from the beginning of time to
the time immediately preceding the execution and delivery of this Consulting
Agreement.
(c) Subject to the Consultant's performance of this Agreement in
accordance with its terms, the Company hereby releases and discharges forever
the Consultant and his heirs, executors, administrators and attorneys from any
and all causes of action, suits, claims, rights, debts, covenants, contracts,
damages, liabilities or other obligations whatsoever which the Company had, has
or may have against any of such releases arising from, relating to or in
connection with any matter, occurrence or thing from the beginning of time to
the time immediately preceding the execution and delivery of this Consulting
Agreement.
2. Consulting Services.
-------------------
The Consultant hereby agrees to act as a Consultant to the Company
during the Term hereof. In connection therewith, the Consultant agrees to be
available to consult on a telephonic basis or, with reasonable advance notice,
in person; provided, however, that such services shall not be required to the
extent that the performance thereof would prohibit the consultant from
performing other full-time work. The nature of such services shall be in areas
related to information known by the Consultant by virtue of his past employment
by the Company or project development, strategic planning or other services
within the Consultant's areas of expertise.
2
<PAGE>
3. Consideration for Consulting Services.
-------------------------------------
In consideration of the Consultant's performance of the Consulting
Services during the Term of this Agreement, (i) the Company shall pay to the
Consultant a consulting fee of $10,000 per month, payable in arrears on a
monthly basis,(ii) until the earlier of the expiration of the Term of this
Consulting Agreement or such time as the Consultant shall accept another
full-time position or otherwise receive benefits provided by another employer,
the Company shall continue the existing medical and life insurance coverages
received by the Consultant (or other no less favorable coverages provided by
Octagon) and (iii) the vesting of the Consultant's 80,000 shares of restricted
stock granted under the Company's Long-Term Employee Incentive Plan shall
continue uninterrupted until the January 1, 1998 vesting date thereof as though
the Consultant had remained an employee of the Company through such date (and
the Restricted Stock Purchase Agreement relating thereto is hereby amended by
the parties to permit such vesting to continue). The parties acknowledge that
all stock options held by the Consultant shall terminate and be available for
reissuance to others effective upon consummation of the Merger.
4. Reimbursement of Expenses.
-------------------------
The Company shall reimburse the Consultant for his reasonable
out-of-pocket expenses incurred in connection with the Consulting Services and
approved in advance by the Chairman, President or Chief Financial Officer of the
Company. Reimbursement for any expenses as provided for herein shall be made to
the Consultant within thirty (30) days following receipt by the Company of
satisfactory evidence of the incurrence of such expenses and the Consultant's
written request for such reimbursement.
5. Term.
----
(a) The term (the "Term") of the Consulting Services and related
compensation to be provided hereunder shall commence on the Commencement Date
(as defined below) and end on the nine-month anniversary of the date thereof.
"Commencement Date" shall mean the earlier of (i) the date of the consummation
of the Merger or any other merger, consolidation or reorganization involving the
Company or the sale of more than 50% of the voting capital stock of the
3
<PAGE>
Company or sale of substantially all of the assets of the Company or (ii) the
closing date of one or more financings of the Company in the aggregate amount of
$1 million or more. Notwithstanding the foregoing, that this Agreement may be
extended by the mutual written agreement of the parties hereto. Notwithstanding
the foregoing, (i) this Agreement may be terminated by either party in the event
of a material breach by the other party if such breach is not cured within 10
days following written notice thereof and (ii) Sections 6 and 7 hereof shall
survive the termination of this Agreement in accordance with their terms.
(b) The parties acknowledge that the Consultant may accept full-time
employment prior to the consummation of the Merger and that doing so will not
alter the terms or effect hereof.
6. Nondisclosure of Confidential Information.
-----------------------------------------
(a) The Consultant acknowledges that the Company would be
irreparably harmed if confidential information relating to the business and
strategies of the Company and its subsidiaries were disclosed to competitors or
potential competitors of the Company and its subsidiaries. Accordingly, the
Consultant shall not (i) disclose to any person, firm, corporation, association
or other entity any Confidential Information (as defined below) for any reason
or purpose whatsoever or (ii) make use of any such Confidential Information for
his own purpose or for the benefit of any person, firm, corporation, association
or other entity except the Company or its subsidiaries. For purposes of this
Agreement, the term "Confidential Information" shall mean any information
relating to the Company or any of its subsidiaries that the Consultant may
acquire by reason of his association with the Company or any of its
subsidiaries, except for (i) information which is in the public domain at the
time of receipt thereof by the Consultant, (ii) information which, after receipt
thereof by the Consultant, becomes part of the public domain through no improper
act or omission of the Consultant, and (iii) information which was lawfully
within the Consultant's possession prior to the initial commencement of the
Consultant's association with the Company or any of its subsidiaries. The
foregoing provisions shall not preclude the use or disclosure by the Consultant
of Confidential
4
<PAGE>
Information (i) in the performance of his obligations hereunder or (ii) to the
extent required by law.
7. Restrictive Covenants.
---------------------
(a) The Consultant acknowledges the highly competitive nature of the
business conducted by the Company and its subsidiaries. Accordingly, as an
inducement to the Company to enter into this Agreement and in partial
consideration of the amounts to be received hereunder, the Consultant, shall
not, during the term hereof and for the two-year period thereafter, (i) directly
or indirectly engage in or represent in any way any business (such business
being referred to herein as a "Competing Business") competing with the business
of the Company or any of its subsidiaries of converting waste into glass and
ceramic products, whether such engagement shall be as an officer, director,
owner, employee, partner, or other participant in any Competing Business, (ii)
assist others in engaging in any Competing Business in the manner described in
clause (i) above, (iii) induce any employees of the Company or any of its
subsidiaries to terminate their employment with the Company or any such
subsidiaries or to engage in any Competing Business or (iv) induce any entity or
person with which the Company or any of subsidiaries has a business relationship
to terminate or alter such business relationship; provided, however, that
nothing contained in this Section 6(a) shall prevent, restrain or otherwise
restrict the Consultant from owning 5% or less of any class of securities of any
corporation so long as such securities are listed for trade by NASDAQ in the
over-the-counter market or are traded on a national securities exchange.
(b) The Consultant understands that the foregoing restrictions may
limit his ability to earn a livelihood in a business similar to the Business of
the Company and its subsidiaries, but he nevertheless believes that he has
received and will receive sufficient consideration and other benefits as a
Consultant of the Company as provided hereunder to justify such restrictions.
5
<PAGE>
8. Injunctive Relief.
-----------------
The Consultant acknowledges that damages may not be an adequate
remedy for a breach of Section 6 or 7 hereof and agrees that injunctive relief
in favor of the Company would be an appropriate remedy for such breach. Nothing
herein contained, however, shall be construed as prohibiting the Company from
pursuing any remedies which may be available to it for such breach or threatened
breach or any other breach of this consulting Agreement.
9. No Breach of Duty.
-----------------
The Consultant represents and warrants to the Company that the
performance by him of this Agreement will not breach any agreement or duty to
keep in confidence proprietary information acquired by it in confidence or in
trust prior to the Consultant's engagement hereunder or any duty not to compete
with any party. The Consultant further agrees that it shall not enter into any
agreement in conflict herewith during the Term.
10. Benefits; Assignment.
--------------------
The terms and provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns and, in the case of the Consultant, his heirs, executors and
administrators. Anything contained herein to the contrary notwithstanding, the
Consultant shall not have the right to assign his duties to any other party
without the written consent of the Company.
11. Severability.
------------
Every provision of this Agreement is intended to be severable. If
any term or provision hereof is deemed unlawful or invalid in any jurisdiction
for any reason whatsoever, such unlawfulness or invalidity shall not affect the
validity of the remainder of this Agreement or the enforceability of such term
or provision in any other jurisdiction. To the extent that any such term or
provision is held to be unlawful or invalid, the parties agree to reform such
term or provision in such a way which will be enforceable in the jurisdiction to
which such holding applies, and which will reflect, as nearly as permissible,
the intention of the parties.
6
<PAGE>
12. Notices.
-------
All notices and other communications required or permitted hereunder
shall be sufficient if delivered personally or sent by nationally recognized
overnight courier, by facsimile or by registered or certified mail, return
receipt requested and postage prepaid, addressed as follows:
if to the Consultant, to
Harvey Goldman
2 Bernard Drive
Holmdel, New Jersey 07733
Telephone: (908) 946-3916
if to the Company, to:
Conversion Technologies International, Inc.
82 Bethany Road, Suite 6
Hazlet, New Jersey 07730
Telephone: (908) 888-3828
Facsimile: (908) 888-3930
Attention: Chief Executive Officer
or to such other address as the party to whom notice is to be given may have
furnished to the other party. Any such notice or communication shall be deemed
to have been received (a) in the case of personal delivery, on the date of such
delivery, (b) in the case of nationally-recognized overnight courier, on the
next business day following dispatch, (c) in the case of facsimile transmission,
when received, and (d) in the case of mailing, on the fifth business day
following the day on which the piece of mail containing such communication is
posted.
13. Entire Agreement.
----------------
This Agreement constitutes the entire agreement and understanding
between the Company and the Consultant regarding the subject matter hereof and
supersedes any and all negotiations, prior discussions and preliminary and prior
agreements and understandings related to the subject matter hereof.
7
<PAGE>
14. Governing Law.
-------------
This Agreement shall in all respects be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed wholly therein.
15. Counterparts.
------------
This Agreement may be executed in one or more counterparts, each of
which, when so executed shall be deemed to be an original and all of which
counterparts, taken together, shall constitute one and the same instrument.
16. Modification.
------------
Neither this Agreement nor any term hereof may be amended, modified,
supplemented or waived unless in a written instrument executed by the Company
and the Consultant.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
CONVERSION TECHNOLOGIES
INTERNATIONAL, INC.
By: /s/ Perry A. Pappas
-------------------
Perry A. Pappas
Vice President and
General Counsel
THE CONSULTANT:
/s/ Harvey Goldman
------------------
Harvey Goldman
9
TERMINATION OF LEASE AGREEMENT
THIS AGREEMENT is made and entered into as of September 4, 1997, by and
between County of Chautauqua Industrial Development Agency, a public benefit
corporation of the State of New York having an address at 200 Harrison Street,
Jamestown, New York 14701 (the "Lessor"); and Dunkirk International Glass and
Ceramics Corporation, a Delaware corporation having an address at 181 Stegelske
Avenue, Dunkirk, New York 14048 (the "Lessee").
RECITALS:
---------
WHEREAS, pursuant to a certain Lease Agreement, dated as of March 1, 1995
(the "Lease Agreement"), by and between the Lessor and the Lessee, the Lessor
leased to the Lessee certain equipment (the "Equipment") more particularly
described in the Lease Agreement, which Equipment has been installed or is
situated in that property commonly known as 181 Stegelske Avenue in the City of
Dunkirk, Chautauqua County, New York; and
WHEREAS, the leasehold estate created by the Lease Agreement shall
terminate by its terms on December 2, 2010 (the "Lease Expiration Date"), and
WHEREAS, in connection with the redemption of the Series 1995 Bonds more
particularly described in the Lease Agreement, the parties hereto now wish to
provide for the termination of the Lease Agreement prior to the Lease Expiration
Date.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained, the parties hereto agree as follows:
1. Termination. That the Lease Agreement is hereby terminated in all
respects as of the effective date of this Agreement, with the exception that, as
expressly provided at Section 9.3 of the Lease Agreement, Section 5.9 of the
Lease Agreement, entitled "Indemnity Against Claims," shall survive this
termination.
2. Purchase of Equipment. That in connection with the termination of the
Lease Agreement as contemplated hereby, the Lessee shall purchase the Equipment
from the Lessor for the purchase price of One Dollar ($1.00).
3. Counterparts. That this Agreement may be executed in counterparts,
each of which shall be an original and all of which shall constitute but one and
the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
COUNTY OF CHAUTAUQUA DUNKIRK INTERNATIONAL GLASS
INDUSTRIAL DEVELOPMENT AGENCY AND CERAMICS CORPORATION
By: /s/ Donald H. Burdick By: /s/ William L. Amt
--------------------- ------------------
Name: Donald H. Burdick Name: William L. Amt
Title: Director Title: President
BILL OF SALE
County of Chautauqua Industrial Development Agency, a public benefit
corporation of the State of New York having an address at 200 Harrison Street,
Jamestown, New York 14701 (the "Grantor"), for the consideration of One Dollar
($1.00) cash in hand paid, and other good and valuable consideration received by
the Grantor from Dunkirk International Glass and Ceramics Corporation, a
Delaware corporation having its principal office at 181 Stegelske Avenue,
Dunkirk, New York 14048 (the "Grantee"), the receipt of which is hereby
acknowledged by the Grantor, hereby sells, transfers and delivers unto the
Grantee, and its successors and assigns, all those items of equipment and other
tangible personal property (collectively, the "Equipment") acquired in whole or
in part with the proceeds of those certain Solid Waste Disposal Facility Bonds
(Dunkirk International Glass and Ceramics Corporation Project), Series 1995,
issued by the Grantor pursuant to that certain Trust Indenture, dated as of
March 1, 1995, between the Grantor and United States Trust Company of New York,
as Trustee, together with any additions to such Equipment, any replacements and
substitutes therefor and any proceeds thereof and including, without limitation,
all equipment and other tangible personal property described in Exhibit A-1
attached hereto and made a part hereof.
TO HAVE AND TO HOLD the same unto the Grantee, and its successors and
assigns forever.
The Grantor makes this sale to the Grantee "AS IS, WHERE IS," WITHOUT ANY
WARRANTY, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER INCLUDING, WITHOUT
LIMITATION, THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS
FOR GENERAL PURPOSES OR FOR ANY SPECIFIC PURPOSE. THIS SALE IS WITHOUT RECOURSE
AGAINST GRANTOR
IN WITNESS WHEREOF, the Grantor caused this Bill of Sale to be executed as
of September 4, 1997.
COUNTY OF CHAUTAUQUA
INDUSTRIAL DEVELOPMENT AGENCY
By: /s/ Donald H. Burdick
---------------------
Name: Donald H. Burdick
Title: Director
TERMINATION OF SECURITY AGREEMENT
THIS AGREEMENT is made and entered into as of September 4, 1997, by and
among County of Chautauqua Industrial Development Agency, a public benefit
corporation of the State of New York having an address at 200 Harrison Street,
Jamestown, New York 14701 (the "Agency"); Dunkirk International Glass and
Ceramics Corporation, a Delaware corporation having an address at 181 Stegelske
Avenue, Dunkirk, New York 14048 (the "Company"); and United States Trust Company
of New York, as Trustee under the Indenture (hereinafter defined), a corporation
duly organized, existing and authorized to execute trusts under the laws of the
State of New York with its principal office located at 114 West 47th Street, New
York, New York 10036 (the "Trustee"). All capitalized terms not otherwise
defined herein shall have the meanings ascribed to such terms in that certain
Security Agreement, dated as of March 1, 1995, by and among the Agency, the
Company, and the Trustee (the "Security Agreement").
RECITALS:
---------
WHEREAS, pursuant to a certain Trust Indenture, dated as of March 1, 1995,
between the Agency and the Trustee (the "Indenture"), the Agency issued
$8,000,000 Solid Waste Disposal Facility Bonds, Series 1995 (Dunkirk
International Glass and Ceramics Corporation Project) (the "Bonds"); and
WHEREAS, in connection with the issuance of the Bonds the Agency did,
pursuant to the Security Agreement, grant to the Trustee for the benefit of the
holders from time to time of the Bonds, a security interest in and to certain
Collateral more particularly described in the Security Agreement; and
WHEREAS, the holders of the Bonds have allowed for the complete redemption
of the Bonds by the Company and in connection therewith the Bondholders have
instructed the Agency and the Trustee to execute and deliver this instrument
evidencing the termination of the Security Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained, the parties hereto agree as follows:
1. Termination. That the Security Agreement is hereby terminated in all
respects as of the effective date of this Agreement and shall be of no further
force or effect.
2. Termination Statement Filings. In connection with the termination of the
Security Agreement and the security interest of the Trustee in and to the
Collateral, the Trustee will file or cause to be filed such Uniform Commercial
Code Termination Statements (Forms UCC-3) as may be necessary to terminate as of
record any Uniform Commercial Code Financing Statements (Forms UCC-1) as the
same may have been amended, originally filed to perfect to Trustee's security
interest in the Collateral.
<PAGE>
3. Counterparts. That this Agreement may be executed in counterparts, each
of which shall be an original and all of which shall constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
COUNTY OF CHAUTAUQUA
INDUSTRIAL DEVELOPMENT
AGENCY
By: /s/ Donald H. Burdick
---------------------
Name: Donald H. Burdick
Title: Director
DUNKIRK INTERNATIONAL GLASS AND CERAMICS
CORPORATION
By: /s/ William L. Amt
------------------
Name: William L. Amt
Title: President
UNITED STATES TRUST COMPANY OF NEW YORK
By: /s/ Kenneth J. Rothschild
-------------------------
Name: Kenneth J. Rothschild
Title: Assistant Vice President
RELEASE OF COMPANY GUARANTY
This Agreement is made and entered into as of September 4, 1997 by United
States Trust Company of New York, as Trustee, a corporation duly organized,
existing and authorized to accept and execute trusts under the laws of the State
of New York with its principal office located at 114 West 47th Street, New York,
New York 10036 (the "Trustee"), in favor of Dunkirk International Glass and
Ceramics Corporation, a Delaware corporation having an office at 181 Stegelske
Avenue, Dunkirk, New York 14048 (the "Company").
RECITALS:
---------
WHEREAS, pursuant to the terms of a certain Trust Indenture, dated as of
March 1, 1995 (the "Indenture"), by and between the County of Chautauqua
Industrial Development Agency (the "Agency") and the Trustee, the Agency issued
its Solid Waste Disposal Facility Bonds, Series 1995, (Dunkirk International
Glass and Ceramics Corporation Project) for the benefit of the Company in the
aggregate principal amount of $8,000,000 (the "Bonds"); and
WHEREAS, in connection with the issuance of the Bonds, the Company
guaranteed to the Trustee for the benefit of the holders from time to time of
the Bonds, the full and prompt payment of the principal, interest, premiums, if
any, and certain other costs and expenses relating to the Bonds, all pursuant to
the terms of a certain Company Guaranty, dated as of March 1, 1995 (the "Company
Guaranty"), from the County in favor of the Trustee; and
WHEREAS, the holders of the Bonds have allowed for the complete redemption
of the Bonds by the Company and in connection therewith the Bondholders have
instructed the Trustee to execute and deliver this form of release of the
Company from the terms of the Company Guaranty.
NOW THEREFORE, in consideration of the foregoing and the Trustee's receipt
of proceeds from or on behalf of the Company sufficient to effect the redemption
of the Bonds as authorized by the holders of the Bonds, the receipt of which is
hereby acknowledged, the undersigned agrees as follows:
That the Trustee, in its capacity as Trustee under the Indenture for the
benefit of the holders of the Bonds, does by this instrument hereby release the
Company from all the terms, covenants and conditions to be observed or performed
by the Company under the Company Guaranty and the Company Guaranty is hereby
deemed terminated and of no further force or effect.
IN WITNESS WHEREOF, the Trustee has executed this Release as of the day and
year first above written.
UNITED STATES TRUST COMPANY
OF NEW YORK
By: /s/ Kenneth J. Rothschild
-------------------------
Name: Kenneth J. Rothschild
Title: Assistant Vice President
RELEASE OF CORPORATE GUARANTY
This Agreement is made and entered into as of September 4, 1997 by United
States Trust Company of New York, as Trustee, a corporation duly organized,
existing and authorized to accept and execute trusts under the laws of the State
of New York with its principal office located at 114 West 47th Street, New York,
New York 10036 (the "Trustee"), in favor of Conversion Technologies
International, Inc. , a Delaware corporation having an office at 82 Bethany
Road, Hazlet, New Jersey 07730 (the "Guarantor").
RECITALS:
---------
WHEREAS, pursuant to the terms of a certain Trust Indenture, dated as of
March 1, 1995 (the "Indenture"), by and between the County of Chautauqua
Industrial Development Agency (the "Agency") and the Trustee, the Agency issued
its Solid Waste Disposal Facility Bonds, Series 1995, (Dunkirk International
Glass and Ceramics Corporation Project) in the aggregate principal amount of
$8,000,000 (the "Bonds"); and
WHEREAS, in connection with the issuance of the Bonds, the Guarantor
guaranteed to the Trustee for the benefit of the holders from time to time of
the Bonds, the full and prompt payment of the principal, interest, premiums, if
any, and certain other costs and expenses relating to the Bonds, all pursuant to
the terms of a certain Corporate Guaranty, dated as of March 1, 1995 (the
"Corporate Guaranty"), from the Guarantor in favor of the Trustee; and
WHEREAS, the holders of the Bonds have allowed for the complete redemption
of the Bonds by the Company and in connection therewith the Bondholders have
instructed the Trustee to execute and deliver this form of release of the
Company from the terms of the Company Guaranty.
NOW THEREFORE, in consideration of the foregoing and the Trustee's receipt
of proceeds from or on behalf of the Company sufficient to effect the redemption
of the Bonds as authorized by the holders of the Bonds, the receipt of which is
hereby acknowledged, the undersigned agrees as follows:
That the Trustee, in its capacity as Trustee under the Indenture for the
benefit of the holders of the Bonds, does by this instrument hereby release the
Guarantor from all the terms, covenants and conditions to be observed or
performed by the Guarantor under the Corporate Guaranty and the Corporate
Guaranty is hereby deemed terminated and of no further force or effect.
IN WITNESS WHEREOF, the Trustee has executed this Release as of the day and
year first above written.
UNITED STATES TRUST COMPANY
OF NEW YORK
By: /s/ Kenneth J. Rothschild
-------------------------
Name: Kenneth J. Rothschild
Title: Assistant Vice President
LEASE
THIS LEASE AGREEMENT, dated 15 July 97 by and between Koger Equity, Inc., a
Florida Corporation ("Landlord") with its principal office at 3986 Boulevard
Center Dr., Jacksonville, FL 32207, and Conversion Technologies International,
Inc., a Corporation organized and existing under the laws of the State of DE,
("Tenant") with its principal office at 82 Bethany Road, Suite 6, Hazlet, New
Jersey 07730.
1. BASIC LEASE PROVISIONS
A. DESCRIPTION OF PREMISES: D. ADDRESS FOR PAYMENT OF RENT AND
SECURITY DEPOSITS:
Suite Number: 280 Payee: Koger Equity, Inc.
Building Name: Cragg Address: Post Office Box 860502
Address: 3452 Lake Lynda Drive City/State/Zip:Orlando, FL 32886-0502
County: Orange Tenant Account# 390121 (note on remittance)
City: Orlando E. ADDRESSES FOR NOTICES
Center: Koger Center University Tenant: Conversion Technologies Int'l
82 Bethany Road, Suite 6
B. PRINCIPAL LEASE TERMS: Hazlet, New Jersey 07730
Lease Term (Months)36 months
Commencement Date: 01 August 97 Tenant Fed I.D./SSN: 13-3754366
Expiration Date: 31 July 00
Landlord: Koger Equity, Inc.
Monthly Base Rent: $6689.50 930 Woodcock Road
Sales or Use Taxes:$401.37 Suite 127
Total: $7,090.87 Orlando, FL 32803
Landlord Fed I.D.: 59-289805-45
Security Deposit: $7090.87
With a copy to: Koger Equity, Inc.
C. LEASED AREA Attn: President
Approximately 4722 rentable square feet. 3986 Blvd. Center Drive
(Includes Tenant's share of common area.) Jacksonville, FL 32207
The provisions contained in Sections 2 through 36, inclusive, which appear after
the signature lines below, are a part of this Lease and are incorporated in this
Lease by reference. The Tenant and the Landlord have executed or caused to be
executed this Lease on the dates shown below their signatures, to be effective
as of the date set forth above.
Tenant:Conversion Technologies International, Inc, Landlord:Koger Equity, Inc.
By: By:
-----------------------------(SEAL) ------------------(SEAL)
Print Name: Print Name:J. Velma Keen II
Title Title: Vice President
Attest: Attest:
-------------------------- --------------------
Print Name: Print Name:
Title: Title:
(Corporate Seal) (Corporate Seal)
Date: Date:
---------------------------- ----------------------
1 of 12
<PAGE>
Signed an, sealed in the presence of: Signed and sealed in the presence of:
(1) (1)
--------------------------------- -------------------------------------
Print Name: Print Name:
(2) (2)
--------------------------------- -------------------------------------
Print Name: Print Name:
As to Tenant As to Landlord
LEASE PROVISIONS INCORPORATED BY REFERENCE
2. LEASE OF PREMISES: The Landlord hereby leases to the Tenant and the Tenant
hereby takes from the Landlord the premises (the "Premises") which include the
Suite(s) shown and described on Exhibit "A". together with any other parts of
the Building used exclusively by Tenant, which Premises are or will be contained
in the office building (the "Building" located at the address stated in Section
1A, under the terms and conditions contained in this lease. For the purposes of
this lease, "Property" shall mean the Property referred to at the street address
in Section 1A which is more specifically described in the legal description
maintained in the Landlord's records. For the purposes of this lease, "Center"
shall mean The Koger Center referred to in Section 1A.
3. TERM: The term of this Lease (the "Term") shall commence on the date (the
"Commencement Date") which is the earlier to occur of the date stated in Section
lB, or the date the Tenant first occupies all or part of the Premises. The Term
shall expire on the date (the "Expiration Date") stated in Section 1B unless
sooner terminated as otherwise provided in this Lease or unless extended
pursuant to Section 27 or other extension provisions contained herein.
4. USE AND POSSESSION: The Tenant covenants and agrees that the Premises are to
be used by the Tenant for general office purposes and for no other purposes
without the prior written consent of the Landlord. The Tenant shall not occupy
or use the Premises or permit the use or occupancy of the Premises for any
purpose or in any manner which: (a) is unlawful or is in violation of any
applicable legal, governmental or quasi-governmental requirement, ordinance,
rule or code: (b) may be dangerous to persons or property: (c) may invalidate
any insurance policy held by the Landlord or increase the amount of premiums for
any insurance policy affecting the Building or the Property (if any additional
amounts of insurance premiums are so incurred, the Tenant shall pay the Landlord
the additional amounts on demand as Additional Rent, provided that such payment
shall not authorize such use); (d) may create a nuisance or disturb any other
tenant of the Building or the occupants of neighboring Property or injure the
reputation of the Building or the Center: and (e) violates the "Rules and
Regulations" of the Building as may from time to time be adopted by Landlord, or
any restriction of record. The Tenant agrees that Tenant shall be responsible
for any costs incurred by Landlord by reason of Tenant's misuse of the Premises
or the Building and common areas, including without limitation any damages
incurred by Tenant in moving into or out of the Premises. If any costs are so
incurred by Landlord, the Tenant shall pay the Landlord such costs on demand as
Additional Rent.
The Landlord agrees to have the Premises substantially completed and ready
for possession on or before the Commencement Date, subject to delays caused or
occasioned by strikes, insurrections, Acts of God, labor unrest, shortage of
materials, civil disturbances and other casualties or unforeseen causes or
events beyond the control of the Landlord ("Unforeseen Causes"). The Tenant
agrees to accept possession of the Premises within ten (10) days after the
receipt of notice from the Landlord of substantial completion (if after the date
specified in Section 1B).
5. RENT: Tenant agrees to pay to Landlord at the address specified in Section
1E, or at such other place designated in writing by Landlord, the Monthly Rent,
and any Additional Rent, plus any sales or use taxes (collectively called
"Rent"). "Monthly Rent" shall mean the initial monthly base rent stated in
Section 1B for the first twelve months following the Commencement Date of the
Term of this Lease ("First Lease Year"), and the Adjusted Monthly Rent, as
adjusted under Section 7. Rent shall be paid without any prior notice or demand
and without any deduction whatsoever. Monthly Rent shall be due in advance on
the first day of each month of the
2 of 12
<PAGE>
Term. The first installment of Monthly Rent shall be paid by Tenant to Landlord
upon execution of this Lease. Rent for any partial lease month shall be
prorated. Monthly Rent will be adjusted in the manner set forth in Section 7.
Tenant's obligation to pay Rent to Landlord shall be independent of every other
covenant or obligation of Landlord under this Lease. All delinquent Rent shall
bear interest at the maximum rate permitted by applicable law or 18% per annum,
whichever is less, from the date due until paid. Rent shall be considered
delinquent after the 10th day following the date it is due. If Tenant fails to
pay Rent or any other charge when due under this Lease, then Tenant shall pay
and Landlord shall be entitled to receive a late payment service charge, in
addition to any interest charge due hereunder, covering administrative and
overhead expenses incurred by Landlord caused by such late payment, which the
parties stipulate and agree are hereby liquidated and shall be equal to five
percent of the overdue amount. Tenant shall pay a charge equal to $25.00 per
returned check or the amount to which Landlord is entitled under State law,
whichever is greater, for any checks written to Landlord which are returned for
insufficient funds.
6. REAL ESTATE TAX INCREASES: See Attached Rider
7. RENT ADJUSTMENT: See Attached Rider
8. SALES AND USE TAX: In addition to the Tenant and other amounts due to the
Landlord under this Lease, the Tenant shall pay to the Landlord and the Landlord
shall remit to the appropriate governmental authorities any sales, use, or other
tax, excluding Federal or State income taxes, now or hereafter imposed upon
rents and other amounts due to the Landlord under this Lease, notwithstanding
the fact that any statute, ordinance, enactment or regulation may impose any of
those types of taxes on the Landlord.
9. NOTICES: For the purpose of any notice or demand under this Lease, the
respective parties shall be served by overnight delivery, personal delivery or
certified or registered mail, return receipt requested, addressed to the Tenant
at the address as set forth in Section 1E and to the Landlord at the addresses
set forth in Section 1E or other such addresses designated in writing by
landlord. Any notice shall be effective when delivered.
10. ORDINANCES AND REGULATIONS: The Tenant shall comply promptly, at the
Tenant's sole cost and expense, with all present and future laws, codes,
ordinances, rules or regulations of any municipal, county, state, federal or
other governmental authority, including environmental laws, and any bureau or
department thereof, and of the Board of Fire Underwriters or any other body
exercising similar functions, which may be applicable to the Premises and
Tenant's use or occupancy of the Premises, and shall comply with the
requirements of all of Landlord's policies of insurance at any time in force
with respect to the Building in which the Premises are located. The Tenant
agrees for itself and for its subtenants, employees, agents, and invitees to
comply with the Rules and Regulations, promulgated from time to time with
respect to the Premises, Building, Property and Center, a copy of which is
available in the management office in the Center.
Notwithstanding any other provision of this lease to the contrary, Tenant
shall comply with the Americans with Disabilities Act ("ADA"), as it now exists
and as it may hereafter be amended, with regard to the Premises and the Tenant's
use of the Premises, including without limitation, the obligation to make the
Premises accessible and shall hold Landlord harmless with respect thereto.
Landlord shall not be responsible for compliance with the ADA with respect to
the Premises, including the design or construction thereof. Tenants waives any
right, claim, defense or set off which Tenant may have, nor or hereafter, based
upon any responsibility landlord may have under the ADA with respect to the
Premises, the Building, the Property or otherwise. Tenant agrees that any and
all steps taken or to be taken by Landlord, in Landlord's judgment, now or
hereafter to comply with the ADA concerning the Building or the Property are
authorized and permitted under the Lease and shall constitute an admission by
Landlord that the ADA breach of Tenant's rights under this Lease. Nothing herein
shall constitute an admission by Landlord that the ADA governs any part of the
Premises, Building or Property or any activities of Landlord with respect
thereto.
Tenant covenants and agrees that Tenant shall not at any time maintain on,
or dispose or discharge from, the Property or the Premises any "Hazardous
Materials", as defined below, except Tenant may use and store minor quantities
of Hazardous Materials for cleaning purposes only or in connection with the use
of office equipment so
3 of 12
<PAGE>
long as the quantities and use are exempt from applicable governmental
regulation and such Hazardous materials are disposed of in accordance with all
applicable laws. The failure to comply with all applicable laws regarding
Hazardous Materials and this covenant shall constitute an Event of Default by
the Tenant under this Lease and shall entitle the Landlord to all rights and
remedies provided in this Lease, at law or in equity. The term "Hazardous
Materials" as used herein shall mean collectively, any hazardous waste, any
hazardous substances, any pollutant contaminant, all as defined by 42 USC
ss.9601, and any toxic substances, petroleum products, other hazardous
materials, or other chemicals or substances regulated by any environmental laws
of any county, state or federal government or any other governmental entity.
Tenant's obligations as set forth in this paragraph shall survive the
termination of this Lease.
11. SIGNS: The Tenant shall not place any signs or other advertising matter or
materials on the exterior or on the interior of the Building or at any other
location on the Property or Center, without the prior written consent from the
Landlord. Any lettering or signs placed on the interior of the Building shall be
for directional purposes only, and such signs and lettering shall be of a type,
kind, character, location and description which have been approved by the
Landlord in writing. Directional and identification signage provided by the
Landlord shall be limited to the tenant directory of the Building.
12. SERVICES: The Landlord shall provide the following: heating and cooling of
the Premises, during normal business hours defined as Monday through Friday,
8:00 a.m. to 5:00 p.m., excluding national holidays, to the extent necessary for
the comfortable occupancy of the Premises, according to Landlord's standard,
under normal business operations and in the absence of the use of machines,
equipment, or devices which affect the temperature otherwise maintained in the
Premises: water from the regular Building fixtures for drinking, lavatory and
toilet purposes: customary cleaning and janitorial services in the Premises five
times per week, excluding national holidays: customary cleaning, mowing grounds
keeping and trash removal in the Common Areas: Landlord's customary security
services for the Property; and electricity for normal business usage according
to Landlord's standard. Additional capacity or usage shall be provided at the
option of the Landlord (reasonably exercised) and at the sole cost and expense
of the Tenant as Additional Rent. The Landlord shall provide Landlord's standard
amount of free non-exclusive parking for the employees and visitors of the
Tenant on the parking areas adjacent to the Building.
The services to be provided by Landlord at its cost under the terms of
this Lease shall not include any maintenance or replacement of non-standard
building items such as kitchen or breakroom fixtures and appliances including
but not limited to sinks, disposals, dishwashers, water heaters, refrigerators,
icemakers, special air conditioning or heating units, and card access systems or
special facilities such as showers. All cost for the maintenance or replacement
of such items shall be the obligation of the Tenant.
The Tenant agrees that the Landlord shall not be liable for damages for
failure to furnish or delay in furnishing any service if attributable to any of
the causes described in Sections 16 and 17 or as a result of unforeseen causes.
No failure or delay resulting from the foregoing reasons shall be considered to
be an eviction or disturbance of the Tenant's quiet enjoyment, use, or
possession of the Premises. If the Tenant shall require electrical current to
operate equipment or machines, including heating, refrigeration, computer(s),
data processing, or other machines or equipment using electrical current or
maintain office hours that will increase the amount of the electricity usually
furnished by the Landlord for use in general office space, the Tenant will
obtain the prior written approval of the Landlord and pay to the Landlord the
additional direct expense incurred, including any installation or maintenance
cost, as Additional Rent. Landlord reserves the right to install a submeter for
such service.
13. ALTERATIONS: The Tenant, by occupancy hereunder, accepts the Premises as
being in good repair and condition and suitable for Tenant's intended use of the
Premises. The Tenant shall maintain the Premises and every part thereof in good
repair and condition, reasonable use, wear and tear excepted. The Tenant shall
not make or suffer to be made any alterations, additions or improvements to or
of the Premises or any part thereof without Landlord's prior written consent.
The Tenant shall not permit any lien or claim for lien of a mechanic, laborer,
or supplier or any other lien to be filed against the Center, the Property
containing the Building, the Premises, or any part of such property, arising out
of work performed, or alleged to have been performed by, or at the direction of,
or on behalf of the Tenant.
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The interest of Landlord in the Property or any part thereof shall not be
subject to liens for improvements made by Tenant or by persons claiming by.
through or under Tenant, and Tenant agrees that Tenant shall notify any person
making any improvements on behalf of Tenant of this provision. Upon request of
Landlord, Tenant will execute a short form of this Lease which states that the
terms of this Lease expressly prohibits any liability to Landlord or the
Landlord's property for any improvements made by, through or under Tenant which
may be recorded by Landlord.
14. QUIET ENJOYMENT: Subject to the provisions of this Lease, the Tenant shall
be entitled to peaceful and quiet enjoyment of the Premises, so long as the
Tenant is not in default under this Lease.
15. LANDLORD'S RIGHTS: The Landlord and its agents shall have the right. at all
reasonable times during the Term of this Lease to enter the Premises for the
purpose of inspecting the Premises and of making any repairs and alterations as
the Landlord shall deem necessary. The Landlord and its agents shall also have
the right to enter the Premises at all reasonable hours for the purpose of
displaying the Premises to prospective tenants during the ninety (90) day period
prior to the Expiration Date of this Lease. Landlord and its agents shall have
the right at all times to alter, renovate, and repair portions of the Building
which do not include the Premises, notwithstanding any temporary inconvenience
or disturbance to Tenant caused by such repairs. renovations, or alterations.
16. DESTRUCTION OF PREMISES: If the Premises, the Building. or the Property is
rendered substantially untenantable by fire or other casualty, the Landlord may
elect, by giving the Tenant written notice within ninety (90) days after the
date of the fire or casualty, either to: (a) terminate this Lease as of the date
of the fire or other casualty: or (b) proceed to repair or restore the Premises.
the Building. or the Property (other than the leasehold improvements and
personal property installed by the Tenant). to substantially the same condition
as existed immediately prior to fire or other casualty.
If the Landlord elects to proceed pursuant to 16(b) above, the Landlord's
notice shall contain the Landlord's reasonable estimate of the time required to
substantially complete the repair or restoration. If the estimate indicates that
the time so required will exceed one hundred eighty (180) days from the date of
the casualty and the Landlord does not make available to the Tenant for its use
and occupancy other office space, substantially similar to the Premises and
located in the Property or in the Center, if any, pursuant to Section 23. then
the Tenant shall have the right to terminate this Lease as of the date of such
casualty by giving written notice to the Landlord not later than twenty (20)
days after the date of the Landlord's notice. If the Landlord's estimate
indicates that the repair or restoration can be substantially completed within
one hundred eighty (180) days, or if the Tenant fails to exercise its right to
terminate this Lease, this Lease shall remain in force and effect.
If the Premises are damaged by fire or other casualty but the Premises are
not rendered substantially untenantable, then the Landlord shall diligently
proceed to repair and restore the damaged portions thereof (other than the
leasehold improvements and personal property installed by the Tenant), to
substantially the same condition as existed immediately prior to such fire or
other casualty, unless such damage occurs during the last twelve (12) months of
the Term, in which event the Landlord shall have the right to terminate this
Lease as of the date of such fire or other casualty by giving written notice to
the Tenant within thirty (30) days after the date of such notice or other
casualty.
If all or any part of the Premises are damaged by fire or other casualty
and this Lease is not terminated. the Rent shall abate for that part of the
Premises which are untenantable on a per diem and proportionate area basis from
three (3) days after the date of the fire or other casualty until the Landlord
has substantially completed the repair and restoration work in the Premises
which it is required to perform, provided, that as a result of such fire or
other casualty, the Tenant does not occupy the portion of the Premises which are
untenantable during such period.
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17. CONDEMNATION: If all or part of the Premises, Building or Property is taken
or condemned by any authority for any public use or purpose (including a deed
given in lieu of condemnation). which renders the Premises substantially
untenantable, this Lease shall terminate as of the date title vests in such
authority, and the Rent shall be apportioned as of such date.
If any part of the Premises, Building, or Property is taken or condemned
but the Premises are not rendered substantially untenantable (including a deed
given in lieu of condemnation), this Lease shall not terminate. If the taking
reduces the rentable square feet in the Premises, Rent shall be equitably
reduced for the period of such taking by an amount which bears the same ratio to
the Rent then in effect as the number of square feet so taken or condemned bears
to the Leased Area set forth in Section 1C. The Landlord. upon receipt and to
the extent of the award in condemnation or proceeds of sale, shall make
necessary repairs and restorations (exclusive of leasehold improvements and
personal property installed by the Tenant) to restore the Premises remaining to
as near its former condition as circumstances will permit, and to the Building
and the Property to the extent necessary to constitute the portion of same not
so taken or condemned as complete.
The Landlord shall be entitled to receive the entire price or award from
any sale, taking or condemnation without any payment to the Tenant and the
Tenant hereby assigns to the Landlord the Tenant's interest, if any. in such
award. However, the Tenant shall have the right separately to pursue against the
condemning authority an award with respect to the loss, if any, to leasehold
improvements paid by the Tenant without any credit or allowance for the Landlord
and for any loss for injury, damage, or destruction of the Tenant's business
resulting from such taking. Under no circumstances shall the Tenant seek or be
entitled to any compensation for the value of its leasehold estate which Tenant
hereby assigns to Landlord.
18. ASSIGNMENT AND SUBLEASE: Without the prior written consent of the Landlord
which will not be unreasonably withheld. the Tenant shall not sublease the
Premises, or assign, mortgage, pledge, hypothecate or otherwise transfer or
permit the transfer of this Lease or the interest of the Tenant in this Lease,
in whole or in part, by operation of law, court decree or otherwise. Landlord
may grant, deny or withhold consent or impose conditions on the granting of
consent. in Landlord's sole discretion. If the Tenant desires to assign this
Lease or to enter into any sublease of the Premises: the Tenant shall deliver
written notice of such intent to the Landlord. together with a copy of the
proposed assignment or sublease at least thirty (30) days prior to the effective
date of the proposed assignment or commencement date of the term of the proposed
sublease. Any approved sublease shall be expressly subject to the terms and
conditions of this Lease. In the event of any approved sublease or assignment.
the Tenant shall not be released or discharged from any liability, whether past,
present or future, under this Lease, including any renewal term of this Lease,
and if the sublease or assignment provides for rent in excess of the Rent
payable to Landlord under the terms of this Lease, one-half (1/2) of the
difference between the rent payable by the assignee or subtenant and the Rent
payable to Landlord under the terms of this Lease shall be paid to Landlord in
consideration of its consent to the assignment or sublease. For purposes of this
Section 18, an assignment shall be considered to include a change in the
majority ownership or control of Tenant if Tenant is a corporation whose shares
of stock are not traded publicly, or, if the Tenant is a partnership, a change
in the general partner of the partnership or a change in the persons holding
more than 50% interest in the partnership, or a change in majority ownership or
control of any general partner of the partnership.
19. HOLDING OVER: If the Tenant, or any assignee or sublessee of the Tenant,
shall continue to occupy the Premises after the termination or expiration of
this Lease (including a termination by notice under Section 24 or a termination
or expiration under Section 27), without the prior written consent of the
Landlord, such tenancy shall be a Tenancy at Sufferance. During the period of
any hold over tenancy by the Tenant, or any assignee or sublessee, the Landlord,
by notice to the Tenant, may adjust the Rent to an amount equal to one hundred
and fifty percent of the Rent of the last month of the Term in which Rent was
payable. Acceptance by the Landlord of any Rent after termination shall not
constitute a renewal of this Lease or a consent to such hold over occupancy nor
shall it waive the Landlord's right of re-entry or any other right contained in
this Lease or provided by law.
20. SUBORDINATION AND ATTORNMENT: This Lease and the right of the Tenant
hereunder are expressly subject and subordinate to the lien and provisions of
any mortgage, deed of trust. deed to secure debt. ground lease, assignment of
leases, or other security instrument or operating agreement (collectively a
"Security
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Instrument") now or hereafter encumbering the Premises, the Building, the
Property, or any part thereof, and all amendments, renewals, modifications and
extensions of and to any such Security Instrument and to all advances made or
hereafter to be made upon such Security Instrument. The Tenant agrees to execute
and deliver such further instruments, in such form as may be required by
Landlord or any holder of a proposed or existing Security Instrument,
subordinating this Lease to the lien of any such Security Instrument as may be
requested in writing by the Landlord or holder from time to time.
In the event of the foreclosure of any such Security Instrument by
voluntary agreement or otherwise, or the commencement of any judicial action
seeking such foreclosure, the Tenant at the request of the then Landlord shall
attorn to and recognize such mortgage or purchaser in foreclosure as the
Tenant's landlord under this Lease. The Tenant agrees to execute and deliver at
any time upon request of such mortgagee, purchaser or their successors, any
instrument to further evidence such attornment.
The Tenant shall from time to time. upon not less than seven (7) days'
prior written request by the Landlord deliver to the Landlord a statement in
writing certifying that this Lease is unmodified and in full force and effect,
or, if there have been modifications, that this Lease, as modified, is an full
force and effect; providing a true, correct and complete copy of the Lease and
any and all modifications of the Lease; the amount of each item of the Rent then
payable under this Lease and the date to which the Rent has been paid: that the
Landlord is not in default under this Lease or, if in default, a detailed
description of such default; that the Tenant is or is not in possession of the
Premises. as the case may be; and containing such other information and
agreements as may be reasonably requested.
21. WAIVER AND INDEMNIFICATION: To the full extent permitted by law, the Tenant
hereby releases and waives all claims against the Landlord and its agents,
employees, officers, directors, and independent contractors, for injury or
damage to person, property or business sustained in or about the Property, the
Building, or the Premises by the Tenant, its agents or employees other than
damage proximately and solely caused by the gross negligence of the Landlord or
its agents or employees.
The Tenant agrees to indemnify and hold harmless the Landlord and its
agents and employees, from and against any and all liabilities, claims, demands,
costs, and expenses of every kind and nature, including those arising from any
injury or damage to any person (including death) or property sustained in the
Premises, or resulting from the failure of the Tenant to perform its obligations
under this Lease; provided, however, the Tenant's obligations under this section
shall not apply to injury or damage resulting from the negligence or willful act
of the Landlord or its agents or employees.
The Landlord agrees to indemnify and hold harmless the Tenant, and its
respective agents and employees, from and against any and all liabilities,
claims, demands, costs and expenses of every kind and nature, arising from any
injury or damage to any person (including death) or property sustained in or
about the Building proximately caused by the gross negligence or willful act or
omission of the Landlord: provided, however, the Landlord's obligations under
this section shall not apply to injury or damage resulting from the negligence
or willful act or omission of the Tenant, or its agents or employees.
The Landlord shall not be responsible or liable to the Tenant for any
event, act or omission to the:-extent covered by insurance and maintained or
required to be maintained by the Tenant with respect to the Premises and its use
and occupancy thereof (whether or not such insurance is actually obtained or
maintained). At the request of the Landlord, the Tenant shall from time to time
cause its insurers to provide effective waivers of subrogation for the benefit
of the Landlord, and its agents or employees and insurers, in a form
satisfactory to the Landlord.
22. SURRENDER OF PREMISES: Upon the expiration or termination of this Lease or
the termination of the Tenant's right of possession of the Premises, the Tenant
shall surrender and vacate the Premises immediately and deliver possession
thereof to the Landlord in a clean, good, and tenantable condition, except for
a) damages beyond the control of the Tenant; b) reasonable use; c) ordinary wear
and tear. Any movable trade fixtures and personal property that may be removed
from the Premises by the Tenant at the end of the Lease term, but which are not
so removed, shall be conclusively presumed to have been abandoned by the Tenant
and title to such property shall pass
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to the Landlord without any payment or credit; or, the Landlord may, at its
option, either store or dispose of such trade fixtures and personal property at
the Tenant's expense. Tenant agrees that it shall not remove any of the personal
property from the Premises without Landlord's consent so long as any Rent or
Additional Rent, or other sums owed to Landlord, remain unpaid.
23. RELOCATION OF TENANT: At any time after the date of this Lease, the Landlord
may substitute for the Premises, other premises in the Center, in which event
the New Premises shall be deemed to be the Premises for all purposes under this
Lease, provided: (1) the New Premises shall be similar to the Premises in area
and configuration; (2) if the Tenant is then occupying the Premises, the
Landlord shall give the Tenant not less than sixty (60) days prior written
notice of such substitution; (3) if the Tenant is then occupying the Premises,
the Landlord shall pay the actual and reasonable expenses of physically moving
the Tenant, its then existing property and its then existing equipment to the
new Premises and the Landlord shall pay the actual and reasonable expenses of
replacing the then unusable printed materials of the Tenant; and (4) the
Landlord, at its expense, shall improve the New Premises in a manner
substantially similar to that of the Premises at the time of such substitution
or as otherwise mutually agreed between the Tenant and the Landlord in writing.
24. EVENTS OF DEFAULT: Each of the following shall constitute an event of
default by the Tenant under this Lease: (1) the Tenant fails to pay any
installment of Rent or Additional Rent within ten (10) days after the date on
which the installment of Rent or Additional Rent first becomes due; (2) the
Tenant fails to observe or perform its obligations under sub-section (d) of
Section 4 above and such violation continues for more than 24 hours after such
notice or Tenant fails to observe or perform any of the other covenants.
conditions or provisions of this Lease other than the payment of any installment
of Rent or Additional Rent, and fails to cure such default within fifteen (15)
days after written notice from the Landlord to the Tenant; (3) the Tenant fails
a second time to observe or perform any of the other covenants. conditions or
provisions of this Lease other than the payment of any installment of Rent or
Additional Rent after prior written notice of the failure; (4) a petition is
filed by or against the Tenant or any Guarantor to declare the Tenant or the
Guarantor, as the case may be bankrupt or to seek relief from such tenant or
Guarantor under any chapter of the Bankruptcy Code, as amended, or under other
law imposing a moratorium on, or granting debtor's relief with respect to the
rights of creditors; (5) the Tenant or any Guarantor becomes or is declared
insolvent by law or Tenant or any Guarantor makes an assignment for the benefit
of creditors; (6) a receiver is appointed for the Tenant or the Tenant's
property or for any Guarantor or any of Guarantor's property; (7) the Tenant
abandons or vacates the Premises; or (8) the interest of the Tenant in this
Lease is levied upon under execution or other legal process.
Upon the occurrence of an event of default by the Tenant under this Lease,
the Landlord at its option, without further notice or demand to the Tenant. may
in addition to all other rights and remedies provided in this Lease, at law or
in equity:
A. Terminate this Lease and the Tenant's right of possession of the
Premises, and recover all damages to which the Landlord is entitled under this
Lease, at law and in equity, specifically including, without limitation, all the
Landlord's expenses of relenting (including repairs, alterations, improvements,
additions, decorations, legal fees and brokerage commissions).
B. Terminate the Tenant's right of possession of the Premises without
terminating this Lease, in which event the Landlord may, but shall not be
obligated to, relet the Premises, or any part thereof for the account of the
Tenant, for such rent and such term and upon such terms and conditions as are
acceptable to the Landlord For purposes of any reletting of the Premises, the
Landlord is authorized to redecorate, repair, alter and improve the Premises to
the extent necessary or desirable in the Landlord's judgment. For any period
during which the Premises have not been relet, Tenant shall pay Landlord monthly
on the first day of each month during the period that Tenant's right of
possession is terminated, a sum equal to the amount of Rent due under this Lease
for such month. If and when the Premises are relet and a sufficient sum is not
realized from such reletting after payment of all the Landlord's expenses of
reletting (including repairs, alterations, improvements, additions, decorations,
legal fees and brokerage commissions) to satisfy the payment of Rent due under
this Lease for any month, the Tenant shall pay to the Landlord any such
deficiency monthly upon demand. The Tenant agrees that the Landlord may file
suit to recover any sums due to the Landlord under this section and that such
suit or recovery of any amount due the
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Landlord shall not be any defense to any subsequent action brought for any
amount not previously reduced by judgment in favor of the Landlord. If the
Landlord elects to terminate the Tenant's right to possession only without
terminating this Lease, the Landlord may at its option, enter into the Premises,
removing the Tenant's signs and other evidences of tenancy, and take and hold
possession thereof: provided, however, that such entry and possession shall not
terminate this Lease or release the Tenant, in whole or in part, from the
Tenant's obligation to pay the Rent reserved hereunder for the full Term or from
any other obligation of the Tenant under this Lease.
Tenant shall pay on demand or reimburse Landlord for payment of Landlord's
reasonable attorney's fees, expenses and court costs in negotiation, at trial,
and on appeal incurred by Landlord to enforce any obligation of Tenant under
this Lease or to defend any claim brought by Tenant against Landlord or by any
person claiming by, through or under Tenant, or in curing any default by Tenant,
or in connection with any action or proceeding arising out of or occasioned by
any lien or claim of lien on the Premises, the Building, or the Center, or in
defending or otherwise participating in any legal proceeding initiated by Tenant
or against Tenant, or in connection with the investigation of a response to any
request for consent or other amendments to the Lease by Tenant.
25. SUCCESSOR AND ASSIGNS: This Lease shall bind and inure to the benefit of the
successors, assigns, heirs, executors, administrators, and legal representatives
of the parties hereto. In the event of the sale assignment, or transfer by the
Landlord of its interest in the Building or in this Lease (other than a
collateral assignment to secure a debt of the Landlord prior to enforcement) to
a successor in interest who expressly assumes the obligations of the Landlord
hereunder, the Landlord shall thereupon be released or discharged from all of
its covenants and obligations hereunder, except such obligations as the Landlord
shall have accrued prior to any such sale, assignment or transfer: and the
Tenant agrees to look solely to such successor of the Landlord for performance
of such obligations. Any securities or funds given by the Tenant to the Landlord
to secure performance by the Tenant of its obligations hereunder may be assigned
by the Landlord to such successor of the Landlord and, upon acknowledgment by
such successor or receipt of such security and its assumption of the obligation
to account for such security in accordance with the terms of the Lease, the
Landlord shall be discharged of any further obligation relating thereto. The
Landlord's assignment of the Lease or of any or all of its rights herein shall
in no manner affect the Tenant's obligations hereunder. The Landlord shall have
the right to freely sell, assign or otherwise transfer its interest in the
Building and/or this Lease.
26. NON-WAIVER: No waiver of any covenant or condition of this Lease by either
party shall be deemed to imply or constitute a further waiver of any other
covenant or condition of this Lease.
27. AUTOMATIC RENEWAL. See Attached Rider.
28. SECURITY DEPOSIT. As security for the performance of its obligations under
this Lease, the Tenant upon its execution of this lease has paid to the Landlord
a security deposit (the "Security Deposit") in the amount stated in Section 1B.
The Security Deposit may be applied by the Landlord to cure or partially cure
any default of the Tenant under this Lease, and upon notice by the Landlord or
such application, the Tenant shall replenish the Security Deposit in full by
promptly paying to the Landlord the amount so applied. The Landlord shall not
pay any interest on the Security Deposit. The Security Deposit shall not be
deemed an advance payment of rent or a measure of damages for any default by the
Tenant under this Lease, nor shall it be a bar or defense to any action which
the Landlord may at any time commence against the Tenant.
29. LIMITATION OF THE LANDLORD'S LIABILITY: As used in this Lease, the term
"Landlord" shall mean the entity herein named as such, and its successors and
assigns. No person holding the Landlord's interest under the Lease (whether or
not such person is named as the "Landlord") shall have any liability hereunder
after such person ceases to hold such interest, except for any liability
accruing hereunder while such person held such interest. No principal, officer,
employee, or partner (general or limited) of the Landlord shall have any
personal liability under any provision of this Lease. If the Landlord defaults
in the performance of any of its obligations under this Lease or otherwise, the
Tenant shall look solely to the Landlord's interest in the Building and not to
the other assets of Landlord or the assets, interest, or rights of any
principal, officer, employee, or partner (general or limited) for satisfaction
of the Tenant's remedies on account thereof.
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30. COMMON AREAS: For purposes of this Lease "Common Areas" shall mean all
areas, improvements, space, and equipment (owned or controlled by the Landlord)
in or at the Property, provided by the Landlord for the common or joint use and
benefit of tenants, customers and other invitees.
31. MISCELLANEOUS: This Lease, the Exhibits, the Riders and Addendums contained
herein or attached hereto contain the entire agreement between the Landlord and
the Tenant and there are no other agreements, either oral or written. This Lease
shall not be modified or amended except by a written document signed by the
Landlord and the Tenant which specifically refers to this Lease. The captions in
this Lease are for convenience only and in no way define, limit, construe or
describe the scope or intent of the provisions of this Lease. This Lease shall
be construed in accordance with the laws of the state in which the Building is
located. If any provision of this Lease or any amendment hereof is invalid or
unenforceable in any instance, such invalidity or unenforceability shall not
affect the validity or enforceability of any other provision, or such provision
in any circumstance not controlled by such determination.
32. TENANT'S INSURANCE: Tenant shall obtain and keep in force during the Term of
this Lease, including any extension and renewal, comprehensive general liability
insurance, including contractual liability coverage, insuring Landlord (as an
additional insured) and Tenant against any liability arising out of the
ownership, use, occupancy or maintenance of the Premises, and all areas
appurtenant thereto. Such policy shall provide minimum limits of $1,000,000 for
damage to property or for death or injury to any one person in any one accident.
Tenant shall deliver to Landlord, prior to occupancy of the Premises, a
certificate of insurance and evidence of payment of one year's premium, and
shall deliver a new certificate as and when the policy is renewed or replaced.
Said policy shall contain a waiver of subrogation clause in form and content
satisfactory to Landlord and provide that it will not be subject to
cancellation, non-renewal, reduction or other change except after at least
thirty (30) days prior written notice to Landlord. If Tenant fails to comply
with such requirements, Landlord may obtain such insurance and keep the same in
effect and Tenant shall pay Landlord, as Additional Rent due hereunder, the
premium cost thereof upon demand.
33. NO RECORDING: NEITHER THIS LEASE NOR ANY MEMORANDUM OF THIS LEASE MAY BE
RECORDED OR FILED FOR RECORD IN ANY PUBLIC RECORDS WITHOUT THE SEPARATE EXPRESS
WRITTEN CONSENT, IN RECORDABLE FORM, OF THE LANDLORD.
34. ENCUMBRANCES ON LANDLORD'S TITLE: Upon request of Landlord, Tenant will
promptly release or modify, or cause to be released or modified, any financing
statement given by Tenant to a third party, any notice of commencement filed by
Tenant with respect to work on the Premises, or any other recorded document
filed by or on account of Tenant ("Document"), which adversely affects, clouds,
or otherwise encumbers Landlord's title to the Center or any part thereof, so
that the Occupant shall not encumber any portion of the Center, Building, or
Property other than the Tenants leasehold interest in the Premises. Tenant's
obligations as set forth in this Section 34 shall survive termination of this
Lease.
35. RADON DISCLOSURE FOR FLORIDA LEASES: Radon is a naturally occurring
radioactive gas which, when it has accumulated in a building in sufficient
quantities, may present health risks to persons who are exposed to it over time.
Levels of radon that exceed federal and state guidelines have been found in
buildings in Florida. Additional information regarding radon and radon testing
may be obtained from your county public health unit. Tenant acknowledges this
disclosure by signing this Lease.
36. RIDERS & ADDENDA: All riders and addenda contained herein or attached hereto
shall be deemed to be a part hereof and hereby incorporated in this Lease by
reference.
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LEASE RIDER
This Rider is attached to and made a part of the Lease dated July 15,1997 by and
between Koger Equity, Inc,, a Florida Corporation ("Landlord") with its
principal office at 3986 Boulevard Center Drive, Jacksonville, Florida, 32207,
and Conversion Technologies International, Inc., a corporation organized and
existing under the laws of the State of Delaware, ("Tenant") with its principal
office at 82 Bethany Road, Suite 6, Hazlet, New Jersey 07730
36A: EARLY OCCUPANCY: If the Tenant takes occupancy prior to the
commencement date of this Lease Agreement, all terms and conditions will
be in effect as of the date of occupancy.
36B: RENT ADJUSTMENT: The monthly rental as stated in Paragraph 1B, Monthly
Base Rent, will be adjusted on the respective anniversary dates by a fixed
increase of five percent (5%) per year.
36C: TENANT IMPROVEMENTS: Thorough cleaning of existing carpets, entire
suite to be detailed cleaned. All painted walls to be repainted and door
and jambs to be finished as needed.
36D: OPTION TO RENEW: Tenant shall have the option to renew the Lease
Agreement effective August 1, 2000, by providing the Landlord with a
minimum of 120 days prior written notice of its intent to renew.
[Illustrative -- Floor Plan of Building]
TERMINATION AGREEMENT
---------------------
This Agreement is made and entered into as of this 30th day of June, 1997,
among CONVERSION TECHNOLOGIES INTERNATIONAL, INC., ("Conversion"), CTI
ACQSUB-II, INC. ("Sub") and OCTAGON, INC. ("Octagon").
R E C I T A L S:
A. On November 18, 1996, Octagon, Conversion and Sub entered into an
Agreement and Plan of Reorganization (as heretofore amended, the "Merger
Agreement"), pursuant to which Octagon was to be merged with and into Sub, with
Octagon continuing as a wholly-owned subsidiary of Conversion (the "Merger").
B. The parties desire to terminate the Merger Agreement on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants among
the parties, the sufficiency of which is hereby acknowledged, Conversion, Sub
and Octagon hereby agree as follows:
AGREEMENT
1. Termination of Merger Agreement. The parties agree that (i) the Merger
--------------------------------
Agreement is hereby terminated by the mutual consent of Conversion, Sub and
Octagon, (ii) the Merger Agreement shall be of no further force and (iii) no
party hereto, nor any of its stockholders, directors, officers or affiliates,
shall have any liability in connection therewith; provided, however, that the
-------- -------
Confidentiality Agreements dated June 6, 1996 and June 28, 1996 between Octagon
and Conversion shall remain in full force and effect.
<PAGE>
2. Mutual General Releases and Indemnity. (a) Conversion, inclusive of its
-------------------------------------
stockholders, directors, officers, employees, affiliates and agents, hereby
remises, releases and forever discharges Octagon and Octagon's past and present
affiliates and subsidiaries and their stockholders, directors, officers,
employees and agents and each of their heirs, assigns, executors and
administrators (the "Octagon Releasees") from all claims, actions, causes of
action, suits, rights, debts, dues, sums of money, accounts, bonds, bills,
covenants, contracts, controversies, omissions, judgments, executions and
demands whatsoever in law, admiralty or equity, which against the Octagon
Releasees Conversion ever had, now has or which Conversion, Conversion's
affiliates, anyone claiming in a derivative capacity on behalf of Conversion and
the predecessors, successors and assigns of any of them now or hereafter can,
shall or may have, whether known or unknown, foreseen or unforeseen, liquidated
or unliquidated and whether based upon facts now known or unknown, direct or
derivative, for, upon or by reason of any matter, cause or thing whatsoever from
the beginning of time to the day of this Agreement, including, but not limited
to, any and all rights and claims arising under the Merger Agreement (all of the
foregoing being referred to as the "Conversion Released Claims"), excepting only
all obligations of Octagon provided for or expressly reserved in this Agreement.
Conversion hereby agrees to indemnify and hold harmless the Octagon Releasees
and each of them from and against any and all liabilities, losses, damages,
expenses, fees (including, without limitation, reasonable attorneys' fees and
disbursements), settlements, awards or costs of any kind assessed against or
incurred by them or any of them arising from the assertion of any Conversion
Released Claim by or on behalf of Conversion or any of Conversion's affiliates,
stockholders, directors, officers,
-2-
<PAGE>
employees and agents and each of their predecessors, successors and assigns or
anyone who is entitled to make a claim in a derivative capacity on behalf of
Conversion.
(b) Octagon, inclusive of its stockholders, directors, officers, employees,
affiliates and agents, hereby remises, releases and forever discharges
Conversion, CTI Acqsub-II, Inc. and Paramount Capital, Inc. and their respective
past and present affiliates and subsidiaries and their stockholders, directors,
officers, employees and agents and each of their heirs, assigns, executors and
administrators (the "Conversion Releasees") from all claims, actions, causes of
action, suits, rights, debts, dues, sums of money, accounts, bonds, bills,
covenants, contracts, controversies, omissions, judgments, executions and
demands whatsoever in law, admiralty or equity, which against the Conversion
Releasees Octagon ever had, now has or which Octagon, Octagon's affiliates,
anyone claiming in a derivative capacity on behalf of Octagon and the
predecessors, successors and assigns of any of them now or hereafter can, shall
or may have, whether known or unknown, foreseen or unforeseen, liquidated or
unliquidated and whether based upon facts now known or unknown, direct or
derivative, for, upon or by reason of any matter, cause or thing whatsoever from
the beginning of time to the day of this Agreement, including, but not limited
to, any and all rights and claims arising under the Merger Agreement (all of the
foregoing being referred to as the "Octagon Released Claims"), excepting only
all obligations of Conversion provided for or expressly reserved in this
Agreement. Paramount Capital, Inc. shall be a third-party beneficiary of this
Section 2(b). Octagon hereby agrees to indemnify and hold harmless the
Conversion Releasees and each of them from and against any and all liabilities,
losses, damages, expenses, fees (including, without limitation, reasonable
attorneys' fees and disbursements), settlements, awards or costs of any kind
assessed against or incurred by them or any of them arising from the assertion
of any Octagon Released Claim by or
-3-
<PAGE>
on behalf of Octagon or any of Octagon's affiliates, stockholders, directors,
officers, employees and agents and each of their predecessors, successors and
assigns or anyone who is entitled to make a claim in a derivative capacity on
behalf of Octagon.
3. Fee for Octagon Past Services. Conversion acknowledges that during the
-----------------------------
Executory Period (as defined in the Merger Agreement), Octagon provided certain
services to Conversion, including, among other things, budget planning, budget
analysis, market research, market analysis, sales support and financial
planning. Conversion agrees that Octagon shall receive a credit of $558,680 in
respect of such services, which is deemed by Conversion and Octagon to be fair
and adequate consideration therefor, which amount shall be offset against
amounts owing by Octagon to Conversion pursuant to Section 5 below. Octagon
agrees that any and all work product resulting from such services is "work for
hire", which is and shall remain the property of Conversion.
4. Octagon Recruiting Fee. Conversion has expressed a desire to recruit the
----------------------
Octagon executives listed below and Octagon will raise no objection if
Conversion hires such executives. Accordingly, Octagon shall be entitled to a
recruiting fee, to be paid as an offset to amounts owing by Octagon to
Conversion pursuant to Section 5 below, in an amount equal to twenty-five
percent (25%) of the annual salaries of the following individuals:
Annual Salaries Fee
--------------- ---
1. Ken Prudhomme $ 72,000 per annum $ 18,000
2. Richard Hughes $ 90,000 per annum 22,500
3. Jack Hays $ 125,000 per annum 31,250
------
Total $ 71,750
-4-
<PAGE>
Notwithstanding the foregoing, Octagon will be required to reimburse the
recruiting fee of any of the foregoing individuals who voluntarily terminates
his employment with Conversion during the four-month period following the date
hereof.
5. Offset of Note. The parties agree that the amounts owing by Conversion
--------------
to Octagon pursuant to Sections 3 and 4 above are hereby satisfied in full by
offsetting in full the aggregate of $630,430 of indebtedness due to Conversion
from Octagon pursuant to the Loan and Security Agreement dated September 19,
1996, between Conversion and Octagon. Such $630,430 aggregate amount consists of
(i) an aggregate of $255,000 in outstanding principal and $18,788 in interest
accrued through the date hereof due under the promissory note of Octagon dated
September 20, 1996 and (ii) $350,000 in principal and $6,642 in interest accrued
through the date hereof due under the promissory note of Octagon dated March 26,
1997, which amounts are hereby deemed paid in full and discharged.
6. Services by Octagon in Favor of Conversion. Conversion has requested
-------------------------------------------
that Octagon provide certain ongoing services on a fixed fee basis in certain
areas, including, among others, accounting, human resources and regulatory
compliance services. Octagon has agreed to provide such services in the manner
and for the sums specified immediately below:
(a) Octagon will provide Conversion with accounts payable, accounts
receivable, payroll, financial reporting, treasury services and audit support
services for a fixed monthly fee equal to $13,500.
(b) Octagon will provide human resources expertise to include benefit plan
administration, recruiting and general personnel support for a fixed monthly fee
equal to $3,200. In addition, special, time intensive services (such as
development of a 401(k) plan) shall be
-5-
<PAGE>
directed by Octagon's Vice President of Human Resources at a rate of $175 per
hour; provided that such services shall be agreed upon by Conversion in writing
in advance.
(c) Octagon will provide Conversion with regulatory compliance services
including environmental lobbying, EPA support and OSHA support on an as-needed
basis to be provided by John Kolojeski at the rate of $155.00 per hour, provided
that such services shall be agreed upon by Conversion in advance in writing.
(d) In connection with the services provided pursuant to subparagraphs (a),
(b) and (c) above, Conversion shall also reimburse Octagon for reasonable actual
out-of-pocket costs incurred in the rendering of such services, provided that
Conversion agrees to the incurrence of such expenses in writing in advance.
(e) The rights and obligations of the parties under this Section 5 may be
terminated on not less than 30 days' prior written notice by either party to the
other party.
7. Shared Facilities Arrangement. Conversion has requested to use
--------------------------------
facilities, furniture and office equipment of Octagon in Octagon's Altamonte
Springs, Florida office. Octagon has agreed to provide such facilities to
Conversion under the following terms:
(a) Use of 3 to 4 offices in Octagon's facility including related fixtures,
furniture, office equipment, telephone and computer services. Reimbursement
shall be based on a payment by Conversion equal to Octagon's rental rate, in
accordance with its lease, multiplied by the number of square feet occupied by
Conversion, together with a correlative share of common area expenses within
Octagon's space (i.e., such things as a reimbursement to Octagon for areas of
common use such as kitchen, restrooms, office services headquarters and the
like) and Octagon's external common area charges as are required to be paid by
Octagon to it landlord under its lease. Presently, the parties agree that such
reimbursement shall be an aggregate of
-6-
<PAGE>
$7,500 per month. In the event of a change of the rental rate, internal common
area rate and external common area rate, Conversion shall be responsible for a
correlative increase in the rates predicated upon the increase for all of
Octagon's space pursuant to its lease; provided that such change shall be
effective only upon 30 days prior written notice to Conversion. Such shared
facilities services may be cancelled by either party upon not less than 30 days'
advance written notice to the other party.
8. No Joint Venture, Defacto Merger or Complicity. Anything contained in
-----------------------------------------------
this Agreement notwithstanding, the parties expressly disclaim any form of
defacto merger, joint venture or other form of joint enterprise between
Conversion and Octagon. Accordingly, neither Conversion nor Octagon shall be
liable for the debts, liabilities or obligations of the other, nor shall
Conversion or Octagon participate in any way in the profits and losses of the
other.
9. Applicable Law. The rights of all parties hereunder shall be governed
---------------
and decided exclusively by the laws of the State of Delaware.
10. Definitions of Terminology and Construction. The parties agree that
---------------------------------------------
wherever used in this Agreement, unless the context clearly indicates a contrary
intent or unless otherwise specifically provided therein, references to
Conversion, Octagon and Paramount Capital, Inc. shall include their officers,
directors, employees, agents, stockholders, representatives, successors and
assigns of the parties hereof, and all those holding under either of them. The
pronouns used herein shall include, when appropriate, either gender and both
singular and plural, and the grammatical construction of sentences shall conform
thereto.
11. Notices. In the event of the need to provide notice by either party to
-------
the other, such notice shall be given in writing and shall be personally
delivered or mailed by first class,
-7-
<PAGE>
registered, or certified mail, return receipt requested, postage prepaid, or via
telecopy to the parties at the addresses shown below:
(a) If to Conversion:
Attn: Eckardt C. Beck
82 Bethany Road
Hazlet, New Jersey 07730
Telecopy: (908) 888-3930
Telephone: (908) 888-7828
with a copy to:
Perry A. Pappas, Esq.
Buchanan Ingersoll
500 College Road East
Princeton, New Jersey 08540
Telepcopy: (609) 520-0360
Telephone: (609) 987-6800
(b) If to Octagon:
Attn: William L. Amt
317 South North Lake Boulevard, Suite 1024
Altamonte Springs, Florida 32701
Telecopy: 407-834-4592
Telephone: 407-834-9993
with a copy to:
Michael J. Sullivan, Esq.
Greenberg, Taurig, Hoffman, Lipoff, Rosen & Quental. P.A.
1111 N. Orange Avenue
Suite 2050
Orlando, Florida 32801
Telecopy: (407) 420-5989
Telephone: (407) 418-2376
-8-
<PAGE>
12. Entire Agreement. This Agreement contains the entire agreement among
-----------------
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
13. Severability. In the event that any provision of this Agreement would
------------
be held unenforceable in any jurisdiction, such provision shall be deemed
ineffective as to such jurisdiction without invalidating or causing to be
unenforceable the remaining provisions of this Agreement.
14. Benefits. This Agreement shall be binding upon and inure to the benefit
--------
of the parties hereto and their respective successors and assigns; provided,
however, that the services to be provided by Octagon hereunder may not be
assigned to another party without the prior written consent of Conversion.
15. Counterparts. This Agreement may be signed in counterparts, with each
------------
counterpart to have the force of an original instrument, but all counterparts
constituting but one agreement.
-9-
<PAGE>
IN WITNESS WHEREOF, Conversion, Sub and Octagon have executed and
delivered this Agreement on the date first set forth above.
CONVERSION TECHNOLOGIES
INTERNATIONAL, INC.
By: /s/ Eckardt C. Beck
--------------------------------
Eckardt C. Beck, Chairman
CTI ACQSUB-II, INC.
By: /s/ Eckardt C. Beck
--------------------------------
Eckardt C. Beck, President
OCTAGON, INC.
By: /s/ William L. Amt
--------------------------------
William L. Amt, President
EXECUTION COPY
This TECHNOLOGY PURCHASE AGREEMENT (the "Agreement"), made as of the 30th
day of June, 1997, between ADVANCED PARTICLE TECHNOLOGIES, INC., a Delaware
corporation ("APT"), and VANGKOE INDUSTRIES, INC., a Florida corporation
("VANGKOE");
WITNESSETH:
WHEREAS, VANGKOE is the owner of the proprietary particulate color-coating
technology described on Exhibit A hereto (the "Technology"); and
WHEREAS, APT desires to purchase, and VANGKOE desires to sell to APT, the
Technology in accordance with the terms hereof; and
WHEREAS, simultaneously with the execution and delivery hereof, the parties
are entering into a Distributor Agreement (the "Distributor Agreement") pursuant
to which, among other things, VANGKOE will become a distributor of products
manufactured and color-coated by APT utilizing the Technology;
NOW THEREFORE, in consideration of the premises and of the consideration to
be received by the parties hereunder, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:
1. Purchase and Sale of Technology. VANGKOE hereby sells and assigns to
---------------------------------
APT, and APT hereby purchases from VANGKOE, all of VANGKOE's right, title and
interest in and to the Technology. The parties agree that for the purposes
hereof, the term Technology shall include all formulae, inventions, know-how and
other proprietary rights constituting and embodied in the Technology, such that
this transfer will vest APT with complete and absolute ownership of the
Technology and the sole right to modify, enhance, improve and commercially
exploit the same.
2. Purchase Price. (a) The purchase price for the Technology shall be
----------------
$100,000 (with the right to receive the additional payments set forth below),
payable by check or wire transfer to an account designated by VANGKOE. Such
purchase price is payable as follows:
(i) $75,000 has been paid prior to the date hereof pursuant to the terms of
the Letter of Intent dated February 14, 1997, between VANGKOE and APT relating
to, among other things, the transaction contemplated hereby; and
(ii) $60,000 will be paid simultaneously with the execution and delivery of
this Agreement.
<PAGE>
(b) In addition, VANGKOE will have the right to receive, by check or wire
transfer to an account designated by VANGKOE, an additional $30,000 upon
satisfactory production of all colors set forth in Section 2(d) and satisfactory
documentation of the related formulas. Such determination shall be made in
accordance with Section 2(c).
(c) The parties acknowledge that achievement of the requirements set forth
in Section 2(b) will require the diligent good faith efforts of both parties
(and, with respect to VANGKOE, the diligent good faith efforts of Bo Gimvang in
particular), and each party hereby commits to use such diligent good faith
efforts to cooperate to achieve the satisfaction of such requirements within 60
days following the date hereof or as soon thereafter as possible. The
determination of satisfaction of such requirements shall be made by APT acting
in good faith and on a reasonable basis. In the event of a dispute regarding
such determination, such dispute shall be subject to the dispute resolution
procedure established pursuant to Section 6.2 hereof.
(d) The parties expressly acknowledge that the payments to be made pursuant
to this Section 2, and the good faith efforts to achieve the milestones set
forth in this Section 2, are in respect of the following colors deemed necessary
by the parties to effectively compete in the Market: black, blue, teal,
turquoise, jade, light blue, dark blue and the blue color required by VANGKOE's
prospective customer Rhino-coat. Accordingly, APT acknowledges that to the
extent that it desires Vangkoe to provide assistance to develop other colors,
APT will pay for the consulting services of Vangkoe at the rate of $150 per hour
(or such other amount as shall be agreed upon by the parties). Vangkoe agrees to
use its good faith efforts to provide the services of Bo Gimvang and Jeff
Koebrick in that regard to the extent possible without unreasonably interfering
with the abilities of such persons to perform the services required of them to
Vangkoe.
(e) It is expressly understood and agreed by the parties that the amount of
technology transfer payments made pursuant to this section 2 include all past
research and development, out of pocket expenses and associated costs, reflected
in the lump sum payments by APT to VANGKOE hereunder.
3. Royalty Payment. If APT or its affiliates shall sell color coated
-----------------
particles utilizing the coating technology purchased by APT pursuant to this
Technology Purchase Agreement, as the same may be modified, enhanced or improved
by APT, to any customer for use in any market other than the market (as defined
in the Distribution Agreement), or to any customer (other than VANGKOE) for use
in the Market (in the event VANGKOE fails to maintain its exclusive rights to
distribute the Products in the Market), APT or its affiliates shall pay to
VANGKOE a royalty equal to $0.02 per pound of coated material sold during the
term of this Agreement and $0.01 per pound of coated material sold during the
five-year period following the termination of this Agreement. Such payment will
be made on a semi-annual basis on or prior to March 31 and September 30 of each
year and shall be accompanied by reasonably detailed documentation supporting
the calculation of such royalty. Such royalty shall be due regardless of whether
the coating technology was applied at APT's current St. Augustine, Florida
facility or at another new or existing facility of APT or any of its affiliates,
suppliers or customers. If VANGKOE shall disagree with the calculation of any
semi-annual royalty
-2-
<PAGE>
payment, VANGKOE shall provide written notice thereof to APT within 10 days
following its receipt of the calculation and payment. VANGKOE and APT shall then
work together in good faith to resolve the dispute within the following 30-day
period. During such period, VANGKOE shall have the right to review the books and
records of APT and its affiliates with respect to coated product sales and the
calculation of the royalty payment at the offices of APT (or its affiliates)
during normal business hours and at VANGKOE's sole expense. If the parties are
unable to resolve the dispute within such 30-day period, the dispute will be
resolved by arbitration in accordance with Section 6.2 below.
4. Certain Additional Agreements.
------------------------------
(a) VANGKOE recognizes the highly competitive nature of the business to be
conducted by APT and the importance of preserving the confidentiality of the
Technology. Accordingly, as an inducement to APT to enter into this Agreement
and in partial consideration of the amounts to be received by VANGKOE hereunder,
as well as the benefits to be realized by VANGKOE under the Distributor
Agreement, VANGKOE agrees that (i) it will not, directly or indirectly, disclose
(verbally, in writing or otherwise) the particulate color-coating formula or
process that constitutes the Technology to any third party and (ii) until the
later of the fifth anniversary of the date hereof and the termination of the
Distributor Agreement, it will not, directly or indirectly, engage in the
business, or assist any other party (except APT or its affiliates) in engaging
in the business, of manufacturing color-coated particles or developing or
selling color-coating technologies for particles; provided, however, that (A)
-------- -------
the restrictions set forth in clause (i) above shall not apply after such time
as the formula and process constituting the Technology enters the public domain
through the issuance of a patent or otherwise becomes generally known to the
public (as evidenced by academic or trade books, articles or journals or similar
written publicly available sources and (B) the restriction set forth in clause
(ii) above shall cease to apply 20 days following notice by VANGKOE to APT of a
material breach by APT or its affiliates of any material term of this Agreement
or the Distributor Agreement (unless such breach is cured within such 20-day
period).
(b) VANGKOE acknowledges and agrees that simultaneously with the execution
and delivery of this Agreement, each of Cytech Laboratories, Inc. ("Cytech"),
Jeff Koebrick and Bo Gimvang will sign a letter pursuant to which they will
agree to be bound by this Section 4.
(c) APT and its affiliates acknowledge that Cytech is a research and
development company controlled by Jeff Koebrick and Bo Gimvang and that Cytech
develops alkali silicate coatings for various commercial applications. APT and
its affiliates hereby acknowledge that the purchase hereunder is limited to the
Technology and that neither APT nor its affiliates has purchased or will assert
rights with respect to other alkali silicate coating formulas or processes of
Cytech.(d) The parties acknowledge that they hope to be engaged in a long-term,
mutually beneficial relationship. Accordingly, APT and its affiliates agree to
evaluate in good faith any potential coating technology or other technology that
could be applicable and beneficial to the business to be conducted by APT and
VANGKOE agrees to use
-3-
<PAGE>
its good faith efforts to provide APT and its affiliates the first opportunity
to review and evaluate any such technologies for commercial exploitation on
terms to be agreed upon by the parties.
5. Representations and Warranties. (a) Each party represents and warrants
-------------------------------
to the other that such party is duly incorporated, validly existing and in good
standing under the laws of the State of its incorporation. Each party further
represents and warrants to the other that the execution, delivery and
performance of this Agreement and the Distributor Agreement have been duly and
validly authorized by all necessary corporate action. Each party further
represents and warrants to the other that neither the execution, delivery nor
performance of this Agreement or the Distributor Agreement will violate,
conflict with or cause a default under (with or without due notice or lapse of
time) its Certificate of Incorporation or By-laws or any contract, debt
obligation or other agreement or instrument by which it is bound.
(b) VANGKOE represents and warrants to APT (and Conversion Technologies
International, Inc. ("CTI"), which shall be a third party beneficiary of this
representation and warranty) that (i) it has good and valid title to the shares
(the "Shares") of APT Common Stock being transferred to CTI simultaneously with
the execution and delivery of this Agreement, (ii) the transfer of the Shares to
CTI in consideration of $0.01 per share has been duly and validly authorized by
all necessary corporate action by VANGKOE and (iii) the delivery to CTI of the
certificate representing the Shares, together with a duly executed stock power
assigning the Shares to APT, will be sufficient to transfer ownership of the
Shares to CTI, free and clear of any claims, liens, pledges, security interests
or other encumbrances of any nature whatsoever.
(c) VANGKOE's representations and warranties set forth in the letter dated
May 9, 1996, a copy of which is attached hereto as Exhibit B, are incorporated
---------
herein by reference as if set forth herein in their entirety and made for the
benefit of APT as well as CTI.
Section 6. Miscellaneous.
---------- --------------
6.1 Notices. Any notice required or permitted hereunder shall be given in
--------
writing and shall be conclusively deemed effective when given upon personal
delivery or delivery by courier, or five days after deposit in the United States
mail, by registered or certified mail, postage prepaid, addressed as follows (or
at such other address as may be designated by written notice):
(i) if to APT, to:
Advanced Particle Technologies, Inc.
c/o Conversion Technologies International, Inc.
82 Bethany Road
Hazlet, New Jersey 07730
Telephone: (908) 888-3828
Telecopier: (908) 888-3930
Attention: President
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<PAGE>
and
(ii) if to VANGKOE, to
VANGKOE Industries, Inc.
7 San Bartola Drive
St. Augustine, FL 32086
Telephone: (904) 824-0111
Telecopier: (904) 824-7994
Attention: President
6.2 Dispute Resolution. In the event of any dispute between the parties
--------------------
under this agreement, the parties shall attempt to resolve it in good faith as
soon as possible. If such dispute is not resolved within 20 days following
written notice thereof from one party to the other (or such number of days as
shall be otherwise specified herein), such dispute shall be resolved by
arbitration pursuant to the rules of the American Arbitration Association or
other mediation procedure agreed to by the parties. Such arbitration or
mediation shall take place in St. Augustine, Florida or other mutually agreeable
location. The arbitrator or mediator will be instructed to attempt to resolve
the dispute within 30 days of commencement of proceedings and any award shall be
final and binding upon the parties, unless non-binding arbitration or mediation
is mutually agreed upon. Each party will bear its own legal fees and other
expenses related to any such proceeding.
6.3 Assignment. This Agreement may not be assigned by VANGKOE without the
-----------
prior written consent of APT or, whether by operation of law or otherwise,
except to a purchaser of substantially all of the assets or business of VANGKOE
following APT's (or its affiliates') refusal to exercise its right of first
offer under the Distributor Agreement. This Agreement may not be assigned by APT
and/or its affiliates without the prior written consent of VANGKOE, whether by
operation of law or otherwise, except to an affiliate of APT or to a purchaser
of substantially all of the assets or business of APT following VANGKOE's
refusal to exercise its right of first offer under the Distributor Agreement.
6.4 Independent Contractors. The parties are independent contractors and
-------------------------
neither party has, or will represent that it has, authority to bind the other
with respect to any matter whatsoever.
6.5 Amendments. This Agreement may not be amended without the written
-----------
agreement of the parties.
6.6 Entire Agreement. This Agreement constitutes the complete agreement of
-----------------
the parties with respect to the subject matter hereof and supersedes all prior
agreements of the parties, if any, whether oral or in writing, and no course of
dealing shall alter the terms hereof.
6.7 Severability. In the event that any provision of this Agreement would
-------------
be held in any jurisdiction to be invalid, such jurisdiction, shall be
ineffective, without invalidating the remaining provisions of this Agreement or
affecting the validity or enforceability of such
-5-
<PAGE>
provision in any other jurisdiction. Notwithstanding the foregoing, if such
provision could be more narrowly drawn so as not to be invalid, prohibited or
unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so
narrowly drawn, without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.
6.8 Successors and Assigns. Subject to the limitations set forth herein,
-----------------------
this Agreement shall be binding on each party's successors and assigns.
6.9 Governing Law. This Agreement shall be governed by and construed in
---------------
accordance with the laws of the State of Delaware, without giving effect to
principles of conflicts of laws.
6.10 Counterparts. This Agreement can be signed in counterpart, with each
-------------
such counterpart constituting an original but all such counterparts constituting
one agreement.
-6-
<PAGE>
IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of
the date appearing on the first page hereof.
ADVANCED PARTICLE
TECHNOLOGIES, INC.
By: /s/ Eckardt C. Beck
------------------------------
Name: Eckardt C. Beck
Title: Acting President
CONVERSION TECHNOLOGIES
INTERNATIONAL, INC.
By: /s/ Eckardt C. Beck
------------------------------
Name: Eckardt C. Beck
Title: Acting President
VANGKOE INDUSTRIES, INC.
By: /s/ Bo Gimvang
------------------------------
Bo Gimvang
President
-7-
EXECUTION AGREEMENT
This DISTRIBUTOR AGREEMENT (the "Agreement"), made as of the 30th day of
June, 1997, between ADVANCED PARTICLE TECHNOLOGIES, INC., a Delaware corporation
("APT"), and VANGKOE INDUSTRIES, INC., a Florida corporation ("VANGKOE");
WITNESSETH:
WHEREAS, VANGKOE desires to market various coated and uncoated particles
for use in the market for swimming pool plasters and other swimming pool
material applications, including for spas, reflective pools and fountains and
the like;
WHEREAS, on the date hereof, pursuant to a Technology Purchase Agreement
dated the date hereof, APT has purchased certain proprietary coating technology
from VANGKOE which will be applied by APT to specialty glass particles; and
WHEREAS, APT, acting independently or through its affiliated companies, can
also supply uncoated specialty glass particles, as well as specialty fired
ceramic particles; and
WHEREAS, VANGKOE desires the exclusive right to market such coated
specialty glass, uncoated specialty glass, and fired ceramic particles into the
market for swimming pool plasters and other swimming pool material applications
in the United States and Canada; and
WHEREAS, APT is willing to grant such exclusive rights to VANGKOE, subject
to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and of other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
Section 1. Appointment; Exclusivity; Term.
---------- -------------------------------
1.1 Appointment. Subject to the terms and conditions hereof, APT hereby
-----------
appoints VANGKOE, and VANGKOE hereby accepts such appointment, as the exclusive
distributor of coated specialty glass, uncoated specialty glass, and fired
ceramic particles manufactured by APT or its affiliates (collectively, the
"Products") for swimming pool plasters and other swimming pool material
applications including for spas, reflective pools and fountains in the United
States and Canada (the "Market"). The parties acknowledge that such grant of
exclusivity means that neither APT nor its affiliates will sell the Products to
any other party if APT or its affiliates knows or has a reasonable basis to
believe that such party will sell the Products into the Market. In addition, as
long as VANGKOE maintains its exclusivity with respect to a Product hereunder,
to the extent legally permissible, APT will not sell such Product to any
industrial distributor of colored
<PAGE>
particles in the United States or Canada unless such distributor has agreed in
writing to refrain from selling such Product in the Market (and APT agrees to
enforce such restriction in good faith). VANGKOE acknowledges that it shall not
have the right to sell or market any of the Products in any market other than
the Market (or to any customer or distributor who or which VANGKOE knows or has
reason to believe intends to sell the Products outside of the Market) unless and
until separately agreed to by the parties upon mutually acceptable terms agreed
to in writing. In addition, VANGKOE agrees that APT shall be its exclusive
source to apply color coatings to any uncoated Product VANGKOE purchases from
APT or its affiliates as long as this Agreement shall be in force. APT agrees to
forward to VANGKOE any leads or inquiries it or any of its affiliates receives
regarding the proposed use or purchase of any of the Products in the Market.
1.2 Retaining Exclusivity. The grant of exclusive rights pursuant to
-----------------------
Section 1.1 with respect to each of the Products is subject to VANGKOE meeting
the respective sales volume targets set forth on Exhibit A hereto for each of
such Products, as the same may be amended from time to time by the mutual
written consent of the parties. In the event that VANGKOE fails to meet a sales
target with respect to a Product, VANGKOE will have a 60-day cure period within
which to satisfy such target. If VANGKOE fails to meet the target within such
60-day cure period, VANGKOE's right to market the Product in the Market shall
convert into a non-exclusive right for the remainder of the term of the
Agreement. The determination of whether a product is non-conforming shall be
made by testing the product in accordance with standard ASTM procedures and
equipment as applied to similar materials sold in the Market or in accordance
with such other procedures as shall be mutually agreed upon in writing by the
parties.
1.3 Best Efforts. VANGKOE agrees to use its best good faith efforts to
--------------
market the Products in the Market and to meet the sales targets established
pursuant to Section 1.2 during the term of this Agreement. Notwithstanding the
foregoing, however, the parties acknowledge that VANGKOE shall not have any
liability to APT or its affiliates (other than to pay for ordered Products
conforming to the specifications established pursuant to Section 2.1) if it
fails to meet such sales targets or generate sales of the Products.
1.4 Term. The term of this Agreement shall be five years and shall
-----
automatically renew for successive one-year periods thereafter unless and until
terminated pursuant to Section 4.1.
Section 2. Product Specifications; Terms of Sale.
---------- --------------------------------------
2.1 Product Specifications. APT warrants that each Product will meet the
------------------------
specification established for such Product set forth on Exhibit B hereto, as the
same may be amended from time to time by the mutual written consent of the
parties.
2
<PAGE>
2.2 VANGKOE's Right to Reject; Exclusive Purchases. (a) VANGKOE's right to
------------------------------------------------
reject any shipment of Product shall be limited solely to the failure of such
shipment to conform to the specifications established pursuant to Section 2.1.
Any such rejection must be effected by written notice delivered within 60 days
of APT's (or its affiliate's) shipment, giving relevant order information and a
description of the non-conforming aspects of the Product. APT acknowledges and
agrees that VANGKOE shall not be deemed to have missed a sales target to the
extent that APT is unable to fulfill orders placed by VANGKOE (relating to firm
bona fide orders VANGKOE has in turn received from its customers) on a timely
basis. If any shipments are found to be non-conforming, APT (or its affiliates)
shall have a 30-day period to reprocess the non-conforming portion of such
shipment to make it conforming or replace such non-conforming material with new,
conforming material. If APT or its affiliates are unable to provide conforming
material within such 30-day period, VANGKOE shall have the right,
notwithstanding anything to the contrary contained in Section 2.2 (b), to
purchase substitute particles from a third party to replace such non-conforming
material, and APT (or its affiliates) will refund any amounts paid by VANGKOE to
APT (or its affiliates) in respect of such non-conforming material. APT (or its
affiliate) will bear the cost of freight of any returned shipment that fails to
meet the required specification.
(b) VANGKOE agrees that it will not purchase coated particles, uncoated
particles (to displace the Products), or fired ceramic particles, or any
substantially similar or equivalent particles, for use in the Market from any
party other than APT or its affiliated companies as long as the relevant APT (or
affiliate) Product conforms to the specification established pursuant to Section
2.1 (allowing, if applicable, for the 30-day grace period described above) and
to the extent that APT (or affiliates) can ship sufficient amounts of the
Products to fill the firm orders of VANGKOE's customers on a timely basis. The
parties acknowledge that VANGKOE's obligation to purchase such particles
exclusively from APT or its affiliates shall not apply to materials that are not
the functional equivalents of the Products.
2.3 Order Procedure. Products shall be ordered on a purchase order basis,
-----------------
with orders to be placed through one or more individuals located at APT's (or an
affiliate's) facility, which individuals shall be designated in writing by APT.
Such orders shall specify the Product, the quantity of material, grit sizes and
any other information required to fill the order, provided that all requirements
shall be within the specifications established pursuant to Section 2.1.
2.4 Best Efforts to Fill Orders. (a) Subject to production constraints and
----------------------------
availability of materials, APT and its affiliates will use their best good faith
efforts to fill orders placed by VANGKOE on a timely basis and VANGKOE shall
have priority status on all production capacity. VANGKOE agrees to work in good
faith with APT to provide reasonable advance notice with respect to orders
wherever feasible, and in particular with respect to large orders or orders
involving more than one Product. The parties acknowledge that neither APT nor
any of its affiliates shall have any liability to VANGKOE or its customers as a
result of the failure to fill any order.
3
<PAGE>
(b) APT and/or its affiliates will use their best efforts to source a
functionally equivalent substitute glass material which meets the specialty
glass requirements in the event of inadequate supply of specialty glass. In the
event a functionally equivalent glass is unsourceable or in limited supply, APT
and/or its affiliates will use their best efforts to source mined minerals to be
color coated as an alternate lower-end product. This mined mineral to be color
coated will be priced at $0.02 per pound less than the specialty glass color
coated in order to differentiate glass and mined quartz as an alternative
product for the market.
2.5 Pricing and Payment. (a) The price for each of the Products shall be as
--------------------
set forth on Exhibit C hereto. Such prices shall be firm for the first two years
---------
of the term of this Agreement, subject to annual increase thereafter in an
amount not to exceed 5% of the prior years' price; provided, however, that any
-------- -------
such price increase shall not be implemented to the extent that VANGKOE can
provide documented evidence of superior pricing available for particles produced
by other manufacturers that could serve as a substantially functional equivalent
for the Product in question in the Market. Payment shall be due from VANGKOE 60
days following the date of shipment to VANGKOE; provided, however, that, unless
-------- -------
otherwise agreed to by APT, neither APT nor its affiliates will accept an order
for any Product if at the time of placing of such order the aggregate amount of
outstanding receivables owing from VANGKOE for Products exceeds the greater of
(i) $100,000 or (ii) 30% of the amount of receivables actually collected by APT
or its affiliates in respect of Products ordered by VANGKOE during the 90-day
period preceding the date of placement of the proposed order.
(b) Notwithstanding Section 2.5(a), (i) the pricing for coated specialty
glass set forth on Exhibit C hereto assumes that the average per pound cost for
---------
coating materials (meaning all costs relating to the color coating material up
to the point of introduction into the coating process) for one ton of coated
specialty glass will be $0.01; In the event that at any time such cost exceeds
$0.01 by $0.005 or more (other than as a result of change-over in pigment or
materials, equipment failure or other inefficiencies within the control of APT),
the amount of the excess over such estimated $0.01 cost shall be added to the
purchase price to VANGKOE (and Exhibit C shall automatically be deemed to be
---------
amended accordingly), (ii) if at any time VANGKOE fails to maintain its
exclusive right to distribute any of the Products in the Market and APT or its
affiliates sells such Product into the Market, VANGKOE will receive the most
favorable price given to any other party for the purchase of the Product within
the Market and (iii) such pricing is subject to increase in the event of
documented increases in costs in production or transport resulting from
increased energy costs.
Section 3. Certain Additional Agreements.
---------- ------------------------------
3.1 Rights of First Offer. (a) Each of APT and VANGKOE agrees that it will
----------------------
not sell substantially all of its assets or business, or a majority of its
voting capital stock, to any third party, or enter into an agreement
contemplating such sale,
4
<PAGE>
unless it shall have first offered to effect such sale to the other party on the
same terms proposed to be offered to the third party. Such offer shall be in
writing setting forth all of the material terms of the proposed transaction,
including the form of the transaction, the purchase price, the form of
consideration to be paid, the proposed closing date and any other material
terms. The party receiving the offer shall notify the sending party in writing
of its decision to accept or decline the offer within 15 days following its
receipt of the offer. If a party refuses to accept such offer or fails to
respond within the 15-day time period, the sending party shall be free to
consummate the proposed transaction with a third party; provided, however, that
-------- -------
if a material change occurs in the terms of the proposed transaction prior to
consummation (including, without limitation, a change of 5% or more in the price
to be paid or a change in the form of transaction as consideration, the right of
first offer must again be extended to APT or VANGKOE, as the case may be, in
accordance with this Section 3.2.
(b) Notwithstanding the foregoing, Section 3.1(a) shall not apply to a
public offering of securities, registered under the Securities Act of 1933, as
amended, or a bona fide private placement of securities (other than to a
competitor of the business conducted by APT), whether or not such public or
private offering results in the sale of 50% or more of the voting capital of the
offering party.
3.2 Trademarks. VANGKOE acknowledges that ALUMAGLASS, VISIGRIT and GREAT
-----------
WHITE are trademarks of CTI and agrees that VANGKOE shall not use any of such
marks without the prior written consent of CTI which may be withheld in CTI's
sole discretion. APT and its affiliates acknowledge that CERAMAGLASS, CERAMITE,
CPM, Brillant Innovations and Clear Advantage are trademarks of VANGKOE and
agree that neither APT nor any of its affiliates shall use such name without
VANGKOE's prior written consent, which consent may be withheld in VANGKOE's sole
discretion.
3.3 Confidentiality. VANGKOE acknowledges that APT and its affiliates are
----------------
subject to the reporting requirements of the Securities Exchange Act of 1934 and
public disclosure rules. Accordingly, VANGKOE agrees to refrain from making any
public disclosures regarding the sales volumes of materials supplied by APT or
its affiliates unless VANGKOE obtains APT's prior written consent. In addition,
VANGKOE acknowledges that APT and its affiliates deem the source of materials
and processes used to produce the Products as proprietary trade secrets of APT
or its affiliates, and VANGKOE agrees to keep such information confidential
unless the prior written consent of APT is obtained. Subject to its public
disclosure reporting requirements, APT agrees not to disclose any confidential
information relating to VANGKOE's operations; provided, however, that VANGKOE
-------- -------
expressly acknowledges that APT's sales of material to VANGKOE will be
incorporated in the consolidated financial statements of APT's parent company
and that APT's business dealings with VANGKOE are subject to public disclosure
reporting requirements generally. VANGKOE acknowledges that remedies at law or
in damages may be insufficient with respect to any breach of Section 3.3 and
that injunctive relief or other equitable remedy
5
<PAGE>
will be appropriate in addition to any other remedies that may be available to
APT and its affiliates.
Section 4. Termination.
---------- ------------
4.1 Termination. Notwithstanding anything contained herein to the contrary:
------------
(i) either party may terminate this Agreement upon 60 days' prior
written notice in the event of a material breach of the terms
hereof by the other party, unless cured (if curable) prior to the
expiration of such 60-day period;
(ii) either party may terminate this Agreement at the end of the
initial five-year term hereof or at the end of any one-year term
thereafter by giving written notice at least 180 days prior to
the end of such term;
(iii)APT may terminate this Agreement immediately in the event that
it determines, in its reasonable discretion, that the sale of the
Products violates the laws or regulations of any state or country
into which VANGKOE shall sell Product (provided that, at
VANGKOE's option, this Agreement may remain in effect with the
written modification that the Distributor shall refrain from
selling into such state or country until such time as APT shall
determine in its sole discretion that the sale of the Product is
no longer so violative); and
(iv) either party may terminate this Agreement immediately if the
other files a voluntary petition in bankruptcy, makes an
assignment for the benefit of creditors or otherwise seeks
protection from creditors under applicable bankruptcy, insolvency
or similar laws, or if an involuntary petition in bankruptcy
shall be filed against such party or other action shall be
commenced against such party under bankruptcy, insolvency or
similar laws and such petition or action is not be stayed or
dismissed within 60 days.
4.2 Effect of Termination or Failure to Renew. Neither party shall have any
------------------------------------------
liability to the other (whether for damages, lost profits or consequential or
other special damages) arising out the termination of this Agreement or the
failure to renew this Agreement, except to the extent resulting from the breach
of the terms hereof occurring prior to such termination.
6
<PAGE>
4.3 Survival of Certain Terms. The provisions of Sections 3, 5 and 6 shall
--------------------------
survive the termination of this Agreement.
Section 5. Limited Warranty.
---------- -----------------
5.1 Limited Warranty. The Products are sold as is and neither APT nor any
------------------
of its affiliates makes any representation or warranty whatsoever, express or
implied, with respect thereto, other than the limited warranty that each Product
will conform to the specifications established for the Product in Exhibit B
---------
hereto and in all material respects to any Material Safety Data Sheet prepared
by APT or its affiliates for such Product. EXCEPT AS EXPRESSLY SET FORTH IN THIS
SECTION 5.1, NEITHER APT NOR ANY OF ITS AFFILIATES MAKES ANY REPRESENTATION OR
WARRANTY WITH RESPECT TO THE PRODUCTS WHATSOEVER AND ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY EXPRESSLY
DISCLAIMED.
5.2 Indemnity. VANGKOE hereby agrees not to make any representations or
----------
warranties concerning the Products except as set forth in Section 5.1 and hereby
indemnifies and holds harmless APT and its affiliates and their respective
officers, directors and stockholders with respect to any third party claim
arising out of, based on or relating to any other representation or warranty
made by VANGKOE to any third party.
5.3 Limitation of Liability. NOTWITHSTANDING ANYTHING CONTAINED IN THIS
------------------------
AGREEMENT TO THE CONTRARY, NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR ANY
INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES. LOSSES OR EXPENSES
(INCLUDING WITHOUT LIMITATION LOST PROFITS OR LOST BUSINESS) ARISING, DIRECTLY
OR INDIRECTLY, UNDER THIS AGREEMENT OR FROM THE PURCHASE, USE OR SALE OF THE
PRODUCTS.
Section 6. Miscellaneous.
---------- --------------
6.1 Notices. Any notice required or permitted hereunder shall be given in
--------
writing and shall be conclusively deemed effective when given upon personal
delivery or delivery by courier, or five days after deposit in the United States
mail, by registered or certified mail, postage prepaid, addressed as follows (or
at such other address as may be designated by written notice):
7
<PAGE>
(i) if to APT, to:
Advanced Particle Technologies, Inc.
c/o Conversion Technologies International, Inc.
82 Bethany Road
Hazlet, New Jersey 07730
Telephone: (908) 888-3828
Telecopier: (908) 888-3930
Attention: President
and
(ii) if to VANGKOE, to:
VANGKOE Industries, Inc.
7 San Bartola Drive
St. Augustine, FL 32086
Telephone: (904) 824-0111
Telecopier: (904) 824-7994
Attention: President
6.2 Dispute Resolution. In the event of any dispute between the parties
--------------------
under this agreement, the parties shall attempt to resolve it in good faith as
soon as possible. If such dispute is not resolved within 20 days following
written notice thereof from one party to the other (or such number of days as
shall be otherwise specified herein), such dispute shall be resolved by
arbitration pursuant to the rules of the American Arbitration Association or
other mediation procedure agreed to by the parties. Such arbitration or
mediation shall take place in St. Augustine, Florida or other mutually agreeable
location. The arbitrator or mediator will be instructed to attempt to resolve
the dispute within 30 days of commencement of proceedings and any award shall be
final and binding upon the parties, unless non-binding arbitration or mediation
is mutually agreed upon. Each party will bear its own legal fees and other
expenses related to any such proceeding.
6.3 Assignment. This Agreement may not be assigned by VANGKOE without the
-----------
prior written consent of APT, whether by operation of law or otherwise, except
to a purchaser of substantially all of the assets or business of VANGKOE
following APT's (or its affiliates') refusal to exercise its right of first
offer under this Agreement. This agreement may not be assigned by APT and/or its
affiliates without the prior written consent of VANGKOE, whether by operation of
law or otherwise, except to an affiliate of APT or a purchaser of substantially
all of the assets or business of APT following VANGKOE's refusal to exercise its
right of first offer under this Agreement.
8
<PAGE>
6.4 Independent Contractors. The parties are independent contractors and
-------------------------
neither party has, or will represent that it has, authority to bind the other
with respect to any matter whatsoever.
6.5 Amendments. This Agreement may not be amended without the written
-----------
agreement of the parties.
6.6 Entire Agreement. This Agreement constitutes the complete agreement of
-----------------
the parties with respect to the subject matter hereof and supersedes all prior
agreements of the parties, if any, whether oral or in writing, and no course of
dealing shall alter the terms hereof. Without limiting the foregoing, upon the
execution and delivery of this Agreement, the agreements and documents set forth
Exhibit D shall cease to be of any further force or effect. Upon execution and
- ---------
delivery of this Agreement each party releases the other party and its officers,
directors, stockholders and affiliates from any liability under the agreements
set forth under Exhibit D or arising out of the activities, promises or
commitments relating to the joint venture relationship contemplated by such
agreements up to and including the date hereof. Specifically, but without
limitation, VANGKOE is hereby released from its obligations to reimburse APT or
its affiliates for equipment, operating expenses or other property or materials
purchased or expended in connection with APT's operations (APT having sole
ownership thereof) prior to the date hereof and its minimum ALUMAGLASS purchase
commitments set forth in the Purchase, Supply and Distributorship Agreement
referenced on Exhibit D and to pay for materials shipped to VANGKOE to date that
do not conform to the specifications set forth for the Products pursuant to this
Agreement.
6.7 Severability. In the event that any provision of this Agreement would
-------------
be held in any jurisdiction to be invalid, prohibited or unenforceable for any
reason, such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
6.8 Successors and Assigns. Subject to the limitations set forth herein,
-----------------------
this Agreement shall be binding on each party's successors and assigns.
6.9 Governing Law. This Agreement shall be governed by and construed in
---------------
accordance with the laws of the State of Delaware, without giving effect to
principles of conflicts of laws.
6.10 Counterparts. This Agreement can be signed in counterpart, with each
-------------
such counterpart constituting an original but all such counterparts constituting
one agreement.
9
<PAGE>
IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of
the date appearing on the first page hereof.
ADVANCED PARTICLE
TECHNOLOGIES, INC.
By: /s/ Eckardt C. Beck
---------------------------------
Name: Eckardt C. Beck
Title: Acting President
CONVERSION TECHNOLOGIES
INTERNATIONAL, INC.
By: /s/ Eckardt C. Beck
---------------------------------
Name: Eckardt C. Beck
Title: Acting President
VANGKOE INDUSTRIES, INC.
By: /s/ Bo Gimvang
---------------------------------
Bo Gimvang
President
-10-
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
PLACEMENT AGENCY AGREEMENT
--------------------------
_________________
_________________
_________________
Dear Sirs:
Conversion Technologies International, Inc., a Delaware corporation (the
"Company"), hereby confirms its agreement to retain _______________________ (the
"Placement Agent") on an exclusive basis to introduce the Company to, and to
procure subscriptions from, certain "accredited investors" (as defined in
Regulation D under the Securities Act of 1933, as amended) as prospective
purchasers of a minimum of thirty (30) Units (the "Minimum Offering") and a
maximum of fifty (50) Units (the "Maximum Offering"), with an option in favor of
the Placement Agent to offer up to an additional thirty (30) Units to cover
over-allotments at a purchase price of $100,000 per Unit, with each "Unit"
consisting of 10,000 shares of Premium Preferred Stock, stated value $10.00
per share, of the Company (the "Preferred Stock"). The Preferred Stock shall
have the terms set forth in the Term Sheet (as defined below).
The sale to such purchasers (the "Offering") will be made through a private
placement by the Placement Agent (or its designated selected dealers) on a "best
efforts" basis pursuant to the Confidential Term Sheet dated August 8, 1997, and
all supplements, amendments and exhibits thereto, all of which constitute an
integral part thereof (the "Term Sheet"), and separate purchase agreements and
related documents (the "Subscription Agreements") in accordance with Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and
Regulation D promulgated thereunder.
The Term Sheet, the Subscription Agreements, the exhibits to the
Subscription Agreements, the Certificate of Designation relating to the
Preferred Stock (the "Certificate of Designation"), the Escrow Agreement (the
"Escrow Agreement"), the Financial Advisory Agreement (as defined in Section
4(k) below), the Placement Warrants (as defined in Section 3(d) below) and this
Placement Agency Agreement are collectively referred to herein as the "Offering
Documents."
The Company, at its sole cost, shall prepare and deliver to the Placement
Agent a reasonable number of copies of the Offering Documents in form and
substance satisfactory to the Placement Agent.
Each prospective investor subscribing to purchase Units shall be required
to deliver, among other things, a Subscription Agreement, which shall include a
Confidential Investor Questionnaire ("Questionnaire"). The Company shall make
available to each prospective purchaser at a reasonable time prior to the
purchase of the Units the opportunity to ask questions of and receive answers
from the Company concerning the terms and conditions of the Offering and the
opportunity to obtain additional information necessary to verify the accuracy of
the documents delivered in connection with the purchase of the Units to the
extent it possesses such
-1-
<PAGE>
information or can acquire it without unreasonable effort or expense. After the
Offering Documents have been reviewed by investors, and they have had the
opportunity to address all inquiries to the Company, separate Subscription
Agreements shall be completed by each prospective investor. The Company, with
the consent of the Placement Agent and the Placement Agent, in its sole
discretion, shall have the right to reject subscriptions in whole or in part.
The Company shall evidence its acceptance of a subscription by countersigning a
copy of the applicable Subscription Agreement and returning the same to the
Placement Agent.
Capitalized terms used in this Agreement, unless otherwise defined herein
or unless the context otherwise indicates, shall have the same meanings provided
in the Offering Documents.
1. Appointment of Placement Agent.
------------------------------
(a) The Placement Agent is hereby appointed exclusive placement agent of
the Company (subject to the Placement Agent's right to have Selected Dealers, as
defined in Section 1(c) hereof, participate in the Offering) during the Offering
Period herein specified for the purposes of assisting the Company in finding
qualified subscribers pursuant to the Offering described in the Offering
Documents. The Placement Agent shall not be deemed an agent of the Company for
any other purpose. The Offering Period shall commence on August 8, 1997 (the
"Commencement Date"). Upon receipt of the Minimum Offering amount, the Placement
Agent may conduct a closing (the "Initial Closing Date") and may conduct
subsequent closings on an interim basis until the Maximum Offering amount (and
any over-allotment amount) has been reached (the "Final Closing Date"). Each
such closing may be referred to herein as a "Closing". The Offering Period shall
terminate at 11:59 p.m. New York City Time on October 8, 1997, subject to an
extension, at the option of the Placement Agent, for an additional sixty (60)
days.
(b) Subject to the performance by the Company of all of its obligations to
be performed under this Agreement and to the completeness and accuracy of all
representations and warranties of the Company contained in this Agreement, the
Placement Agent hereby accepts such agency and agrees to use its best efforts to
assist the Company in finding qualified subscribers pursuant to the Offering
described in the Offering Documents. It is understood that the Placement Agent
has no commitment to sell the Units. The Placement Agent's agency hereunder is
not terminable by the Company except upon termination of the Offering Period.
(c) The Placement Agent may engage other persons, selected by it in its
discretion, that are members of the National Association of Securities Dealers,
Inc. ("NASD") or who are located outside the United States and that have
executed a Selected Dealers Agreement (each such person being hereinafter
referred to as a "Selected Dealer") and the Placement Agent may allow such
persons such part of the compensation and payment of expenses payable to the
Placement Agent hereunder as the Placement Agent shall determine.
(d) Subscriptions for Units shall be evidenced by the execution by
qualified subscribers of a Subscription Agreement. No Subscription Agreement
shall be effective unless and until it is accepted by the Company. Until a
Closing is held, all subscription funds received shall be held as described in
the Subscription Agreement. The Placement Agent shall not have any independent
obligation to verify the accuracy or completeness of any information contained
in any Subscription Agreement or the authenticity, sufficiency or validity of
any check delivered by any prospective investor in payment for Units, nor shall
the Placement Agent incur any liability with respect to any such check.
-2-
<PAGE>
2. Representations and Warranties of the Company. The Company represents,
---------------------------------------------
warrants and covenants to the Placement Agent and each Selected Dealer, if any,
as follows:
(a) Securities Law Compliance. The Offering Documents as of their
---------------------------
respective dates do, and as of the date of the Term Sheet and each Closing shall
describe the material aspects of an investment in the Company and conform in all
respects with the requirements of Section 4(2) of the Securities Act and
Regulation D promulgated thereunder and with the requirements of all other
published rules and regulations of the Securities and Exchange Commission (the
"Commission") currently in effect relating to "private offerings" to "accredited
investors" of the type contemplated by the Company. The Offering Documents shall
not as of the date of the Term Sheet and each Closing contain an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, provided, however, that no representation is
made with respect to information relating to the Placement Agent which is
provided in writing by the Placement Agent to the Company specifically for
inclusion in the Offering Documents. If at any time prior to the completion of
the Offering or other termination of this Agreement any event shall occur as a
result of which it might become necessary to amend or supplement the Offering
Documents so that they do not include any untrue statement of any material fact
or omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances then existing, not misleading, the
Company will promptly notify the Placement Agent and will supply the Placement
Agent (or the prospective purchasers designated by the Placement Agent) with
amendments or supplements correcting such statement or omission. The Company
will also provide the Placement Agent for delivery to all offerees and
purchasers and their representatives, if any, any information, documents and
instruments which the Placement Agent and the Company's counsel reasonably deem
necessary to comply with applicable state and federal law.
The Company acknowledges that the Placement Agent (i) has not supplied any
information for inclusion in the Offering Documents other than information
relating to the Placement Agent furnished in writing to the Company by the
Placement Agent specifically for inclusion in the Offering Documents; (ii) has
no obligation to independently verify any of the information in the Offering
Documents; and (iii) has no responsibility for the accuracy or completeness of
the Offering Documents, except for the information relating to the Placement
Agent furnished in writing by the Placement Agent to the Company specifically
for inclusion in the Offering Documents.
(b) Organization. Each of the Company and Dunkirk International Glass and
------------
Ceramics Corporation and Advanced Particle Technologies, Inc. (each, a
"Subsidiary" and collectively, the "Subsidiaries") is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own and lease its properties, to carry on its respective business
as currently conducted and as proposed to be conducted, to execute and deliver
this Agreement and to carry out the transactions contemplated by this Agreement,
as appropriate and is duly licensed or qualified to do business as a foreign
corporation in each jurisdiction in which the conduct of its business or
ownership or leasing of its properties requires it to be so qualified, except
where the failure to be so qualified would not have a material adverse effect on
the business, financial condition or prospects of the Company.
(c) Capitalization. The authorized, issued and outstanding capital stock of
--------------
the Company prior to the consummation of the transactions contemplated hereby is
as set forth in the Offering Document. All issued and outstanding shares of the
Company are validly issued, fully
-3-
<PAGE>
paid and nonassessable and have not been issued in violation of the preemptive
rights of any stockholder of the Company. The Preferred Stock, when issued, will
have the rights, preferences and privileges substantially as set forth in the
Form of Certificate of Designation attached as Exhibit B to the Term Sheet. All
prior sales of securities of the Company were either registered under the Act
and, except as set forth in Schedule 2(c), applicable state securities laws or
exempt from such registration, and no security holder has any rescission rights
with respect thereto. Except as set forth in the Term Sheet, there are no
outstanding options, warrants, agreements, convertible securities, preemptive
rights or other rights to subscribe for or to purchase any shares of capital
stock of the Company. Except as set forth in the Term Sheet and as otherwise
required by law, there are no restrictions upon the voting or transfer of any
shares of the Company's capital stock pursuant to the Company's Certificate of
Incorporation, By-Laws or other governing documents or any agreement or other
instruments to which the Company is a party or by which the Company is bound.
(d) Warrants, Preemptive Rights, Etc. Except as set forth in or
-------------------------------------
contemplated by the Term Sheet, there are not, nor will there be immediately
after any Closing, any outstanding warrants, options, agreements, convertible
securities, rights of first refusal, rights of first offer, preemptive rights or
other rights to subscribe for or to purchase or other commitments pursuant to
which the Company is, or may become, obligated to issue any shares of its
capital stock or other securities of the Company and this Offering will not
cause any anti-dilution adjustments to such securities or commitments except as
reflected in the Term Sheet.
(e) Subsidiaries and Investments. Except with respect to a wholly-owned
------------------------------
subsidiary of the Company, CTI ACQSUB-II, Inc., which presently holds no assets
and which was formed in connection with a previously proposed merger of the
Company, and other than as disclosed in the Term Sheet, the Company does not
own, directly or indirectly, capital stock or other equity ownership or
proprietary interests in any other corporation, association, trust, partnership,
joint venture or other entity.
(f) Financial Statements. The financial information contained in the
---------------------
Offering Documents is accurate in all material respects. The Company's financial
statements have been prepared in conformity with generally accepted accounting
principles consistently applied and show all material liabilities, absolute or
contingent, of the Company and the Subsidiaries required to be recorded thereon
and present fairly the financial position and results of operations of the
Company and the Subsidiaries as of the dates and for the periods indicated.
(g) Absence of Changes. Since the date hereof, except as has been or will
------------------
be reflected in the Term Sheet prior to Closing, neither the Company nor the
Subsidiaries has incurred any liabilities or obligations, direct or contingent,
other than those which were incurred in the ordinary course of business, nor has
the Company or the Subsidiaries entered into any transaction which is material
to the business of the Company or the Subsidiaries, and there has not been any
change in the capital stock of, or any incurrence of long-term debt by, the
Company or the Subsidiaries, or any issuance of options, warrants or other
rights to purchase the capital stock of the Company or the Subsidiaries, or any
adverse change or any development involving a prospective adverse change in the
condition (financial or otherwise), net worth, results of operations, business,
key personnel or properties which would be material to the business or financial
condition of the Company or the Subsidiaries, and neither the Company nor the
Subsidiaries has become a party to, and neither the business nor the property of
the Company or the Subsidiaries has become the subject of, any litigation
whether or not in the ordinary course of business.
-4-
<PAGE>
(h) Title. Except as set forth on Schedule 2(h), each of the Company and
-----
the Subsidiaries has good and marketable title to all tangible properties and
assets owned by it, free and clear of all liens, charges, encumbrances or
restrictions, except such as are not materially significant or important in
relation to the Company's or the Subsidiary's respective business; all of the
material leases and subleases under which the Company is the lessor or sublessor
of properties or assets or under which the Company or the Subsidiaries hold
properties or assets as lessee or sublessee are in full force and effect, and
neither the Company nor either of the Subsidiaries is in default in any material
respect with respect to any of the terms or provisions of any of such leases or
subleases, and no material claim has been asserted by anyone adverse to rights
of the Company or the Subsidiaries as lessor, sublessor, lessee or sublessee
under any of the leases or subleases mentioned above, or affecting or
questioning the right of the Company or the Subsidiaries to continued possession
of the leased or subleased premises or assets under any such lease or sublease.
Each of the Company and the Subsidiaries owns or leases all such tangible
properties as are necessary to its respective operations as now conducted and
proposed to be conducted and, except to the extent described in the Term Sheet,
neither the Company nor the Subsidiaries presently anticipate the need for any
capital expenditures.
(i) Proprietary Rights. Except as has been or will be reflected in the Term
------------------
Sheet prior to each Closing, each of the Company and the Subsidiaries owns or
possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, service marks, trade names, corporate names,
copyrights, trade secrets, processes, mask works, licenses, inventions,
formulations, technology and know-how and other intangible property used or
proposed to be used in the conduct of its business as described in or
contemplated by the Term Sheet (the "Proprietary Rights"). Except as has been or
will be reflected in the Term Sheet prior to each Closing, the Company and the
Subsidiaries or the entities from whom the Company or the Subsidiaries has
acquired rights has taken all necessary action to protect all of the Company's
and the Subsidiary's Proprietary Rights. Except as set forth in the Term Sheet,
neither the Company nor the Subsidiaries has received any notice of, and there
are not any facts known to the Company or the Subsidiaries which indicate the
existence of, (i) any infringement or misappropriation by any third party of any
of the Proprietary Rights or (ii) any claim by a third party contesting the
validity of any of the Proprietary Rights; the Company has not received any
notice of any infringement, misappropriation or violation by the Company or the
Subsidiaries or any of its employees of any proprietary rights of third parties,
and, to the best of the Company's knowledge, neither the Company nor the
Subsidiaries nor any of its employees has infringed, misappropriated or
otherwise violated any Proprietary Rights of any third parties; and, to the best
of the Company's knowledge, no infringement, illicit copying, misappropriation
or violation of any intellectual property rights of any third party has occurred
or will occur with respect to any products currently being sold by the Company
or the Subsidiaries or with respect to any products currently under development
by the Company or the Subsidiaries or with respect to the conduct of the
Company's or either of the Subsidiary's businesses as currently contemplated.
Except as described in the Term Sheet, the Company is not aware that any of its
employees are obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of the employee's best efforts to promote the interests of the Company
or the Subsidiaries or that would conflict with the Company's or the
Subsidiary's businesses as currently conducted or as proposed to be conducted.
To the best of the Company's knowledge, neither the execution nor delivery of
this Agreement, nor the carrying on of the Company's or either of the
Subsidiary's businesses by the employees of the Company or either of the
Subsidiaries, nor the conduct of the Company's or either of the Subsidiary's
businesses, as currently conducted or as proposed to be conducted, will conflict
with or result in
-5-
<PAGE>
a breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any such employee is now
obligated.
(j) Litigation. Except as set forth in the Term Sheet, there is no action,
----------
suit, claim or proceeding at law or in equity, or to the Company's knowledge,
investigation or customer complaint, by or before any arbitrator, governmental
instrumentality or other agency now pending or, to the knowledge of the Company,
threatened against the Company or the Subsidiaries (or basis therefor known to
the Company which the Company believes will result in the foregoing). Neither
the Company nor the Subsidiaries is subject to any judgment, order, writ,
injunction or decree of any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign which would materially adversely affect the Company's or either of the
Subsidiary's businesses, prospects or financial condition.
(k) NonDefaults, NonContravention. Except as set forth on Schedule 2(k),
------------------------------
neither the Company nor the Subsidiaries is in violation of or default under,
nor will the execution and delivery of this Agreement or any of the Offering
Documents, or consummation of the transactions contemplated herein or therein
result in a violation of or constitute a default in the performance or
observance of any obligation (i) under its Certificate of Incorporation, or its
By-Laws, or any indenture, mortgage, contract, material purchase order or other
agreement or instrument to which the Company is a party or by which it or its
property is bound or affected or (ii) with respect to any order, writ,
injunction or decree of any court of any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, and there is no existing condition, event or act which
constitutes, nor which after notice, the lapse of time or both, could
constitute, a default under any of the foregoing.
(l) Taxes. Each of the Company and the Subsidiaries has filed all Federal,
-----
state, local and foreign tax returns which are required to be filed by it and
all such returns are true and correct in all material respects. Each of the
Company and the Subsidiaries has paid all taxes due pursuant to such returns or
pursuant to any assessments received by it or which it is obligated to withhold
from amounts owing to any employee, creditor or third party. Each of the Company
and the Subsidiaries has properly accrued all taxes required to be accrued. The
tax returns of the Company and the Subsidiaries have never been audited by any
state, local or Federal authorities. Each of the Company and the Subsidiaries
has not waived any statute of limitations with respect to taxes or agreed to any
extension of time with respect to any tax assessment or deficiency.
(m) Compliance With Laws, Licenses, Etc. Each of the Company and the
--------------------------------------
Subsidiaries is in compliance with all federal, state, local or foreign, laws,
ordinances, regulations and orders applicable to its respective business, the
violation of, or noncompliance with which, would have a materially adverse
effect on the business, financial condition, prospects or operations of the
Company or the Subsidiaries. Each of the Company and the Subsidiaries has all
governmental licenses and permits and other governmental certificates,
authorizations and permits and approvals (collectively, "Licenses") required by
every federal, state and local government or regulatory body for the operation
of its respective business as currently conducted and the use of its properties,
except where the failure to be licensed would not have a material adverse effect
on the business of the Company or either of the Subsidiaries. Each of the
Company's and the Subsidiary's Licenses are in full force and effect and no
violations are or have been recorded in respect of any License and no proceeding
is pending or, to the best knowledge of the Company, threatened to revoke or
limit any thereof.
-6-
<PAGE>
(n) Authorization of Documents and Units. Each of the Offering Documents,
------------------------------------
has been, or prior to any Closing will be duly and validly authorized, executed
and delivered by the Company and the execution, delivery and performance by the
Company of the Offering Documents has been duly authorized by all requisite
corporate action by the Company and when delivered, constitute or will
constitute the legal, valid and binding obligations of the Company, enforceable
in accordance with their respective terms, subject to the availability and
enforceability of equitable remedies and to applicable bankruptcy and other laws
relating to the rights of creditors generally and except as the enforcement of
the rights to indemnification and contribution hereunder and under any other
Offering Documents may be limited by federal or state securities laws or public
policy. Subject to the filing prior to the Initial Closing Date of the
Certificate of Designation, the Company has full power and lawful authority to
authorize, issue and sell the Units to be sold to the Purchasers. No consent is
required by the Company or either of the Subsidiaries from any third party to
perform any of its obligations under this Agreement or any of the Offering
Documents.
(o) Exemption from Registration. Assuming (i) the accuracy of the
-----------------------------
information provided by the respective Purchasers in the Subscription
Agreements, and (ii) the timely filing of a Form D by the Company, the offer and
sale of the Units and the granting of the Placement Warrants pursuant to the
terms of this Agreement are exempt from the registration requirements of the
Securities Act and the rules and regulations promulgated thereunder (the
"Regulations"). The Company is not disqualified from the exemption under
Regulation D by virtue of the disqualifications contained in Rule 505(b)(2)(iii)
or Rule 507 promulgated thereunder and the securities underlying the Units.
There exist no fact or set of facts which might cause the Offering to be
integrated with any other offering of the Company's securities.
(p) Registration Rights. Except as set forth in the Term Sheet or Section 5
-------------------
of the Subscription Agreements, no person has any right to cause the Company to
effect the registration under the Securities Act of any securities of the
Company.
(q) Brokers. Neither the Company nor any of its officers, directors,
-------
employees or stockholders has employed any broker or finder in connection with
the transactions contemplated by this Agreement other than the Placement Agent.
(r) Title to Preferred Stock. When certificates representing the Preferred
------------------------
Stock shall have been duly delivered to the Purchasers and payment shall have
been made for the Units, the several Purchasers shall have good and valid title
to the Preferred Stock, and upon conversion of such Preferred Stock (including
the Preferred Stock issuable upon exercise of the Placement Warrants), subject
to the filing of an amended Certificate of Incorporation increasing the number
of authorized shares of the Company's Common Stock as contemplated by the Term
Sheet, will have good and valid title to the Common Stock issuable upon such
conversion (the "Conversion Shares"), in each case, free and clear of all liens,
encumbrances and adverse claims, whatsoever (except as arising from applicable
Federal and state securities laws), and the Company shall have paid all taxes,
if any, in respect of the original issuance thereof. When certificates
representing the Placement Warrants shall have been duly delivered to the
Placement Agent, the Placement Agent or its designees shall have good and valid
title to the Placement Warrants, and upon exercise of such Placement Warrants,
will have good and valid title to the Preferred Stock issuable upon such
exercise, and upon conversion of the Preferred Stock issuable upon exercise of
such Placement Warrants, will have good and valid title to the Common Stock into
which such Preferred Stock is converted, in each case, free and clear of all
liens, encumbrances and adverse claims, whatsoever (except as arising from
applicable Federal and
-7-
<PAGE>
state securities laws), and the Company shall have paid all taxes, if any, in
respect of the original issuance thereof.
(s) Non-Affiliated Directors. The Company's Board of Directors has not less
------------------------
than two directors who are independent from, and unaffiliated with, management
of the Company.
(t) Accuracy of Reports. All reports required to be filed by the Company
-------------------
and the Subsidiaries under the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"), have been duly filed with the Commission, complied at the
time of filing in all material respects with the requirements of their
respective forms and, except to the extent updated or superseded by the Term
Sheet or any subsequently filed report, were complete and correct in all
material respects as of the dates at which the information was furnished, and
contained (as of such dates) no untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
(u) Authorized Shares. The Company shall (i) use its best efforts to
------------------
increase the authorized shares of Common Stock of the Company to a minimum of
40,000,000 and in any case a number of shares sufficient for the purpose of
conversion of all the Preferred Stock sold in or related to this Offering
including without limitation, (x) the Common Stock underlying the Placement
Warrants and (y) the Common Stock underlying the Preferred Stock resulting from
dividends paid on the Preferred Stock (or such other amounts as may be
authorized by the Board of Directors) within 90 days following the Final Closing
Date but in any event shall effect such increase no later than 180 days
following the Final Closing Date and (ii) at all times after the date upon which
such Common Stock is authorized, reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the shares of Preferred Stock, such number of shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Preferred Stock. If at any time
Placement Agent elects to convert any of its shares of Preferred Stock and the
Company does not have authorized and reserved for issuance a sufficient number
of shares of Common Stock to permit conversion in full of all outstanding shares
of Preferred Stock, then the Placement Agent shall be entitled to receive upon
conversion of its Preferred Stock only that number of shares of Common Stock as
equals the Placement Agent's Pro Rata Percentage of the number of shares of
Common Stock authorized and reserved for issuance upon conversion of Preferred
Stock.
For purposes of the previous sentence, the Placement Agent's "Pro Rata
Percentage" on any date equals the number of shares of Preferred Stock held of
record by the Placement Agent on such date divided by the number of shares of
Preferred Stock held of record by all holders of Preferred Stock on such date.
In addition to the foregoing, if after 180 days following the Final Closing
Date the Company has failed to authorize and reserve a sufficient number of
shares of Common Stock to permit conversion in full of all outstanding shares of
Preferred Stock, the Company shall, for no additional consideration, issue to
the Placement Agent additional shares of Preferred Stock equal to 0.25% of the
shares of Preferred Stock then held by Placement Agent, exclusive of shares of
Preferred Stock issued pursuant to this Section 2(u), for each day the Company
lacks sufficient authorized and reserved shares of Common Stock to permit
conversion in full of all outstanding shares of Preferred Stock.
-8-
<PAGE>
3. Closing; Placement and Fees.
---------------------------
(a) Closing. Provided that the Placement Agent has received subscriptions
-------
for the Minimum Offering amount, the Placement Agent may conduct, in its
sole discretion, closings (the date of each a "Closing Date") at the offices of
the Placement Agent until the Final Closing Date. On each Closing Date, payment
for the Units issued and sold by the Company shall be made to the Company in
immediately available funds against delivery of certificates evidencing the
Preferred Stock comprising such Units.
(b) Conditions to Placement Agent's Obligations. The obligations of the
---------------------------------------------
Placement Agent hereunder are subject to the accuracy of the representations and
warranties of the Company herein contained as of the date hereof and as of each
Closing Date, to the performance by the Company of its obligations hereunder and
to the following additional conditions:
(i) Due Qualification or Exemption. (A) The Offering contemplated by this
------------------------------
Agreement will become qualified or be exempt from qualification under the
securities laws of the several states pursuant to paragraph 3(c) below not later
than the Closing Date, subject to any filings to be made thereafter, and (B) at
the Closing Date, no stop order suspending the sale of the Units shall have been
issued, and no proceeding for that purpose shall have been initiated or
threatened;
(ii) No Material Misstatements. Neither the Blue Sky qualification
---------------------------
materials, the Offering Documents, nor the Term Sheet, nor any supplement
thereto, will contain an untrue statement of a fact which in the opinion of the
Placement Agent is material, or omit to state a fact, which in the opinion of
the Placement Agent is material and is required to be stated therein, or is, in
the opinion of the Placement Agent, necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
(iii) Compliance with Agreements. The Company will have complied with all
---------------------------
agreements and satisfied all conditions on its part to be performed or satisfied
hereunder and under the Subscription Agreements at or prior to each Closing;
(iv) Corporate Action. The Company will have taken all corporate action
-----------------
necessary to permit the valid execution, delivery and performance of the
Offering Documents by the Company, including without limitation, obtaining the
approval of the Company's board of directors for the execution and delivery of
the Offering Documents, the increase in authorized shares of Common Stock of the
Company, the performance by the Company of its obligations hereunder and the
Offering contemplated hereby;
(v) Opinions of Counsel to the Company. The Placement Agent shall receive
----------------------------------
the opinion of Buchanan Ingersoll, counsel to the Company (stating that each of
the Purchasers may rely thereon as though addressed directly to such Purchaser),
dated as of each Closing Date, substantially to the effect that:
(A) Each of the Company and the Subsidiaries is duly incorporated and is
validly existing and in corporate good standing under the laws of its
jurisdiction of incorporation, has all requisite corporate power and authority
necessary to own or hold its properties and conduct its business as described in
the Term Sheet and is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
the business conducted, or as proposed to be conducted in the Term Sheet, by
-9-
<PAGE>
it or the properties owned, leased or operated by it, makes such qualification
or licensing necessary and where the failure to be so qualified or licensed
would have a material adverse effect upon the business, prospects and financial
condition of the Company. To such counsel's knowledge, except with respect to
the Subsidiaries, the Company does not own, directly or indirectly, any capital
stock or other equity ownership or proprietary interests in any other
corporation, association, trust, partnership, joint venture or other entity;
(B) the execution, delivery and performance of each of the Offering
Documents to which the Company is a signatory, and the issuance of (I) the
Preferred Stock and the Placement Warrants, (II) the Preferred Stock issuable
upon exercise of the Placement Warrants and (III) the Conversion Shares
(including the Conversion Shares underlying the Preferred Stock issuable upon
exercise of the Placement Warrants), have been duly authorized, subject to the
filing of an amended Certificate of Incorporation increasing the number of
authorized shares of the Company's Common Stock as contemplated by the Term
Sheet, by all necessary corporate action on the part of the Company. Each of the
Offering Documents to which the Company is a signatory has been duly executed
and delivered by the Company and constitutes a legal, valid and binding
obligation of the Company enforceable in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, receivership or other laws of
general application relating to or affecting generally the enforcement of
creditors' rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or contribution may be
limited by applicable law;
(C) the authorized, issued and outstanding capital stock of the Company as
of the date hereof (before giving effect to the transactions contemplated by
this Agreement) is as set forth in the Term Sheet. To such counsel's knowledge,
there are no outstanding warrants, options, agreements, convertible securities,
preemptive rights or other commitments pursuant to which the Company is, or may
become, obligated to issue any shares of its capital stock or other securities
of the Company other than as set forth in the Term Sheet. All of the issued
shares of capital stock of the Company have been duly and validly authorized and
issued, are fully paid and nonassessable and to the best of such counsel's
knowledge, have not been issued in violation of the preemptive rights of any
security holder;
(D) assuming (x) the accuracy of the information provided by the
Subscribers in the Subscription Documents, (y) the timely filing with the
Commission and any applicable state securities authority of a Form D and
amendments thereto containing accurate and complete information, the issuance
and sale of the Units is exempt from registration under the Securities Act and
Rule 506 of Regulation D promulgated thereunder;
(E) neither the execution and delivery of the Offering Documents nor
compliance with the terms hereof or thereof, nor the consummation of the
transactions herein or therein contemplated, has, nor will, conflict with,
result in a breach of, or constitute a default under the Certificate of
Incorporation or By-laws of the Company or either of the Subsidiaries, or any
material contract, instrument or document known to such counsel, after due
inquiry, to which the Company or either of the Subsidiaries is a party, or by
which it or any of its properties is bound or, to the best knowledge of such
counsel, violate any applicable order or decree of any governmental agency or
court having jurisdiction over the Company or either of the Subsidiaries or any
of its properties or business;
(F) except as disclosed in the Term Sheet, to such counsel's best
knowledge, there are no claims, actions, suits, investigations or proceedings
before
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<PAGE>
or by any arbitrator, court, governmental authority or instrumentality pending
or threatened against the Company or either of the Subsidiaries. Except as
disclosed in the Term Sheet, to such counsel's knowledge, neither the Company
nor either of the Subsidiaries is a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality;
(G) upon the issuance of the Units, the Preferred Stock (including the
shares of Preferred Stock issuable upon exercise of the Placement Warrants), the
Placement Warrants and the Conversion Shares, subject to the filing of an
amended Certificate of Incorporation increasing the number of authorized shares
of the Company's Common Stock as contemplated by the Term Sheet, (including the
Conversion Shares underlying the Preferred Stock issuable upon exercise of
Placement Warrants), each of the purchasers or the Placement Agent and its
designees, as the case may be, shall acquire such securities, free and clear of
all pledges, liens, claims, encumbrances, preemptive rights, rights of first
offer or right of first refusal and restrictions known to such counsel after due
inquiry, except for the transfer restrictions set forth in the Subscription
Agreements and any action taken to encumber such securities by the holders
thereof;
(H) the Placement Warrants, when issued in accordance with the terms of
this Agreement and/or the Subscription Agreement, as applicable, for the
consideration expressed therein, will have been validly issued and will
constitute legal, valid and binding obligations of the Company enforceable
against the Company in accordance with their respective terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating or
affecting generally the enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable. The Preferred Stock to
be issued as of the date of such opinion, when issued in accordance with the
terms of this Agreement and the Subscription Agreements for the consideration
expressed therein, will have been validly issued and such Preferred Stock will
be fully paid and nonassessable. The Preferred Stock issuable upon exercise of
the Placement Warrants, when issued in accordance with the terms thereof for the
consideration expressed therein, will have been duly issued; such Preferred
Stock will be fully paid and nonassessable and the provisions of the Preferred
Stock Certificate of Designation will constitute legal, valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating or affecting generally the enforcement of creditors' rights
and the application of equitable principles in any action, legal or equitable.
Except as set forth in the Term Sheet, the Conversion Shares (including the
Conversion Shares underlying the Preferred Stock issuable upon exercise of the
Placement Warrants), subject to the filing of an amended Certificate of
Incorporation increasing the number of authorized shares of the Company's Common
Stock as contemplated by the Term Sheet, have been duly authorized and reserved
for issuance and, when issued in accordance with the terms of the Preferred
Stock, will have been validly issued and will be fully paid and nonassessable.
(I) the Company's By-laws and/or Certificate of Incorporation, as in effect
as of the date of such opinion, contain provisions indemnifying all directors
against liability and absolving all directors from liability to the Company and
its stockholders to the maximum extent permitted under the laws of the State of
Delaware.
Such counsel shall state, in opining on any matter stated to be subject to
the knowledge of such counsel, that such counsel has made appropriate inquiries
of
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<PAGE>
officers of the Company and the Subsidiaries with respect to the subject matter
of such opinion and has reviewed all documents the existence of which is
disclosed by such inquiries or of which such counsel otherwise is aware of as a
result of its representation of the Company.
In addition, such counsel shall state that in the course of the preparation
of the Offering Documents, which involved, among other things, discussions and
inquiries concerning the various legal matters and the review of certain
corporate records, documents and proceedings, counsel participated in
conferences with certain officers and other representatives of the Company and
the Placement Agent during which the contents of the Offering Documents and
related matters were discussed. Such counsel shall advise the Placement Agent in
the form of an opinion of counsel that such counsel has no reason to believe
that, as of each Closing Date, the Term Sheet or any document incorporated by
reference therein contained any untrue statement of a material fact relating to
the Company or omitted to state a material fact relating to the Company required
to be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances under which they were made.
(vi) Opinions of Environmental and Patent Counsel. If requested by the
-----------------------------------------------
Placement Agent, the Placement Agent shall receive the opinions of environmental
counsel and patent counsel to the Company (which such counsel shall be
satisfactory to the Placement Agent in its sole discretion), dated the Closing
Date in the form and substance satisfactory to counsel for the Placement Agent.
(vii) Comfort Letter. The Company shall cause the Company's independent
---------------
public accountants to address and deliver to the Company and the Placement Agent
a letter or letters (which letters are frequently referred to as "Comfort
Letters") dated as of each Closing Date and the effective date of the Shelf
Registration Statement required to be filed in connection with the Subscription
Agreements.
(viii) Officer's Certificate. The Placement Agent shall receive an
----------------------
Officer's Certificate substantially in the form of Exhibit A hereto and a
Secretary's Certificate substantially in the form of Exhibit B hereto, signed by
the appropriate parties and dated as of each Closing Date. These certificates
shall state, among other things, that the representations and warranties
contained in Section 2 hereof are true and accurate in all respects at such
Closing Date with the same effect as though expressly made at such Closing Date.
(ix) Escrow Agreement. The Placement Agent shall receive a copy of a duly
-----------------
executed Escrow Agreement with Fleet National Bank.
(x) Transmittal Letters. The Placement Agent shall receive copies of all
--------------------
letters from the Company to the investors transmitting the Preferred Stock and
shall receive a letter from the Company confirming transmittal of the securities
to the investors.
(c) Blue Sky. A summary blue sky survey, at the sole cost of the Company
--------
(including, without limitation, the legal fees and disbursements in connection
therewith), shall be prepared by counsel to the Placement Agent stating the
extent to which and the conditions upon which offers and sales of the Units may
be made in certain jurisdictions. It is understood that such survey may be based
on or rely upon (i) the representations of each Subscriber set forth in the
Subscription Agreement delivered by such Subscriber, (ii) the representations,
warranties and agreements of the Company set forth in Section 2 of this
Agreement, (iii) the representations and
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<PAGE>
warranties of the Placement Agent and (iv) the representations of the Company
set forth in the certificate to be delivered at the Closing pursuant to
paragraph (viii) of Section 3(b).
(d) Placement Fees and Expenses. (i) Simultaneously with payment for and
---------------------------
delivery of the Units at each Closing as provided in paragraph 3(a) above, the
Company shall at such Closing pay to the Placement Agent (i) a commission (the
"Cash Commission") equal to nine percent (9%) of the aggregate purchase price of
the Units sold and (ii) a non-accountable expense allowance (the "Expense
Allowance") equal to four percent (4%) of the aggregate purchase price of the
Units sold. The Company shall also pay all expenses in connection with the
qualification of the Units under the securities or Blue Sky laws of the states
which the Placement Agent shall designate. In addition, upon each Closing of the
sale of the Units being offered, the Company will sell to the Placement Agent
and/or its designees, for $.001 per warrant, preferred stock warrants (the
"Placement Warrants") to acquire a number of newly issued shares of Preferred
Stock equal to ten percent (10%) of the number of shares of Preferred Stock
issued in the Offering, exercisable for a period of ten (10) years commencing
six months after the Final Closing Date at an exercise price equal to one
hundred ten percent (110%) of the initial offering price of the Units. The
Company agrees with the Placement Agent and its successors and assigns that the
Placement Warrants will not be subject to redemption by the Company nor will
they be callable or mandatorily convertible by the Company. The Placement
Warrants cannot be transferred, sold, assigned or hypothecated for six months
except that they may be assigned in whole or in part during such period to any
NASD member participating in the Offering or any officer or employee of the
Placement Agent or any such NASD member. The Placement Warrants will contain a
cashless exercise feature and antidilution provisions and the right to have the
Conversion Shares issuable upon conversion of the Preferred Stock underlying
such warrants included on the Shelf Registration Statement.
(ii) The Cash Commission, Expense Allowance and Placement Warrants as set
forth in this Agreement shall be paid to the Placement Agent with respect to any
investment by any investors introduced to the Company by the Placement Agent
("Covered Investors") in the event that any such Covered Investor purchases
securities from the Company during the twelve (12) months following the Final
Closing Date of the Offering.
(e) No Adverse Changes. There shall not have occurred, at any time prior to
------------------
the Closing, (i) any domestic or international event, act or occurrence which
has disrupted, or in the Placement Agent's determination will in the immediate
future disrupt, the securities markets; (ii) a general suspension of, or a
general limitation on prices for, trading in securities on the New York Stock
Exchange, the American Stock Exchange, the Nasdaq National Market, the Nasdaq
SmallCap Market, or in the over-the-counter market; (iii) any outbreak of major
hostilities or other national or international calamity; (iv) any banking
moratorium declared by a state or federal authority; (v) any moratorium declared
in foreign exchange trading by major international banks or other persons; (vi)
any material interruption in the mail service or other means of communication
within the United States; (vii) any material adverse change in the business,
properties, assets, results of operations, financial condition or prospects of
the Company; or (viii) any change in the market for securities in general or in
political, financial, or economic conditions which, in the Placement Agent's
reasonable judgment, makes it inadvisable to proceed with the offering, sale and
delivery of the Units.
4. Covenants of the Company.
-------------------------
(a) Use of Proceeds. Except as set forth on Schedule 4(a) hereto, the
----------------
Company shall not use any proceeds from the Offering to repay any indebtedness
of the
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<PAGE>
Company, including but not limited to any indebtedness to current executive
officers or principal stockholders of the Company, but excluding accounts
payable to non-affiliates incurred in the ordinary course, including scheduled
repayments of principal and interest on existing indebtedness and lines of
credit secured by the receivables and inventory of the Company, and such other
indebtedness as shall be agreed upon in writing by the Company and the Placement
Agent.
(b) Expenses of Offering. The Company shall be responsible for and shall
--------------------
bear all expenses incurred in connection with the proposed
Offering, including but not limited to, the costs of preparing and duplicating
the Term Sheet and all exhibits thereto; the costs of preparing, printing and
filing with the Commission the Shelf Registration Statement and amendments,
post-effective amendments and supplements thereto; preparing, duplicating and
delivering exhibits thereto and copies of the preliminary, final and
supplemental prospectus; preparing, duplicating and delivering (including by
facsimile) all selling documents, including but not limited to the Term Sheet,
the Placement Agency Agreement, Subscription Agreements, Placement Warrants,
blue sky memorandum and stock and warrant certificates; blue sky fees, filing
fees and legal fees and disbursements of the Placement Agent's counsel and blue
sky counsel; fees and disbursements of the transfer and warrant agent; the cost
of a total of two sets of bound closing volumes for the Placement Agent and its
counsel; and the cost of three tombstone advertisements, at least one of which
shall appear in a national business newspaper and one of which shall appear in a
major New York newspaper (or, at the option of the Placement Agent, forty (40)
lucite deal mementos) (collectively, the "Company Expenses"). The Company agrees
to use a printer designated by the Placement Agent and which is reasonably
acceptable to the Company. The Company shall pay to the Placement Agent a
non-accountable expense allowance equal to 4% of the total proceeds of the
Offering (the "Expense Allowance"), of which twenty thousand dollars ($20,000)
shall have been paid upon execution of the Letter of Intent between the Company
and the Placement Agent and twenty thousand dollars ($20,000) of which shall be
due and payable upon the date the Term Sheet is completed, to cover the cost of
the Placement Agent's mailing, telephone, telecopy, travel, due diligence
meetings and other similar expenses excluding legal fees of the Placement
Agent's counsel and blue sky counsel (which fees shall be the responsibility of
the Company as provided above and any other items designated above as Company
Expenses). Such prepaid expense allowances shall be non-refundable. If the
proposed financing is not completed because the Company prevents it or because
of a breach by the Company of any covenants, representations or warranties
contained herein, then the Company shall pay to the Placement Agent a fee of one
hundred thousand dollars ($100,000) (in addition to the Company Expenses for
which the Company shall in all events remain liable).
(c) Notification. The Company shall notify the Placement Agent immediately,
------------
and in writing, (A) when any event shall have occurred during the period
commencing on the date hereof and ending on the later of the Closing or the
Final Closing Date as a result of which the Offering Documents would include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances under which they were made and (B) of the receipt
of any notification with respect to the modification, rescission, withdrawal or
suspension of the qualification or registration of the Units, the Placements
Warrants and the Registrable Capital Stock (as defined herein), or of any
exemption from such registration or qualification, in any jurisdiction. The
Company will use its best efforts to prevent the issuance of any such
modification, rescission, withdrawal or suspension and, if any such
modification, rescission, withdrawal or suspension is issued and you so request,
to obtain the lifting thereof as promptly as possible.
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<PAGE>
(d) Blue Sky. The Company will use its best efforts to qualify the Units
--------
for offering and sale under exemptions from qualification or registration
requirements under the securities or "blue sky" laws of such jurisdictions as
the Placement Agent may reasonably request; provided however, that the Company
will not be obligated to qualify as a dealer in securities in any jurisdiction
in which it is not so qualified. The Company will not consummate any sale of
Units in any jurisdiction in which it is not so qualified or in any manner in
which such sale may not be lawfully made.
(e) Registration Statement Filing. The Company will, as soon as
---------------------------------
practicable, but not later than 30 days after the Final Closing Date, (i) file a
shelf registration statement (the "Shelf Registration Statement") with respect
to (i) the Conversion Shares and (ii) the shares of Common Stock issuable upon
conversion of the Preferred Stock underlying the Placement Warrants (as defined
in paragraph 3(d)) (together, the "Registrable Capital Stock") with the SEC and
use its best efforts to have such Shelf Registration Statement declared
effective by the SEC prior to the date which is 75 days after the Final Closing
Date (subject to penalties for failure to effect such registration in the time
frames required as set forth in the Subscription Agreement) and (b) cause such
Shelf Registration Statement to remain effective until such date as the holders
of the securities have completed the distribution described in the Shelf
Registration Statement or at such time that such shares are no longer, by reason
of Rule 144(k) under the Securities Act, required to be registered for the sale
thereof by such holders. If requested by the Placement Agent, and in accordance
with applicable securities laws, the Shelf Registration Statement shall cover
the direct sale of such Registrable Capital Stock to the holders of such
securities. The Registrable Capital Stock will be subject to a staggered
"lock-up" as may be deemed advisable by the Placement Agent.
(f) Form D Filing. The Company shall file five copies of a Notice of Sales
-------------
of Securities on Form D with the Commission no later than 15 days after the
first Closing Date. The Company shall file promptly such amendments to such
Notice on Form D as shall become necessary and shall also comply with any filing
requirement imposed by the laws of any state or jurisdiction in which offers and
sales are made. The Company shall furnish the Placement Agent with copies of all
such filings.
(g) Press Releases, Etc. Except as otherwise required by applicable law,
---------------------
the Company shall not, during the period commencing on the date hereof and
ending thirty days after the Final Closing Date, issue any press release or
other communication, make any written or oral statement to any media
organization or publication or hold any press conference, presentation or
seminar, or engage in any other publicity with respect to the Company, its
financial condition, results of operations, business, properties, assets, or
liabilities, or the Offering, without the prior written consent of the Placement
Agent. Upon the request of the Placement Agent, the Company shall make a Rule
135(c) (under the Securities Act of 1933, as amended) announcement prior to the
commencement of the Offering.
(h) Public Documents. Following the Final Closing Date of the Offering, the
----------------
Company will furnish to the Placement Agent: (i) as soon as practicable (but in
the case of the annual report of the Company to its stockholders, within 120
days after the end of each fiscal year of the Company) one copy of: (A) its
annual report to its stockholders (which annual report shall contain financial
statements audited in accordance with generally accepted accounting principles
in the United States of America by a firm of certified public accountants of
recognized standing), (B) if not included in substance in its annual report to
stockholders, its annual report on Form 10-KSB, (C) each of its quarterly
reports to its stockholders, and if not included in
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<PAGE>
substance in its quarterly reports to stockholders, its quarterly report on Form
10-QSB, (D) each of its current reports on Form 8-K, and (E) a copy of the full
Shelf Registration Statement, (the foregoing, in each case, excluding exhibits);
and (ii) upon reasonable request, all exhibits excluded by the parenthetical to
the immediately preceding clause 4(h)(i)(E) and all other information that is
generally available to the public. In addition, the Company upon reasonable
request will meet with the Placement Agent or its representatives to discuss all
information relevant for disclosure in any Shelf Registration Statement covering
shares purchased by Purchasers from the Company and offered by them for resale
and will cooperate in any reasonable investigation undertaken by the Placement
Agent for the purpose of confirming the accuracy of the Shelf Registration
Statement, including the production of information at the Company's offices.
(i) Restrictions on Securities. During the eighteen (18) months following
--------------------------
the Closing of the Offering, the Company shall not, without the prior written
consent of the Placement Agent, offer or sell any of its securities in reliance
on Regulation S of the Securities Act. During the 18-month period following the
date hereof, (i) the Placement Agent shall have the right of first refusal to
act as placement agent for the offering of any securities of the Company and
(ii) the Company will not extend the expiration date or decrease the exercise
price of any options, warrants, convertible securities or other similar security
purchase rights without the prior written consent of the Placement Agent.
(j) Listing. The Company will take all action necessary to promptly file an
-------
Application for Listing of Additional Shares with the New York Stock Exchange,
the American Stock Exchange, the Nasdaq National Market, the Nasdaq SmallCap
Market, or the OTC Electronic Bulletin Board, as applicable, in accordance with
Regulation M under the Exchange Act and/or take any other necessary action to
enable the Common Stock into which the Preferred Stock is convertible (including
the Common Stock issuable upon conversion of the Preferred Stock underlying the
Placement Warrants) to trade thereon.
(k) Financial Advisory Agreement. Upon the Final Closing Date, the Company
----------------------------
and the Placement Agent will enter into an engagement agreement in form and
substance satisfactory to the Placement Agent (the "Financial Advisory
Agreement") whereby the Placement Agent will act as the Company's financial
advisor. Such engagement will provide that the Placement Agent receive
out-of-pocket expenses and standard success fees.
(l) No Offerings. Pending completion or termination of the Offering in
-------------
accordance with the terms of this Agreement, the Company agrees that it will not
enter into an agreement (whether binding or not) or negotiate with any other
person or entity relating to a possible public or private offering or placement
of its securities (other than in connection with a corporate partnership,
strategic alliance or government funding).
(m) No Statements. The Company shall not use the name of the Placement
--------------
Agent or any officer, director, employee or shareholder thereof without the
express written consent of the Placement Agent and such person.
(n) Company Insiders. Officers, directors or principal stockholders of the
----------------
Company may invest in the Offering. Any such investments will be included in
calculating whether the 30 Units have been sold in the Minimum Offering, whether
the 50 Units have been sold in the Maximum Offering, and whether the 30 Units
have been sold pursuant to the over-allotment.
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<PAGE>
(o) Placement Agent Insiders. Certain affiliates of the Placement Agent may
------------------------
purchase Units in the Offering. Affiliates of the Placement Agent will invest
net of cash commissions and expenses. Accordingly, the Placement Agent will not
receive a commission on the Units purchased by its affiliates and the Company
will receive net proceeds equivalent to the net proceeds received from the
purchase of Units by persons not affiliated with the Placement Agent. The
aggregate offering price of any such investments will be included in calculating
whether the 30 Units have been sold in the Minimum Offering, whether the 50
Units have been sold in the Maximum Offering, and whether the 30 Units have been
sold pursuant to the over-allotment option.
5. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless the Placement Agent
and each Selected Dealer, if any, and their respective partners, affiliates,
shareholders, directors, officers, agents, advisors, representatives, employees,
counsel and controlling persons within the meaning of the Securities Act (a
"Indemnified Party") against any and all losses, liabilities, claims, damages
and expenses whatsoever (and all actions in respect thereof), and to reimburse
such Indemnified Party for legal fees and related expenses as incurred
(including, but not limited to, the costs of giving testimony or furnishing
documents in response to a subpoena or otherwise, the costs of investigating,
preparing, pursuing or defending any such action or claim whether or not pending
or threatened and whether or not the Placement Agent or any Indemnified Party is
a party thereto), insofar as such losses, liabilities, claims, damages or
expenses arise out of, relate to, are incurred in connection with or are in any
way a result of (i) the engagement of the Placement Agent pursuant to this
Agreement and in connection with the transactions contemplated by this Agreement
and the other Offering Documents (the "Engagement"), including any modifications
or future additions to such engagement and related activities prior to the date
hereof, (ii) any act by the Placement Agent or any Indemnified Party taken in
connection with the Engagement, (iii) a breach of any representation, warranty,
covenant or agreement of the Company contained in this Agreement, (iv) the
employment by the Company of any device, scheme or artifice to defraud, or the
engaging by the Company in any act, practice or course of business which
operates or would operate as a fraud or deceit, or any conspiracy with respect
thereto, in connection with the sale of the Units, or (v) any untrue statement
or alleged untrue statement of a material fact contained in the Offering
Documents or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, provided, however, that the Company
will not be liable in any such case if and to the extent that any such loss,
claim, damage, liability or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by any such Indemnified Party in writing
specifically for use in the Offering Documents.
(b) The Company agrees to indemnify and hold harmless a Indemnified Party
to the same extent as the foregoing indemnity, and subject to the limitations
set forth therein, against any and all loss, liability, claim, damage and
expense whatsoever directly arising out of the exercise by any person of any
right under the Securities Act or the Exchange Act or the securities or Blue Sky
laws of any state on account of violations of the representations, warranties or
agreements set forth in Section 2 hereof.
(c) Promptly after receipt by a person entitled to indemnification pursuant
to subsection (a) or (b) (an "indemnified party") of this Section of notice of
the commencement of any action, the indemnified party will, if a claim in
respect thereof is to be made against a person
-17-
<PAGE>
granting indemnification (an "indemnifying party") under this Section, notify in
writing the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve it from any liability which it
may have to the indemnified party otherwise than under this Section. In case any
such action is brought against an indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense thereof,
subject to the provisions herein stated, with counsel reasonably satisfactory to
the indemnified party, and after notice from the indemnifying party to the
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to the indemnified party for any legal or
other expenses subsequently incurred by the indemnified party in connection with
the defense thereof other than reasonable costs of investigation incurred at the
request of the indemnifying party. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the indemnified party;
provided that the fees and expenses of such counsel shall be at the expense of
the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party or (ii) the named
parties to any such action (including any impleaded parties) include both the
indemnified party or parties and the indemnifying party and, in the judgment of
the indemnified party, it is advisable for the indemnified parties to be
represented by separate counsel, in which case the indemnifying party shall not
have the right to assume the defense of such action on behalf of the indemnified
party or parties, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys for the indemnified party
or parties. No settlement, compromise, consent to entry of judgment or other
termination of any action (collectively, "Terminations") in respect of which a
Indemnified Party may seek indemnification hereunder (whether or not any
Indemnified Party is a party thereto) shall be made without the prior written
consent of the Indemnified Party, which such consent may be withheld at the sole
discretion of such Indemnified Party, provided, however, that the foregoing
requirement of prior written consent for Terminations shall not apply to the
Placement Agent who may agree to such Terminations without the prior written
consent of any Indemnified Party.
(e) Notwithstanding any of the provisions of this Agreement, the aggregate
indemnification or contribution of the Placement Agent for or on account of any
losses, claims, damages, liabilities or actions under this Section 5, Section 6
or any other applicable section of this Agreement, shall not exceed the Cash
Commissions actually paid to the Placement Agent. The indemnity and contribution
agreements by the Company contained in subsections (a), (b) and (c) of this
Section 5 and Section 6, and the covenants, representations and warranties of
the Company set forth in Sections 1, 2, 3 and 4 shall remain operative and in
full force and effect regardless of (i) any investigation made by the Placement
Agent, on the Placement Agent's behalf or by or on behalf of any person who
controls the Placement Agent, (ii) acceptance of any of the Units and payment
therefor or (iii) any termination of this Agreement, and shall survive the
delivery of the Units, and any successor of the Placement Agent or of any person
who controls the Placement Agent, as the case may be, shall be entitled to the
benefit of such respective indemnity and contribution agreements. The indemnity
and contribution agreements by the Company contained in subsections (a), (b) and
(c) of this Section 5 and Section 6 shall be in addition to any liability which
the Company may otherwise have.
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<PAGE>
6. Contribution.
------------
(a) To provide for just and equitable contribution, if (i) an indemnified
party makes a claim for indemnification pursuant to Section 5 but it is found in
a final judicial determination, by a court of competent jurisdiction, not
subject to further appeal, that such indemnification may not be enforced in such
case, even though this Agreement expressly provides for indemnification in such
case, or (ii) any indemnified or indemnifying party seeks contribution under the
Securities Act, the Exchange Act or otherwise, then the Company (including for
this purpose any contribution made by or on behalf of any officer, director,
employee or agent for the Company, or any controlling person of the Company), on
the one hand, and the Placement Agent and any Selected Dealers (including for
this purpose any contribution by or on behalf of an indemnified party), on the
other hand, shall contribute to the losses, liabilities, claims, damages and
expenses whatsoever to which any of them may be subject, in such proportions as
are appropriate to reflect the relative benefits received by the Company, on the
one hand, and the Placement Agent and the Selected Dealers, on the other hand;
provided, however, that if applicable law does not permit such allocation, then
other relevant equitable considerations such as the relative fault of the
Company and the Placement Agent and the Selected Dealers in connection with the
facts which resulted in such losses, liabilities, claims, damages, and expenses
shall also be considered. In no case shall the Placement Agent or a Selected
Dealer be responsible for a portion of the contribution obligation in excess of
the compensation received by it pursuant to Section 3 hereof or the Selected
Dealer Agreement, as the case may be. No person guilty of a fraudulent
misrepresentation shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section 6,
each person, if any, who controls the Placement Agent or a Selected Dealer
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act and each officer, director, stockholder, employee and agent of the
Placement Agent or a Selected Dealer, shall have the same rights to contribution
as the Placement Agent or the Selected Dealer, and each person, if any who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act and each officer, director, employee and agent
of the Company, shall have the same rights to contribution as the Company,
subject in each case to the provisions of this Section 6. Anything in this
Section 6 to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 6 is intended to supersede any right
to contribution under the Securities Act, the Exchange Act or otherwise.
7. Miscellaneous.
-------------
(a) Survival. Any termination of the Offering without any Closing shall be
--------
without obligation on the part of any party except that the provisions regarding
fees and expenses contained in Section 4(b), the indemnification provided in
Section 5 hereof and the contribution provided in Section 6 hereof shall survive
any termination and shall survive any Closing.
(b) Representations, Warranties and Covenants to Survive Delivery. Except
--------------------------------------------------------------
as provided in Section 7(a), the respective representations, warranties,
indemnities, agreements, covenants and other statements of the Company and the
Placement Agent as of the date hereof shall survive execution of this Agreement
and delivery of the Units and the termination of this Agreement.
(c) No Other Beneficiaries. This Agreement is intended for the sole and
-----------------------
exclusive benefit of the parties hereto and their respective successors and
controlling persons,
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<PAGE>
and no other person, firm or corporation shall have any third-party beneficiary
or other rights hereunder.
(d) Governing Law. This Agreement shall be governed by and construed in
--------------
accordance with the law of the State of New York without regard to conflict of
law provisions.
(e) Counterparts. This Agreement may be signed in counterparts with the
------------
same effect as if both parties had signed one and the same instrument.
(f) Notices. Any communications specifically required hereunder to be in
-------
writing, if sent to the Placement Agent, will be mailed,delivered and confirmed
to it at [___________________________________________________________] and if
sent to the Company, will be mailed, delivered or telegraphed and confirmed to
it at Conversion Technologies International, Inc., 3452 Lake Lynda Drive, Suite
280, Orlando, Florida 32817 Attn: President.
(g) Termination. Subject to the general survival provisions contained in
-----------
Sections 7(a) and 7(b), this Agreement may be terminated by either party prior
to any Closing upon written notice to the other party.
(h) Entire Agreement. This Agreement constitutes the entire agreement of
-----------------
the parties with respect to the matters herein referred and supersedes all prior
agreements and understandings, written and oral, between the parties with
respect to the subject matter hereof. Neither this Agreement nor any term hereof
may be changed, waived or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver or
termination is sought.
(i) Nothing contained herein or otherwise shall be construed to create a
partnership or joint venture between you and the Company.
(j) The headings and captions of the various subdivisions of this Agreement
are for convenience of reference only and shall in no way modify or affect the
meaning or construction of any of the terms or provisions hereof.
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<PAGE>
If you find the foregoing is in accordance with our understanding, kindly
sign and return to us a counterpart hereof, whereupon this instrument along with
all counterparts will become a binding agreement between us.
Very truly yours,
CONVERSION TECHNOLOGIES
INTERNATIONAL, INC.
By: /s/ Eckardt C. Beck
-----------------------------------
Name: Eckardt C. Beck
Title: Acting President
Agreed to by:
PLACEMENT AGENT
By:
-------------------------------
Name:
Title:
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<PAGE>
EXHIBIT A
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
OFFICERS' CERTIFICATE
---------------------
August __, 1997
I, _____________, certify that I am the ____________________ of Conversion
Technologies International, Inc., a Delaware corporation (the "Company"), and
that, as such, I am authorized to execute this certificate on behalf of the
Company. All capitalized terms used herein but not otherwise defined herein
shall the meanings ascribed to such terms in the Agency Agreement (as defined
below). Reference is made herein to the closing held on [ ] (the "Closing
Date"). I do hereby certify that I have carefully examined all of the Offering
Documents (as defined in the Placement Agency Agreement dated as of April 1,
1997 between the Company and the Placement Agent(the "Agency Agreement")), and
do hereby further certify that:
1. All of the representations and warranties of the Company contained in
the subscription agreements (the "Subscription Agreements") between the Company
and the purchasers (the "Purchasers") of the Units of Preferred Stock of the
Company contemplated by the Company's Confidential Term Sheet, dated August 8,
1997 (as supplemented, the "Term Sheet") are true and correct in all material
respects on the Closing Date with the same force and effect as if made on and as
of the Closing Date, and the Company has performed all covenants and agreements
and has satisfied all conditions in the Subscription Agreements to be performed
or satisfied on its part before the Closing Date in all material respects.
2. The Term Sheet does not contain any untrue statement of a material fact
or omit to state any fact required to be stated in order to make the statements
therein not misleading as of the Closing Date. Since the date of the Term Sheet,
no event has occurred concerning which information is required to be contained
in an amended or supplemented Term Sheet concerning which such information is
not contained herein.
3. All of the representations and warranties of the Company contained in
the Agency Agreement are true and correct in all material respects on the
Closing Date, and the Company has performed all covenants and agreements and has
satisfied all conditions contained in the Agency Agreement to be performed and
satisfied on its part at or prior to the Closing Date in all material respects.
4. All of the representations and warranties of the Company contained each
of the other Offering Documents are true and correct in all material respects on
the Closing Date, and the Company has performed all covenants and agreements and
has satisfied all conditions contained in such Offering Documents to be
performed and satisfied on its part at or prior to the Closing Date in all
material respects.
5. Since the date of the most recent financial statements and the
information included in the Term Sheet, there has been no material adverse
change in the condition (financial or other), earnings, business, properties or
prospects of the Company and the Subsidiaries taken as a whole, whether or not
arising from transactions in the ordinary course of business, nor has
<PAGE>
there occurred any material event required to be set forth in the Term Sheet,
including, without limitation, in accordance with Section 2(g) of the Agency
Agreement.
6. There is no litigation pending or, to our knowledge, threatened by or
against the Company or the Subsidiaries, except as disclosed in the Term Sheet.
7. The Company will promptly take all action necessary to list all shares
of Common Stock issuable upon conversion of the Preferred Stock (including the
shares of Common Stock issuable upon conversion of the Preferred Stock
underlying the Placement Warrants) on the Nasdaq SmallCap Market.
8. Since August 1, 1997, the Company has not offered to sell to or
solicited any offers to buy from any person shares of capital stock of the
Company, except in connection with the Offering contemplated by the Term Sheet
or shares issued upon exercise of stock options outstanding prior to the date
hereof.
IN WITNESS WHEREOF, I have executed this certificate on this __ day of
August, 1997.
-------------------------------------
Name:
Title:
<PAGE>
EXHIBIT B
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
SECRETARY'S CERTIFICATE
-----------------------
August [ ], 1997
I, Jack D. Hays, Jr., certify that I am the duly elected, qualified and
acting Secretary of Conversion Technologies International, Inc., a Delaware
corporation (the "Company"), and as such, I am duly authorized to execute this
Certificate on behalf of the Company, and that I am familiar with the facts
certified below. All capitalized terms used herein but not otherwise defined
herein shall the meanings ascribed to such terms in the Agency Agreement dated
as of April 1, 1997 between the Company and the Placement Agent(the "Agency
Agreement"). Reference is made herein to the closing held on August __, 1997
(the "Closing Date"). In connection with the offering and sale of up to 50 units
(the "Units") each consisting of 10,000 shares of the Premium Preferred StockJ,
stated value $10.00 per share (the "Preferred Stock") of the Company (the
"Preferred Stock"), for which Paramount Capital, Inc. ("Paramount") has acted as
placement agent, I do hereby further certify as follows:
1. Attached hereto as Exhibit A is a true, correct and complete copy of the
Company's Certificate of Incorporation, as amended, which is in full force and
effect and, except as set forth in Paragraphs 2 and 5 below, no amendment to
such certificate has been approved by the Board of Directors or stockholders of
the Company or filed with the Delaware Secretary of State since [____]. As of
the Closing Date, the Company is duly incorporated and in good standing in its
state of incorporation and has paid all fees and taxes due and payable by it on
or prior to the Closing Date necessary for the maintenance or continuation of
its corporate existence. As of the Closing Date, there are no proceedings or
actions contemplated by the Company, relating to the merger, liquidation,
consolidation, or sale of all or substantially all of the assets or business of
the Company or which would otherwise threaten or impair the Company's corporate
existence.
2. Attached hereto as Exhibit B is a true, correct and complete copy of the
Certificate of Designation of the Company's Series A Convertible Preferred
Stock, as filed with the Delaware Secretary of State on [ ] and as in effect on
the Closing Date.
3. Attached hereto as Exhibit C is a true, correct and complete copy of the
Bylaws of the Company, as in full force and effect on the Closing Date and at
all times from [___] through the Closing Date.
4. As of the Closing Date, each of the Offering Documents is in the form
authorized by the board of directors of the Company pursuant to the resolutions
set forth in Exhibit D.
5. Attached hereto as Exhibit D is a true, correct and complete copy of
resolutions duly adopted at a meeting of the Company's board of directors duly
called and held on August 6, 1997, which resolutions, (a) authorize the issuance
and sale of the Units and the Placement Warrants in accordance with the
requirements of Delaware law, (b) authorize the
<PAGE>
amendment to the Company's Certificate of Incorporation increasing the
authorized shares of Common Stock of the Company, (c) are the only resolutions
adopted by the board of directors of the Company or any committee thereof with
respect to the offering and sale of the Units and the transactions relating
thereto and (d) which have not been revoked, modified and amended or rescinded
and are in full force and effect on the Closing Date.
6. Attached hereto as Exhibit E are true, correct and complete specimens of
the certificates representing the Preferred Stock heretofore approved and
adopted by the board of directors of the Company. Each of the certificates
representing Preferred Stock delivered on the Closing Date to each of the
Purchasers pursuant to the Subscription Agreements has been executed by the
genuine or facsimile signature of officers of the Company who have been duly
elected or appointed, qualified and acting as such officers on the date such
certificates were executed and delivered, all in accordance with the Certificate
and Bylaws of the Company and the requirements of applicable law.
7. Attached hereto as Exhibit F is a true, correct and complete copy of the
form of Placement Warrants heretofore approved and adopted by the Board of
Directors of the Company. Each of the Placement Warrants delivered on the date
hereof to each of the holders pursuant to the Agency Agreement has been executed
by the genuine or facsimile signature of officers of the Company who have been
duly elected or appointed, qualified and acting as such officers on the date
such certificates were executed and delivered, all in accordance with the
Certificate and Bylaws of the Company and the requirements of applicable law.
8. The minute books and records of the Company, relating to all proceedings
of the stockholders, the Board of Directors of the Company and the Compensation
Committee and the Audit Committee of such Board have been made available to
Placement Agent, and, in such form, are the original minute books and records of
the Company. There have been no material changes, alterations or additions in
such minutes or records since their examination by Placement Agent.
9. Each person who, as an officer or director of the Company, signed any of
the Offering Documents or any other document in connection with the offering and
sale of the Preferred Stock, the Placement Warrants and the closing relating
thereto was duly elected or appointed, qualified and acting as such officer or
director at the respective times of the signing and delivery thereof and was
duly authorized to sign such document on behalf of the Company, and the
signature of each such person appearing on each such document is the genuine
signature of such officer, director or person duly appointed for the purpose of
executing such documents under valid powers of attorney, and each individual who
signed such signature pages, personally or by an attorney-in-fact, was then duly
elected, qualified and acting as an officer or director of the Company as stated
therein.
10. The following persons are, and have been at all times since August 1,
1997, duly qualified and acting officers of the Company, duly elected or
appointed to the offices set forth opposite their respective names, and the
signature opposite the name of each such officer is his or her, or a facsimile
of his or her, authentic signature, and the seal affixed hereto is the duly
adopted seal of the Company:
<PAGE>
Name Office Signature
---- ------ ---------
Eckhardt C. Beck Chairman of the Board /s/ Eckhardt C. Beck
William L. Amt President and CEO /s/ William L. Amt
Jack D. Hays, Jr. Executive Vice President -
Operations and Marketing
and Secretary /s/ Jack D. Hays, Jr.
This certificate is made for the benefit of, and may be relied upon by, the
Placement Agent, and each of the Purchasers.
IN WITNESS WHEREOF, I have hereunto set forth my hand this __ day of
__________, 1997.
[SEAL] -----------------------------
Name: Jack D. Hays, Jr.
Title: Secretary
I, , President and Chief Executive Officer of the Company, do
-------------
hereby certify that Jack D. Hays, Jr. whose genuine signature appears above, is,
and has been at all times since ______, 1997, the duly elected or appointed,
qualified and acting Secretary of the Company.
IN WITNESS WHEREOF, I have hereunto set forth my hand this [ ]th day of
[], 1997.
--------------------------------
Name:
Title: President
[Form of]
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (this "Agreement") made as of the date set forth on
the signature page hereof between Conversion Technologies International, Inc.,
3452 Lake Lynda Drive, Suite 280, Orlando, Florida 32817 (the "Company") and the
undersigned (the "Subscriber").
W I T N E S S E T H:
WHEREAS, the Company has retained Placement Agent, on a "best efforts"
basis, in a private placement offering (the "Offering") of units (the "Units")
of the Company;
WHEREAS, the Company desires to issue a minimum of thirty (30) Units (the
"Minimum Offering") and a maximum of fifty (50) Units (the "Maximum Offering"),
with an option in favor of the Placement Agent to offer up to an additional
thirty (30) Units to cover over-allotments, each Unit consisting of ten thousand
(10,000) shares of Premium Preferred StockJ, stated value $10.00 per share, par
value $.001 per share, of the Company (the "Preferred Stock"), which shares will
be convertible at the option of the holder at any time after the initial
issuance date of the Preferred Stock into shares of common stock of the Company,
par value $.00025 per share (the "Common Stock"), at an initial conversion price
equal to the lesser of (a) $1.56 and (b) the average closing bid price of the
Common Stock on the Nasdaq Smallcap Market (the "SmallCap") for the thirty (30)
consecutive trading days immediately preceding (i) the initial closing date (the
"Initial Closing Date"), (ii) any interim closing date (each an "Interim Closing
Date") or (iii) the final closing date (the "Final Closing Date") of the
Offering, whichever is lowest (the Preferred Stock and the Common Stock issuable
upon conversion thereof being sometimes referred to collectively herein as the
"Securities");
WHEREAS, the Subscriber desires to purchase that number of Units set forth
on the signature page hereof on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and the mutual
representations and covenants hereinafter set forth, the parties hereto do
hereby agree as follows:
I SUBSCRIPTION FOR UNITS AND REPRESENTATIONS BY SUBSCRIBER
--------------------------------------------------------
1.1 Subject to the terms and conditions hereinafter set forth, the
Subscriber hereby subscribes for and agrees to purchase from the Company such
number of Units or fractions thereof and the Company agrees to sell such Units
to the Subscriber as is set forth upon the signature page hereof at a price
equal to $100,000 per Unit (the "Initial Offering Price"). The purchase price is
payable by personal or business check, wire transfer of immediately available
funds or money order made payable to "Fleet Bank, Escrow Agent, F/B/O Conversion
1
<PAGE>
Technologies International, Inc." contemporaneously with the execution and
delivery of this Agreement by the Subscriber. The certificates representing the
Preferred Stock will be delivered by the Company within ten (10) days following
the consummation of the relevant Closing Date as set forth in Article III
hereof. The Subscriber understands, however, that this purchase of Units is
contingent upon the Company making sales of a minimum of thirty (30) Units prior
to the termination date of the Offering.
1.2 The Subscriber recognizes that the purchase of Units involves a high
degree of risk including, but not limited to, the following: (i) the Company
remains a development stage business with limited operating history and requires
substantial funds in addition to the proceeds of the Offering; (ii) an
investment in the Company is highly speculative, and only investors who can
afford the loss of their entire investment should consider investing in the
Company and the Units; (iii) the Subscriber may not be able to liquidate his
investment; (iv) transfer ability of the Securities is extremely limited; (v) in
the event of a disposition of the Securities, the Subscriber could sustain the
loss of his entire investment and (vi) the Company has not paid any dividends
since inception and does not anticipate the payment of dividends in the
foreseeable future. Such risks are more fully set forth in the Term Sheet (as
defined below) furnished by the Company to the Subscriber.
1.3 The Subscriber represents that the Subscriber is an "accredited
investor" as such term is defined in Rule 501 of Regulation D promulgated under
the Securities Act of 1933, as amended (the "Act"), as indicated by the
Subscriber's responses to the questions contained in Article VII hereof, and
that the Subscriber is able to bear the economic risk of an investment in the
Units.
1.4 The Subscriber hereby acknowledges and represents that (i) the
Subscriber has prior investment experience, including investment in securities
which are non-listed, unregistered and/or not traded on the Nasdaq National or
Small Cap Market, a national stock exchange nor on the NASD's automated
quotation system for actively traded stocks, or the Subscriber has employed the
services of an investment advisor, attorney and/or accountant to read all of the
documents furnished or made available by the Company to the Subscriber and to
all other prospective investors in the Units and to evaluate the merits and
risks of such an investment on the Subscriber's behalf; (ii) the Subscriber
recognizes the highly speculative nature of this investment; and (iii) the
Subscriber is able to bear the economic risk which the Subscriber hereby
assumes.
1.5 The Subscriber hereby acknowledges receipt and careful review of (a)
the Confidential Term Sheet dated August 8, 1997 as supplemented and amended,
and the attachments and exhibits thereto, all of which constitute an integral
part thereof (collectively the "Term Sheet") and (b) this Agreement and all
attachments to it; and hereby represents that the Subscriber has been furnished
by the Company during the course of this transaction with all information
regarding the Company which the Subscriber has requested or desired to know, has
2
<PAGE>
been afforded the opportunity to ask questions of and receive answers from duly
authorized officers or other representatives of the Company concerning the terms
and conditions of the Offering and has received any additional information which
the Subscriber has requested.
1.6 (a) The Subscriber has relied solely upon the information provided by
the Company in the Term Sheet and in this Agreement in making the decision to
invest in the Units. To the extent necessary, the Subscriber has retained, at
the expense of the Subscriber, and relied upon appropriate professional advice
regarding the investment, tax and legal merits and consequences of this
Agreement and its purchase of the Units hereunder. The Subscriber acknowledges
and agrees that the Placement Agent has not supplied any information for
inclusion in the Term Sheet other than information furnished in writing to the
Company by the Placement Agent specifically for inclusion in the Term Sheet
relating to the Placement Agent, that the Placement Agent has no responsibility
for the accuracy or completeness of the Term Sheet and that the Subscriber has
not relied upon the independent investigation or verification, if any, which may
have been undertaken by the Placement Agent.
(b) The Subscriber represents that (i) the Subscriber was contacted
regarding the sale of the Units by the Placement Agent (or an authorized agent
or representative thereof) with whom the Subscriber had a prior substantial
pre-existing relationship and (ii) no Units were offered or sold to it by means
of any form of general solicitation or general advertising, and in connection
therewith the Subscriber did not: (A) receive or review any advertisement,
article, notice or other communication published in a newspaper or magazine or
similar media or broadcast over television or radio whether closed circuit, or
generally available; or (B) attend any seminar meeting or industry investor
conference whose attendees were invited by any general solicitation or general
advertising.
1.7 The Subscriber hereby represents that the Subscriber either by reason
of the Subscriber's business or financial experience or the business or
financial experience of the Subscriber's professional advisors (who are
unaffiliated with, and who are not compensated by, the Company or any affiliate
or selling agent of the Company, including the Placement Agent, directly or
indirectly) has the capacity to protect the Subscriber's own interests in
connection with the transaction contemplated hereby.
1.8 The Subscriber hereby acknowledges that the offering of Units has not
been reviewed by the United States Securities and Exchange Commission (the "SEC"
or the "Commission") or any state regulatory authority, since the Offering is
intended to be exempt from the registration requirements of Section 5 of the Act
pursuant to Regulation D promulgated under the Act. The Subscriber shall not
sell or otherwise transfer the Securities unless they are registered under the
Act or unless an exemption from such registration is available.
1.9 The Subscriber understands that the Securities comprising the Units
have not been registered under the Act by reason of a claimed exemption under
the provisions of the
3
<PAGE>
Act which depends, in part, upon the Subscriber's investment intention. In this
connection, the Subscriber hereby represents that the Subscriber is purchasing
the Securities comprising the Units for the Subscriber's own account for
investment and not with a view toward the resale or distribution to others. The
Subscriber, if an entity, was not formed for the purpose of purchasing the
Securities.
1.10 The Subscriber understands that although there currently is a public
market for the Common Stock, Rule 144 ("Rule 144") promulgated under the Act
requires, among other conditions, a one year holding period, prior to the resale
(in limited amounts) of securities acquired in a non-public offering without
having to satisfy the registration requirements under the Act. The Subscriber
understands and hereby acknowledges that the Company is under no obligation to
register any of the Units or any of the Securities comprising the Units under
the Act or any state securities or "blue sky" laws other than as set forth in
Article V. The Subscriber agrees to hold the Company and its directors,
officers, employees, controlling persons and agents (including the Placement
Agent and its officers, directors, employees, counsel, controlling persons and
agents) and their respective heirs, representatives, successors and assigns
harmless and to indemnify them against all liabilities, costs and expenses
incurred by them as a result of (i) any misrepresentation made by the Subscriber
contained in this Agreement (including the Confidential Investor Questionnaire
contained in Article VII herein), (ii) any sale or distribution by the
Subscriber in violation of the Act or any applicable state securities or "blue
sky" laws, or (iii) any untrue statement of a material fact made by the
Subscriber and contained herein.
1.11 The Subscriber consents to the placement of a legend on any
certificate or other document evidencing that such Securities have not been
registered under the Act or any state securities or "blue sky" laws and setting
forth or referring to the restrictions on transferability and sale thereof
contained in this Agreement. The Subscriber is aware that the Company will make
a notation in its appropriate records with respect to the restrictions on the
transferability of such Securities.
1.12 The Subscriber understands that the Company will review this Agreement
and is hereby given authority by the Subscriber to call the Subscriber's bank or
place of employment or otherwise review the financial standing of the
Subscriber; and it is further agreed that the Company (with the consent of the
Placement Agent) and the Placement Agent, at its sole discretion, reserves the
unrestricted right, without further documentation or agreement on the part of
the Subscriber, to reject or limit any subscription, to accept subscriptions for
fractional Units and to close the Offering to the Subscriber at any time.
1.13 The Subscriber hereby represents that the address of the Subscriber
furnished by Subscriber on the signature page hereof is the Subscriber's
principal residence if the Subscriber is an individual or its principal business
address if it is a corporation or other entity.
4
<PAGE>
1.14 The Subscriber represents that the Subscriber has full power and
authority (corporate, statutory and otherwise) to execute and deliver this
Agreement and to purchase the Units and the Securities. This Agreement
constitutes the legal, valid and binding obligation of the Subscriber,
enforceable against the Subscriber in accordance with its terms.
1.15 If the Subscriber is a corporation, partnership, limited liability
company, trust, employee benefit plan, individual retirement account, Keogh
Plan, or other entity, (a) it is authorized and qualified to become an investor
in the Company and the person signing this Agreement on behalf of such entity
has been duly authorized by such entity to do so and (b) it is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization.
1.16 The Subscriber acknowledges that if he or she is a Registered
Representative of an NASD member firm, he or she must give such firm the notice
required by the NASD's Rules of Fair Practice, receipt of which must be
acknowledged by such firm in Section 7.4 below.
1.17 The Subscriber acknowledges that at such time, if ever, as the
Securities are registered, sales of the Securities will be subject to state
securities laws, including those of the State of New Jersey which require any
securities sold in New Jersey to be sold through a registered broker-dealer or
in reliance upon an exemption from registration.
1.18 Subject to the proviso below, the Subscriber hereby agrees that for a
period of nine (9) (the "Lock-Up Period") months from the effective date of the
Registration Statement (as defined in Section 5.2 hereof), the Subscriber will
not, without the prior written consent of the Placement Agent, offer, pledge,
sell, contract to sell, grant any option for the sale of, or otherwise dispose
of, directly or indirectly, 75% of the Registrable Securities (as defined in
Section 5.1) purchased or acquired by the Subscriber, provided, however, that,
-------- -------
following each three month period after the Effective Date, an amount of
Registrable Securities equal to 25% of the number of Registrable Securities
purchased or acquired by the Subscriber shall become exempt from the lock-up
provisions contained in this sentence. For the sake of clarity, 25% of the
Registrable Securities will not be subject to any lock-up. In addition, the
Subscriber agrees that during the period from the date that the Subscriber was
first contacted with respect to the potential purchase of Securities through the
last date upon which the Subscriber holds any Securities or Registrable
Securities, the Subscriber will not directly or indirectly, through related
parties, affiliates or otherwise sell "short" or "short against the box" (as
those terms are generally understood) or otherwise engage in any "hedging"
transactions with respect to any equity security of the Company; provided,
--------
however, that it shall not be a violation of this Section 1.18, if the
- -------
Subscriber places a sell order for Registrable Securities prior to the
conversion of the Preferred Stock or at the time the conversion is requested,
relies on the Company to deliver such Registrable Securities in accordance with
Section 5.4(h) and completes the sale of such Registrable Securities before the
Company delivers the Registrable Securities to the Subscriber.
5
<PAGE>
In addition, the Subscriber agrees that during any applicable Lock-Up Period it
will not convert any of the Preferred Stock with respect to which the underlying
Registrable Securities are subject to such Lock-Up Period.
1.19 The subscriber acknowledges that (i) the Company has engaged,
consented to and authorized the Placement Agent in connection with the
transactions contemplated by this Agreement, (ii) the Company shall pay the
Placement Agent a commission and reimburse expenses in accordance with the
Placement Agency Agreement dated April 1, 1997 (the "Placement Agency
Agreement"), and the Company shall indemnify and hold harmless the Subscribers
from and against all fees, commissions or other payments owing by the Company to
the Placement Agent or any other person or firm acting on behalf of the Company
hereunder and (iii) that registered representatives of the Placement Agent
and/or its designees (including, without limitation, registered representatives
of the Placement Agent and/or its designees who participate in the Offering and
sale of the securities sold in the Offering) shall be paid a portion of the
commissions paid to the Placement Agent including a portion of the Placement
Warrants (as defined below).
1.20 In consideration for the covenants of the Company contained in Section
2.11, the Subscriber covenants to vote any voting securities purchased by the
Subscriber hereunder (or obtained upon conversion of such securities) in favor
of an increase in the authorized shares of Common Stock of the Company to a
minimum of 40,000,000 and in any case a number of shares sufficient for the
purpose of conversion of all the Series A Preferred Stock sold in or related to
this Offering including without limitation, (x) the Common Stock underlying the
Placement Warrants and (y) the Common Stock underlying the Preferred Stock
resulting from dividends paid on the Preferred Stock (or such other amount as
may be authorized by the Board of Directors of the Company). If the Subscriber
fails to so vote such securities in accordance with this Section 1.20, the
Subscriber will not be entitled the to rights conferred in Section 2.11.
II REPRESENTATIONS BY AND COVENANTS OF THE COMPANY
-----------------------------------------------
Except as set forth on the Schedule of Exceptions attached hereto as
Exhibit A, the Company hereby represents and warrants to the Subscriber that:
2.1 Organization, Good Standing and Qualification. Each of the Company and
---------------------------------------------
Dunkirk International Glass and Ceramics Corporation and Advanced Particle
Technologies, Inc. (collectively, the "Subsidiaries") is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has full corporate power and authority to
conduct its business as described in the Term Sheet. Each of the Company and the
Subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the laws require the Company or the
Subsidiaries to be so qualified and/or authorized to do business.
6
<PAGE>
2.2 Capitalization and Voting Rights. The authorized, issued and
------------------------------------
outstanding capital stock of the Company is as set forth in the Term Sheet under
"Capitalization"; all issued and outstanding shares of the Company are validly
issued, fully paid and nonassessable. The Securities comprising the Units have
been duly and validly authorized and, when issued and paid for pursuant to this
Agreement, will be validly issued, fully paid and nonassessable. Except as set
forth in the Term Sheet, there are no outstanding options, warrants, agreements,
convertible securities, preemptive rights or other rights to subscribe for or to
purchase any shares of capital stock of the Company. Except as set forth in the
Term Sheet, in this Agreement and as otherwise required by law, there are no
restrictions upon the voting or transfer of the Securities pursuant to the
Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), By-Laws or other governing documents or any agreement or other
instruments to which the Company is a party or by which the Company is bound.
2.3 Authorization; Enforceability. The Company has all corporate right,
------------------------------
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. All corporate action on the part of the
Company, its directors and stockholders necessary for the authorization,
execution, delivery and performance of this Agreement by the Company, the
authorization, sale, issuance and delivery of the Preferred Stock contemplated
hereby and the Common Stock underlying such Preferred Stock and the performance
of the Company's obligations hereunder has been taken. This Agreement has been
duly executed and delivered by the Company and constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies, and to limitations
of public policy. Upon the issuance and delivery of the Preferred Stock as
contemplated by this Agreement, such securities will be validly issued, fully
paid and nonassessable. Upon the issuance and delivery of the Common Stock
underlying such securities or upon conversion, as the case may be, of the
Preferred Stock, the Common Stock will be validly issued, fully paid and
nonassessable. The issuance and sale of the Preferred Stock contemplated hereby
and the conversion, as the case may be, into Common Stock underlying such
Preferred Stock, will not give rise to any preemptive rights or rights of first
refusal on behalf of any person.
2.4 Certificate of Designation of Preferred Stock. The Preferred Stock has
----------------------------------------------
all of the rights, preferences and privileges substantially as set forth in the
Form of Certificate of Designation attached as Exhibit B to the Term Sheet, with
the initial conversion price equal to the lesser of (i) $1.56 and (ii) the
Market Price (as determined in accordance with the Certificate of Designation)
as of (A) the Initial Closing Date (as defined above), (B) any interim closing
date or (C) the Final Closing Date (as defined below) of the Offering, whichever
is lowest.
7
<PAGE>
2.5 No Conflict; Governmental and Other Consents.
--------------------------------------------
(i) The execution and delivery by the Company of this Agreement and the
consummation of the transactions contemplated hereby will not result in the
violation of any law, statute, rule, regulation, order, writ, injunction,
judgment or decree of any court or governmental authority to or by which the
Company or either of the Subsidiaries is bound, or of any provision of the
Certificate of Incorporation or By-Laws of the Company or either of the
Subsidiaries, and will not conflict with, or result in a breach or violation of
any of the terms or provisions of, or constitute (with due notice or lapse of
time or both) a default under, any lease, loan agreement, mortgage, security
agreement, trust indenture or other agreement or instrument to which the Company
or either of the Subsidiaries is a party or by which it is bound or to which any
of its properties or assets is subject, nor result in the creation or imposition
of any lien upon any of the properties or assets of the Company or either of the
Subsidiaries.
(ii) No consent, approval, authorization or other order of any governmental
authority or other third-party is required to be obtained by the Company or the
Subsidiaries in connection with the authorization, execution and delivery of
this Agreement or with the authorization, issue and sale of the Units or the
Securities comprising the Units, except such filings as may be required to be
made with the Commission, the National Association of Securities Dealers, Inc.
and the National Association of Securities Dealers Automated Quotation System
("Nasdaq") and with any state or foreign blue sky or securities regulatory
authority.
2.6 Licenses. Except as set forth in the Term Sheet, each of the Company
--------
and the Subsidiaries has sufficient licenses, permits and other governmental
authorizations currently required for the conduct of its respective business or
ownership of properties and is in all material respects complying therewith.
2.7 Litigation. Except as set forth in the Term Sheet, the Company knows of
----------
no pending or threatened legal or governmental proceedings against the Company
or either of the Subsidiaries.
2.8 Accuracy of Reports. All material reports required to be filed by the
-------------------
Company and the Subsidiaries within the two years prior to the date of this
Agreement under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), have been duly filed with the Commission, complied at the time of filing
in all material respects with the requirements of their respective forms and,
except to the extent updated or superseded by the Term Sheet or any subsequently
filed report, were complete and correct in all material respects as of the dates
at which the information was furnished, and contained (as of such dates) no
untrue statement of a material fact nor omitted to state any material facts
necessary in order to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
2.9 Term Sheet; Disclosure. No information set forth in the Term Sheet or
-----------------------
any of the Offering Documents contains any untrue statement
8
<PAGE>
of a material fact or omits to state a material fact necessary in order to make
the statements contained therein, in light of the circumstances under which they
were made, not misleading.
2.10 Investment Company. The Company is not an "investment company" within
------------------
the meaning of such term under the Investment Company Act of 1940, as amended,
and the rules and regulations of the Commission thereunder.
2.11 Authorized Shares. The Company shall (i) use its best efforts to
------------------
increase the authorized shares of Common Stock of the Company to a minimum of
40,000,000 and in any case a number of shares sufficient for the purpose of
conversion of all the Series A Preferred Stock sold in or related to this
Offering including without limitation, (x) the Common Stock underlying the
Placement Warrants and (y) the Common Stock underlying the Preferred Stock
resulting from dividends paid on the Preferred Stock (or such other amount as
may be authorized by the Board of Directors) within 90 days following the Final
Closing Date but in any event shall effect such increase no later than 180 days
following the Final Closing Date and (ii) at all times after the date upon which
such Common Stock is authorized, reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the shares of Preferred Stock, such number of shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Preferred Stock. If at any time the
Subscriber elects to convert any of such Subscriber's shares of Preferred Stock
and the Company does not have authorized and reserved for issuance a sufficient
number of shares of Common Stock to permit conversion in full of all outstanding
shares of Preferred Stock (including the Preferred Stock underlying the
Placement Warrants), then such Subscriber shall be entitled to receive upon
conversion of his Preferred Stock only that number of shares of Common Stock as
equals such Subscriber's Pro Rata Percentage of the number of shares of Common
Stock authorized and reserved for issuance upon conversion of Preferred Stock.
For purposes of the previous sentence, a Subscriber's "Pro Rata Percentage"
on any date equals the number of shares of Preferred Stock held of record by
such Subscriber on such date divided by the number of shares of Preferred Stock
held of record by all holders of Preferred Stock on such date (including the
Preferred Stock underlying the Placement Warrants).
In addition to the foregoing, if after 180 days following the Final Closing
Date the Company has failed to authorize and reserve a sufficient number of
shares of Common Stock to permit conversion in full of all outstanding shares of
Preferred Stock, the Company shall, for no additional consideration, issue to
the Subscriber additional shares of Preferred Stock equal to 0.25% of the shares
of Preferred Stock then held by such Subscriber, exclusive of shares of
Preferred Stock issued pursuant to this Section 2.11, for each day the Company
lacks sufficient authorized and reserved shares of Common Stock to permit
conversion in full of all outstanding shares of Preferred Stock.
9
<PAGE>
III TERMS OF SUBSCRIPTION
---------------------
3.1 The Company shall issue a minimum of thirty (30) Units and a maximum of
fifty (50) Units. The Placement Agent, at its sole option, may offer and sell up
to an additional thirty (30) Units to cover over-allotments. The offering period
(the "Offering Period") shall begin on August 8, 1997. Upon receipt of the
Minimum Offering amount, the Placement Agent may conduct a closing and may
conduct subsequent closings on an interim basis (each a "Closing") until the
Maximum Offering amount has been reached (the "Final Closing Date"). The
Offering Period shall terminate at 11:59 p.m. New York City time on or before
October 8, 1997, subject to an extension, at the sole option of the Placement
Agent, for an additional sixty (60) days. The Units will be offered on a "best
efforts" basis. The purchase price is payable by personal or business check,
wire transfer of immediately available funds or money order made payable to
"Fleet Bank, NA, Escrow Agent, F/B/O Conversion Technologies International,
Inc."
3.3 Placement of the Units will be made by the Placement Agent, who will
receive certain compensation as described in the Term Sheet.
3.4 Pending the sale of the Units, all funds paid hereunder shall be
deposited by the Company in escrow with Fleet Bank, NA, having a branch at 345
Park Avenue, New York, New York, 10022. If the Company shall not have obtained
subscriptions (including this subscription) for purchases of thirty (30) Units
on or before the Final Closing Date, then this subscription shall be void and
all funds paid hereunder by the Subscriber shall be promptly returned to the
Subscriber, with interest, subject to paragraph 3.5 hereof.
3.5 The Subscriber hereby authorizes and directs the Company to deliver the
Securities to be issued to the Subscriber pursuant to this Agreement directly to
the Subscriber's account maintained by the Placement Agent, if any, or, if no
such account exists, to the residential or business address indicated on the
signature page hereto.
3.6 The Subscriber hereby authorizes and directs the Company to return any
funds for unaccepted subscriptions to the same account from which the funds were
drawn, including any customer account maintained with the Placement Agent.
IV Conditions to Obligations of the Subscribers
--------------------------------------------
4.1 The Subscribers' obligation to purchase the Units at the closings
(each, a "Closing") is subject to the fulfillment on or prior to each Closing of
the following conditions, which conditions may be waived at the option of each
Subscriber to the extent permitted by law:
(a) Representations and Warranties Correct. The representations and
warranties made by the Company in Article II hereof shall be true and correct in
all material
10
<PAGE>
respects when made, and shall be true and correct in all material respects on
each Closing with the same force and effect as if they had been made on and as
of said date.
(b) Covenants. All covenants, agreements and conditions contained in this
Agreement to be performed by the Company on or prior to such purchase shall have
been performed or complied with in all material respects.
(c) Listing. The Company will promptly file an Application for Listing of
Additional Shares with the SmallCap in accordance with Regulation M under the
Exchange Act and/or take any other necessary action to enable the Common Stock
into which the Preferred Stock is convertible to trade on the SmallCap.
(d) No Legal Order Pending. There shall not then be in effect any legal or
other order enjoining or restraining the transactions contemplated by this
Agreement.
(e) No Law Prohibiting or Restricting Such Sale. There shall not be in
effect any law, rule or regulation prohibiting or restricting such sale or
requiring any consent or approval of any person which shall not have been
obtained to issue the Securities (except as otherwise provided in this
Agreement).
(f) Minimum Subscriptions. The Company shall have received binding
subscriptions for at least 30 Units.
(g) Legal Opinions. At each Closing, each of Buchanan Ingersoll, counsel to
the Company and Collier, Shannon, Rill & Scott, patent and environmental counsel
to the Company, shall have delivered to the Placement Agent for the benefit of
the Placement Agent and the Subscribers, a legal opinion to such effect with
respect to legal matters relating to this Agreement and the Term Sheet as the
Placement Agent may require.
(h) Comfort Letter. On each Closing, if requested by the Placement Agent,
the Company's auditors shall have delivered to the Placement Agent, for the
benefit of the Placement Agent and the Subscribers, a comfort letter to such
effect as the Placement Agent may require.
V Registration Rights
-------------------
5.1 As used in this Agreement, the following terms shall have the following
meanings:
(a) "Affiliate" shall mean, with respect to any Person (as defined below),
---------
any other Person controlling, controlled by or under direct or indirect common
control with such Person (for the purposes of this definition "control," when
used with respect to any
11
<PAGE>
specified Person, shall mean the power to direct the management and policies of
such person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" shall have meanings correlative to the foregoing).
(b) "Business Day" shall mean a day Monday through Friday on which banks
-------------
are generally open for business in New York.
(c) "Holders" shall mean the Subscribers and any person holding Registrable
-------
Securities (including the shares of Common Stock issuable upon conversion of the
Preferred Stock underlying the warrants (the "Placement Warrants") to be granted
to the Placement Agent and/or its designees (including without limitation its
registered representatives) pursuant to the Placement Agency Agreement between
the Company and the Placement Agent) or any person to whom
the rights under Section 5 have been transferred in accordance with Section 5.9
hereof.
(d) "Person" shall mean any person, individual, corporation, limited
------
liability company, partnership, trust or other nongovernmental entity or any
governmental agency, court, authority or other body (whether foreign, federal,
state, local or otherwise).
(e) The terms "register," "registered" and "registration" refer to the
------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
(f) "Registrable Securities" shall mean (i) the shares of Common Stock
-----------------------
issuable upon the conversion of the Preferred Stock, (ii) the shares of Common
Stock issuable upon conversion of the Preferred Stock underlying the Placement
Warrants and (iii) any shares of Common Stock issued as (or issuable upon the
conversion of any warrant, right or other security which is issued as) a
dividend or other distribution with respect to or in replacement of the
Securities; provided, however, that securities shall only be treated as
Registrable Securities if and only for so long as they (A) have not been
disposed of pursuant to a registration statement declared effective by the
Commission, (B) have not been sold in a transaction exempt from the registration
and prospectus delivery requirements of the Act so that all transfer
restrictions and restrictive legends with respect thereto are removed upon the
consummation of such sale or (C) are held by a Holder or a permitted transferee
pursuant to Section 5.9.
(g) "Registration Expenses" shall mean all expenses incurred by the Company
---------------------
in complying with Section 5.2 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and expenses of counsel for the Company, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding the fees of legal counsel for any Holder).
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<PAGE>
(h) "Registration Statement" shall have the meaning ascribed to such term
-----------------------
in Section 5.2.
(i) "Registration Period" shall have the meaning ascribed to such term in
--------------------
Section 5.4.
(j) "Selling Expenses" shall mean all underwriting discounts and selling
-----------------
commissions applicable to the sale of Registrable Securities and all fees and
expenses of legal counsel for any Holder.
5.2 (a) No later than thirty (30) days after the Final Closing Date (the
"Filing Date"), the Company shall file a registration statement (the
"Registration Statement") with the Commission and use its best efforts to cause
the Registration Statement to be declared effective by the Commission prior to
the date which is 75 days after the Final Closing Date (the "Targeted Effective
Date") and use its best efforts to effect the registration, qualifications or
compliances (including, without limitation, the execution of any required
undertaking to file post-effective amendments, appropriate qualifications or
exemptions under applicable blue sky or other state securities laws and
appropriate compliance with applicable securities laws, requirements or
regulations) as may be requested and as would permit or facilitate the sale and
distribution of all Registrable Securities. Notwithstanding the foregoing, the
Company will not be obligated to enter into any underwriting agreement for the
sale of any of the Registrable Securities.
(b) If the Registration Statement is not declared effective by the
Securities and Exchange Commission by the Targeted Effective Date, the Company
shall, for no additional consideration, issue to the Subscriber additional
shares of Preferred Stock equal to 0.25% of the shares of Preferred Stock then
held on the Targeted Effective Date by such Subscriber, exclusive of any shares
of Preferred Stock issued pursuant to this Section 5.2(b), for each day the
Registration Statement is not declared effective by the Commission following the
Targeted Effective Date.
5.3 All Registration Expenses incurred in connection with any registration,
qualification, exemption or compliance pursuant to Section 5.2 shall be borne by
the Company. All Selling Expenses relating to the sale of securities registered
by or on behalf of Holders shall be borne by such Holders pro rata on the basis
of the number of securities so registered.
5.4 In the case of the registration, qualification, exemption or compliance
effected by the Company pursuant to this Agreement, the Company shall, upon
reasonable request, inform each Holder as to the status of such registration,
qualification, exemption and compliance. At its expense the Company shall:
13
<PAGE>
(a) use its best efforts to keep such registration, and any qualification,
exemption or compliance under state securities laws which the Company determines
to obtain, continuously effective until the Holders have completed the
distribution described in the registration statement relating thereto. The
period of time during which the Company is required hereunder to keep the
Registration Statement effective is referred to herein as "the Registration
Period." Notwithstanding the foregoing, at the Company's election, the Company
may cease to keep such registration, qualification, exemption or compliance
effective with respect to any Registrable Securities, and the registration
rights of a Holder shall expire, at such time as the Holder may sell under Rule
144(k) under the Act (or other exemption from registration acceptable to the
Company) in a three-month period all Registrable Securities then held by such
Holder; and
(b) advise the Holders:
(i) when the Registration Statement or any amendment thereto has been filed
with the Commission and when the Registration Statement or any post-effective
amendment thereto has become effective;
(ii) of any request by the Commission for amendments or supplements to the
Registration Statement or the prospectus included therein or for additional
information;
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for such purpose;
(iv) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Registrable Securities included therein
for sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose; and
(v) of the happening of any event that requires the making of any changes
in the Registration Statement or the prospectus so that, as of such date, the
statements therein are not misleading and do not omit to state a material fact
required to be stated therein or necessary to make the statements therein (in
the case of the prospectus, in the light of the circumstances under which they
were made) not misleading;
(c) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of any Registration Statement at the earliest
possible time;
(d) furnish to each Holder, without charge, at least one copy of such
Registration Statement and any post-effective amendment thereto, including
financial statements
14
<PAGE>
and schedules, and, if the Holder so requests in writing, all exhibits
(including those incorporated by reference) in the form filed with the
Commission;
(e) during the Registration Period, deliver to each Holder, without charge,
as many copies of the prospectus included in such Registration Statement and any
amendment or supplement thereto as such Holder may reasonably request; and the
Company consents to the use, consistent with the provisions hereof, of the
prospectus or any amendment or supplement thereto by each of the selling Holders
of Registrable Securities in connection with the offering and sale of the
Registrable Securities covered by the prospectus or any amendment or supplement
thereto. In addition, upon the reasonable request of the Holder and subject in
all cases to confidentiality protections reasonably acceptable to the Company,
the Company will meet with a Holder or a representative thereof at the Company's
headquarters to discuss all information relevant for disclosure in the
Registration Statement covering the Registrable Securities, and will otherwise
cooperate with any Holder conducting an investigation for the purpose of
reducing or eliminating such Holder's exposure to liability under the Act,
including the reasonable production of information at the Company's
headquarters;
(f) during the Registration Period, deliver to each Holder, without charge,
(i) as soon as practicable (but in the case of the annual report of the Company
to its stockholders, within 120 days after the end of each fiscal year of the
Company) one copy of: (A) its annual report to its stockholders, if any (which
annual report shall contain financial statements audited in accordance with
generally accepted accounting principles in the United States of America by a
firm of certified public accountants of recognized standing); (B) if not
included in substance in its annual report to stockholders, its annual report on
Form 10-KSB (or similar form); (C) each of its quarterly reports to its
stockholders, and, if not included in substance in its quarterly reports to
stockholders, its quarterly report on Form 10-QSB (or similar form), and (D) a
copy of the full Registration Statement (the foregoing, in each case, excluding
exhibits); and (ii) upon reasonable request, all exhibits excluded by the
parenthetical to the immediately preceding clause (D), and all other information
that is generally available to the public;
(g) prior to any public offering of Registrable Securities pursuant to any
Registration Statement, register or qualify or obtain an exemption for offer and
sale under the securities or blue sky laws of such jurisdictions as any such
Holders reasonably request in writing, provided that the Company shall not for
any such purpose be required to qualify generally to transact business as a
foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction, and do any and
all other acts or things necessary or advisable to enable the offer and sale in
such jurisdictions of the Registrable Securities covered by such Registration
Statement;
(h) cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold pursuant
to any Registration Statement free of any restrictive legends to the extent not
required at such time and in such
15
<PAGE>
denominations and registered in such names as Holders may request at least three
(3) business days prior to sales of Registrable Securities pursuant to such
Registration Statement;
(i) upon the occurrence of any event contemplated by Section 5.4(b)(v)
above, the Company shall promptly prepare a post-effective amendment to the
Registration Statement or a supplement to the related prospectus, or file any
other required document so that, as thereafter delivered to purchasers of the
Registrable Securities included therein, the prospectus will not include any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; and
(j) use its best efforts to comply with all applicable rules and
regulations of the Commission, and will make generally available to the Holders
not later than 45 days (or 90 days if the fiscal quarter is the fourth fiscal
quarter) after the end of its fiscal quarter in which the first anniversary date
of the effective date of the Registration Statement occurs, an earnings
statement satisfying the provisions of Section 11(a) of the Act.
5.5 The Holders shall have no right to take any action to restrain, enjoin
or otherwise delay any registration pursuant to Section 5.2 hereof as a result
of any controversy that may arise with respect to the interpretation or
implementation of this Agreement.
5.6 (a) To the extent permitted by law, the Company shall indemnify each
Holder, each underwriter of the Registrable Securities and each person
controlling such Holder within the meaning of Section 15 of the Act, with
respect to which any registration, qualification or compliance has been effected
pursuant to this Agreement, against all claims, losses, damages and liabilities
(or action in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened (subject to Section 5.6(c)
below), arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus or offering circular, or any amendment or supplement thereof,
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
light of the circumstances in which they were made, and will reimburse each
Holder, each underwriter of the Registrable Securities and each person
controlling such Holder, for legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action as incurred; provided that the Company will not be liable in
any such case to the extent that any untrue statement or omission or allegation
thereof is made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such Holder and stated to be
specifically for use in preparation of such registration statement, prospectus
or offering circular; provided that the Company will not be liable in any such
case where the claim, loss, damage or liability arises out of or is related to
the failure of the Holder to comply with the covenants and agreements contained
in this Agreement respecting sales of
16
<PAGE>
Registrable Securities, and except that the foregoing indemnity agreement is
subject to the condition that, insofar as it relates to any such untrue
statement or alleged untrue statement or omission or alleged omission made in
the preliminary prospectus but eliminated or remedied in the amended prospectus
on file with the Commission at the time the registration statement becomes
effective or in the amended prospectus filed with the Commission pursuant to
Rule 424(b) or in the prospectus subject to completion and term sheet under Rule
434 of the Act, which together meet the requirements of Section 10(a) of the Act
(the "Final Prospectus"), such indemnity agreement shall not inure to the
benefit of any such Holder, any such underwriter or any such controlling person,
if a copy of the Final Prospectus furnished by the Company to the Holder for
delivery was not furnished to the person or entity asserting the loss,
liability, claim or damage at or prior to the time such furnishing is required
by the Act and the Final Prospectus would have cured the defect giving rise to
such loss, liability, claim or damage.
(b) Each Holder will severally, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter of the Registrable Securities and
each person who controls the Company within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof), including any of the foregoing incurred in settlement of
any litigation, commenced or threatened (subject to Section 5.6(c) below),
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus or offering
circular, or any amendment or supplement thereof, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in light of the
circumstances in which they were made, and will reimburse the Company, such
directors and officers, each underwriter of the Registrable Securities and each
person controlling the Company for reasonable legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action as incurred, in each case to the
extent, but only to the extent, that such untrue statement or omission or
allegation thereof is made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Holder and stated to
be specifically for use in preparation of such registration statement,
prospectus or offering circular; provided that the indemnity shall not apply to
the extent that such claim, loss, damage or liability results from the fact that
a current copy of the prospectus was not made available to the Holder and such
current copy of the prospectus would have cured the defect giving rise to such
loss, claim, damage or liability. Notwithstanding the foregoing, in no event
shall a Holder be liable for any such claims, losses, damages or liabilities in
excess of the proceeds received by such Holder in the offering, except in the
event of fraud by such Holder.
(c) Each party entitled to indemnification under this Section 5.6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any
17
<PAGE>
claim as to which indemnity may be sought, and shall permit the Indemnifying
Party to assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall conduct
the defense of such claim or litigation, shall be approved by the Indemnified
Party (whose approval shall not unreasonably be withheld), and the Indemnified
Party may participate in such defense at such Indemnified Party's expense, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Agreement, unless such failure is materially prejudicial to the
Indemnifying Party in defending such claim or litigation. An Indemnifying Party
shall not be liable for any settlement of an action or claim effected without
its written consent (which consent will not be unreasonably withheld).
(d) If the indemnification provided for in this Section 5.6 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
thereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions which resulted in such loss, liability, claim,
damage or expense as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
5.7 (a) Upon receipt of any notice from the Company of the happening of any
event requiring the preparation of a supplement or amendment to a prospectus
relating to Registrable Securities so that, as thereafter delivered to the
Holders, such prospectus shall not contain an untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, each Holder will
forthwith discontinue disposition of Registrable Securities pursuant to the
registration statement contemplated by Section 5.2 until its receipt of copies
of the supplemented or amended prospectus from the Company and, if so directed
by the Company, each Holder shall deliver to the Company all copies, other than
permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
(b) Each Holder shall suspend, upon request of the Company, any disposition
of Registrable Securities pursuant to the Registration Statement and prospectus
contemplated by Section 5.2 during (i) any period not to exceed two 30-day
periods within any one 12-month period the Company requires in connection with a
primary underwritten offering of equity securities and (ii) any period, not to
exceed one 30-day period per circumstance or
18
<PAGE>
development, when the Company determines in good faith that offers and sales
pursuant thereto should not be made by reason of the presence of material
undisclosed circumstances or developments with respect to which the disclosure
that would be required in such a prospectus is premature, would have an adverse
effect on the Company or is otherwise inadvisable.
(c) As a condition to the inclusion of its Registrable Securities, each
Holder shall furnish to the Company such information regarding such Holder and
the distribution proposed by such Holder as the Company may request in writing
or as shall be required in connection with any registration, qualification or
compliance referred to in this Article V.
(d) Each Holder hereby covenants with the Company (i) not to make any sale
of the Registrable Securities without effectively causing the prospectus
delivery requirements under the Act to be satisfied, and (ii) if such
Registrable Securities are to be sold by any method or in any transaction other
than on a national securities exchange, Nasdaq National Market, Nasdaq Small Cap
Market or in the over-the-counter market, in privately negotiated transactions,
or in a combination of such methods, to notify the Company at least five (5)
business days prior to the date on which the Holder first offers to sell any
such Registrable Securities.
(e) Each Holder acknowledges and agrees that the Registrable Securities
sold pursuant to the Registration Statement described in this Section are not
transferable on the books of the Company unless the stock certificate submitted
to the transfer agent evidencing such Registrable Securities is accompanied by a
certificate reasonably satisfactory to the Company to the effect that (i) the
Registrable Securities have been sold in accordance with such Registration
Statement and (ii) the requirement of delivering a current prospectus has been
satisfied.
(f) Each Holder agrees not to take any action with respect to any
distribution deemed to be made pursuant to such registration statement that
constitutes a violation of Regulation M under the Exchange Act or any other
applicable rule, regulation or law.
(g) At the end of the period during which the Company is obligated to keep
the Registration Statement current and effective as described above, the Holders
of Registrable Securities included in the Registration Statement shall
discontinue sales of shares pursuant to such Registration Statement upon receipt
of notice from the Company of its intention to remove from registration the
shares covered by such Registration Statement which remain unsold, and such
Holders shall notify the Company of the number of shares registered which remain
unsold immediately upon receipt of such notice from the Company.
19
<PAGE>
5.8 With a view to making available to the Holders the benefits of certain
rules and regulations of the Commission which at any time permit the sale of the
Registrable Securities to the public without registration, the Company shall use
its reasonable best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Act, at all times;
(b) file with the Commission in a timely manner all reports and other
documents required of the Company under the Exchange Act; and
(c) so long as a Holder owns any unregistered Registrable Securities,
furnish to such Holder upon any reasonable request a written statement by the
Company as to its compliance with Rule 144 under the Act, and of the Exchange
Act, a copy of the most recent annual or quarterly report of the Company, and
such other reports and documents of the Company as such Holder may reasonably
request in availing itself of any rule or regulation of the Commission allowing
a Holder to sell any such securities without registration.
5.9 The rights to cause the Company to register Registrable Securities
granted to the Holders by the Company under this Article 5 may be assigned in
full by a Holder in connection with a transfer by such Holder of its Registrable
Securities, provided, however, that (i) such transfer may otherwise be effected
in accordance with applicable securities laws; (ii) such Holder gives prior
written notice to the Company; and (iii) such transferee agrees to comply with
the terms and provisions of this Agreement, and such transfer is otherwise in
compliance with this Agreement. Except as specifically permitted by this Section
5.9, the rights of a Holder with respect to Registrable Securities as set out
herein shall not be transferable to any other Person, and any attempted transfer
shall cause all rights of such Holder therein to be forfeited.
5.10 With the written consent of the Company and the Holders holding at
least a majority of the Registrable Securities that are then outstanding, any
provision of this Article V may be waived (either generally or in a particular
instance, either retroactively or prospectively and either for a specified
period of time or indefinitely) or amended. Upon the effectuation of each such
waiver or amendment, the Company shall promptly give written notice thereof to
the Holders, if any, who have not previously received notice thereof or
consented thereto in writing.
VI MISCELLANEOUS
-------------
6.1 Any notice or other communication given hereunder shall be deemed
sufficient if in writing and sent by registered or certified mail, return
receipt requested, or delivered by hand against written receipt therefor,
addressed to Conversion Technologies International, Inc., 88 Bethany Road, Suite
5, Hazlet, New Jersey, 07730, Attn: President, and to the Subscriber at the
Subscriber's address indicated on the signature page of this Agreement.
20
<PAGE>
Notices shall be deemed to have been given or delivered on the date of mailing,
except notices of change of address, which shall be deemed to have been given or
delivered when received.
6.2 Except as provided in Section 5.10 above, this Agreement shall not be
changed, modified or amended except by a writing signed by the parties to be
charged, and this Agreement may not be discharged except by performance in
accordance with its terms or by a writing signed by the party to be charged.
6.3 Subject to the provisions of Section 5.9, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and to their
respective heirs, legal representatives, successors and assigns. This Agreement
sets forth the entire agreement and understanding between the parties as to the
subject matter hereof and merges and supersedes all prior discussions,
agreements and understandings of any and every nature among them.
6.4 Upon the execution and delivery of this Agreement by the Subscriber,
this Agreement shall become a binding obligation of the Subscriber with respect
to the purchase of Units as herein provided; subject, however, to the right
hereby reserved to the Company to enter into the same agreements with other
subscribers and to add and/or delete other persons as subscribers.
6.5 NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT MAY BE EXECUTED BY ANY
OF THE PARTIES HERETO, THE PARTIES EXPRESSLY AGREE THAT ALL THE TERMS AND
PROVISIONS HEREOF SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. IN
THE EVENT THAT A JUDICIAL PROCEEDING IS NECESSARY, THE SOLE FORUM FOR RESOLVING
DISPUTES ARISING OUT OF OR RELATING TO THIS AGREEMENT IS THE SUPREME COURT OF
THE STATE OF NEW YORK IN AND FOR THE COUNTY OF NEW YORK OR THE FEDERAL COURTS
FOR SUCH STATE AND COUNTY, AND ALL RELATED APPELLATE COURTS, THE PARTIES HEREBY
IRREVOCABLY CONSENT TO THE JURISDICTION OF SUCH COURTS AND AGREE TO SAID VENUE.
6.6 In order to discourage frivolous claims the parties agree that unless a
claimant in any proceeding arising out of this Agreement succeeds in
establishing his claim and recovering a judgment against another party
(regardless of whether such claimant succeeds against one of the other parties
to the action), then the other party shall be entitled to recover from such
claimant all of its/their reasonable legal costs and expenses relating to such
proceeding and/or incurred in preparation therefor.
6.7 The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect. If any
provision of this Agreement shall
21
<PAGE>
be declared by a court of competent jurisdiction to be invalid, illegal or
incapable of being enforced in whole or in part, such provision shall be
interpreted so as to remain enforceable to the maximum extent permissible
consistent with applicable law and the remaining conditions and provisions or
portions thereof shall nevertheless remain in full force and effect and
enforceable to the extent they are valid, legal and enforceable, and no
provisions shall be deemed dependent upon any other covenant or provision unless
so expressed herein.
6.8 It is agreed that a waiver by either party of a breach of any provision
of this Agreement shall not operate, or be construed, as a waiver of any
subsequent breach by that same party.
6.9 The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further action as may be
necessary or appropriate to carry out the purposes and intent of this Agreement.
6.10 This Agreement may be executed in two or more counterparts each of
which shall be deemed an original, but all of which shall together constitute
one and the same instrument.
6.11 (a) The Subscribers severally agree not to issue any public statement
with respect to the Subscribers' investment or proposed investment in the
Company or the terms of any agreement or covenant between them and the Company
without the Company's prior written consent, except such disclosures as may be
required under applicable law or under any applicable order, rule or regulation.
(b) The Company agrees not to disclose the names, addresses or any other
information about the Subscribers, except as required by law; provided, that the
Company may use the name (but not the address) of the Subscriber in the
Registration Statement.
6.12 Each Subscriber severally represents and warrants that it has not
engaged, consented to nor authorized any broker, finder or intermediary to act
on its behalf, directly or indirectly, as a broker, finder or intermediary in
connection with the transactions contemplated by this Agreement. Each Subscriber
hereby severally agrees to indemnify and hold harmless the Company from and
against all fees, commissions or other payments owing to any such person or firm
acting on behalf of such Subscriber hereunder.
6.13 Nothing in this Agreement shall create or be deemed to create any
rights in any person or entity not a party to this Agreement, except (a) for the
holders of Registrable Securities and (b) for the Placement Agent pursuant to
Sections 1.6(a) and 1.19 hereof.
22
<PAGE>
6.14 The Company acknowledges and agrees that irreparable damage would
occur in the event that any of the provisions of Article V of this Agreement
were not performed in accordance with its specific terms or were otherwise
breached and that such damage would not be compensable in money damages and that
it would be extremely difficult or impracticable to measure the resultant
damages. Accordingly, any Subscriber shall be entitled to an injunction or
injunctions with respect to the provisions of this Agreement and to enforce
specifically the terms and provisions hereof, in addition to any other remedy to
which it may be entitled at law or in equity, and the Company expressly waives
any defense that a remedy in damages would be adequate and expressly waives any
requirement in an action for specific performance for the posting of a bond by
the Subscriber bringing such action.
VII CONFIDENTIAL INVESTOR QUESTIONNAIRE
-----------------------------------
7.1 The Subscriber represents and warrants that he, she or it comes within
one category marked below, and that for any category marked, he, she or it has
truthfully set forth, where applicable, the factual basis or reason the
Subscriber comes within that category. ALL INFORMATION IN RESPONSE TO THIS
SECTION WILL BE KEPT STRICTLY CONFIDENTIAL. The undersigned agrees to furnish
any additional information which the Company deems necessary in order to verify
the answers set forth below.
Category A The undersigned is an individual (not a partnership,
corporation, etc.) whose individual net worth, or joint net
worth with his or her spouse, presently exceeds $1,000,000.
Explanation. In calculating net worth you may include equity
in personal property and real estate, including your
principal residence, cash, short-term investments, stock and
securities. Equity in personal property and real estate
should be based on the fair market value of such property
less debt secured by such property.
Category B The undersigned is an individual (not a partnership,
corporation, etc.) who had an individual income in excess
of $200,000 in each of the two most recent years, or joint
income with his or her spouse in excess of $300,000 in each
of those years (in each case including foreign income, tax
exempt income and full amount of capital gains and losses
but excluding any income of other family members and any
unrealized capital appreciation) and has a reasonable
expectation of reaching the same income level in the
current year.
Category C The undersigned is a director or executive officer of the
Company which is issuing and selling the Units.
23
<PAGE>
Category D The undersigned is a bank; a savings and loan
association; insurance company; registered investment company;
registered business development company; licensed small
business investment company ("SBIC"); or employee benefit plan
within the meaning of Title 1 of ERISA and (a) the investment
decision is made by a plan fiduciary which is either a bank,
savings and loan association, insurance company or registered
investment advisor, or (b) the plan has total assets in excess
of $5,000,000 or (c) is a self directed plan with investment
decisions made solely by persons that are accredited
investors.
-----------------------------------
-----------------------------------
(describe entity)
Category E The undersigned is a private business development company as
defined in section 202(a)(22) of the Investment Advisors Act
of 1940.
-----------------------------------
-----------------------------------
(describe entity)
Category F The undersigned is either a corporation, partnership,
Massachusetts business trust, or non-profit organization
within the meaning of Section 501(c)(3) of the Internal
Revenue Code, in each case not formed for the specific purpose
of acquiring the Units and with total assets in excess of
$5,000,000.
-----------------------------------
-----------------------------------
(describe entity)
Category G The undersigned is a trust with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring
the Units, where the purchase is directed by a "sophisticated
investor" as defined in Regulation 506(b)(2)(ii) under the
Act.
Category H The undersigned is an entity (other than a trust) all the
equity owners of which are "accredited investors" within one
or more of the above categories. If relying upon this Category
alone, each equity owner must complete a separate copy of this
Agreement.
------------------------------
------------------------------
(describe entity)
24
<PAGE>
Category I The undersigned is not within any of the categories above
and is therefore not an accredited investor.
The undersigned agrees that the undersigned will notify the Company at any time
on or prior to the Final Closing Date in the event that the representations and
warranties in this Agreement shall cease to be true, accurate and complete.
7.2 SUITABILITY (please answer each question)
-----------
(a) For an individual Subscriber, please describe your current employment,
including the company by which you are employed and its principal business:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(b) For an individual Subscriber, please describe any college or graduate
degrees held by you:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(c) For all Subscribers, please list types of prior investments:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(d) For all Subscribers, please state whether you have participated in other
private placements before:
YES_______ NO_______
(e) If your answer to question (d) above was "YES", please indicate frequency of
such prior participation in private placements of:
Public Private Public or Private
Companies Companies Biotechnology Companies
--------- --------- -----------------------
Frequently
-------- --------- ---------------
Occasionally -------- --------- ---------------
25
<PAGE>
Never
-------- --------- ---------------
(f) For individual Subscribers, do you expect your current level of income to
significantly decrease in the foreseeable future:
YES_______ NO_______
(g) For trust, corporate, partnership and other institutional Subscribers, do
you expect your total assets to significantly decrease in the foreseeable
future:
YES_______ NO_______
(h) For all Subscribers, do you have any other investments or contingent
liabilities which you reasonably anticipate could cause you to need sudden cash
requirements in excess of cash readily available to you:
YES_______ NO_______
(i) For all Subscribers, are you familiar with the risk aspects and the
non-liquidity of investments such as the securities for which you seek to
subscribe?
YES_______ NO_______
(j) For all Subscribers, do you understand that there is no guarantee of
financial return on this investment and that you run the risk of losing your
entire investment?
YES_______ NO_______
7.3 MANNER IN WHICH TITLE IS TO BE HELD. (circle one)
-----------------------------------
(a) Individual Ownership
(b) Community Property
(c) Joint Tenant with Right of
Survivorship (both parties
must sign)
(d) Partnership*
(e) Tenants in Common
(f) Company*
(g) Trust*
(h) Other
26
<PAGE>
*If Units are being subscribed for by an entity, the attached Certificate
of Signatory must also be completed.
7.4 NASD AFFILIATION.
----------------
Are you affiliated or associated with an NASD member firm (please check one):
Yes _________ No __________
If Yes, please describe:
- ------------------------------------
- ------------------------------------
- ------------------------------------
*If Subscriber is a Registered Representative with an NASD member firm, have the
following acknowledgment signed by the appropriate party:
The undersigned NASD member firm acknowledges receipt of the notice required by
Article 3, Sections 28(a) and (b) of the Rules of Fair Practice.
- ---------------------------------
Name of NASD Member Firm
By:
------------------------------
Authorized Officer
Date:
----------------------------
7.5 The undersigned is informed of the significance to the Company of the
foregoing representations and answers contained in the Confidential Investor
Questionnaire contained in this Section 7 and such answers have been provided
under the assumption that the Company will rely on them.
27
<PAGE>
[Signature Page]
NUMBER OF UNITS X $100,000 = (the "Purchase Price")
----------------------------------------
Signature Signature (if purchasing jointly)
----------------------------------------
Name Typed or Printed Name Typed or Printed
Entity Name Entity Name
----------------------------------------
Address Address
----------------------------------------
City, State and Zip Code City, State and Zip Code
----------------------------------------
Telephone-Business Telephone--Business
----------------------------------------
Telephone-Residence Telephone--Residence
----------------------------------------
Facsimile-Business Facsimile--Business
----------------------------------------
Facsimile-Residence Facsimile--Residence
----------------------------------------
Tax ID # or Social Security # Tax ID # or Social Security #
Name in which securities should be issued:
----------------------------------
Check the box marked YES if you would like the securities
to be delivered to your account with Placement Agent Yes ___ No ___
(If you check "No", securities will be delivered to you at the address
provided above)
Dated:
--------------------, 1997
This Subscription Agreement is agreed to and accepted as of
, 1997.
CONVERSION TECHNOLOGIES
INTERNATIONAL, INC.
By:
--------------------------------------
Name:
Title:
28
<PAGE>
CERTIFICATE OF SIGNATORY
(To be completed if Units are
being subscribed for by an entity)
I,
-----------------------------------------------------------, am
the
----------------------------------------- of
- ----------------------------------------------- (the "Entity").
I certify that I am empowered and duly authorized by the Entity to execute
and carry out the terms of the Subscription Agreement and to purchase and hold
the Units, and certify further that the Subscription Agreement has been duly and
validly executed on behalf of the Entity and constitutes a legal and binding
obligation of the Entity.
IN WITNESS WHEREOF, I have set my hand this________day of
_________________, 1997.
---------------------------------------
(Signature)
[FORM OF]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAW. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
-------------------------------------------
Warrant for the Purchase of Shares of
-------------------------------------
Preferred Stock
---------------
No. [ ] [ ]Shares
FOR VALUE RECEIVED, CONVERSION TECHNOLOGIES INTERNATIONAL, INC., a
Delaware corporation (the "Company"), hereby certifies that Placement Agent, its
designee or its permitted assigns is entitled to purchase from the Company, at
any time or from time to time commencing on [ ], 1998 and prior to 5:00 P.M.,
New York City time, on [ ], 2007, [ ] ([ ]) fully paid and non-assessable shares
of Series A Convertible Preferred Stock, $.001 par value per share, of the
Company for an aggregate purchase price of $[ ] (computed on the basis of [ ]
per share). Hereinafter, (i) said Series A Convertible Preferred Stock, together
with any other equity securities which may be issued by the Company with respect
thereto (other than on conversion thereof) or in substitution therefor, is
referred to as the "Preferred Stock", (ii) the Common Stock, $.001 par value per
share, of the Company, into which the Preferred Stock is convertible, is
referred to as the "Common Stock", (iii) the shares of the Preferred Stock
purchasable hereunder or under any other Warrant (as hereinafter defined) are
referred to as the "Warrant Shares", (iv) the shares of Common Stock purchasable
hereunder or under any other Warrant (as hereinafter defined) following the
conversion of all shares of Preferred Stock into Common Stock and each share of
Common Stock receivable upon the conversion of the Warrant Shares receivable
upon the exercise of this Warrant are referred to as the "Conversion Shares",
(v) the aggregate purchase price payable for the Warrant Shares or the
Conversion Shares, as the case may be, hereunder is referred to as the
"Aggregate Warrant Price", (vi) the price payable (initially $[ ] per share,
subject to adjustment) for each of the Warrant Shares or the Conversion Shares,
as the case may be, hereunder is referred to as the "Per Share Warrant Price",
(vii) this Warrant, all similar Warrants issued on the date hereof and all
Warrants hereafter issued in exchange or substitution for this Warrant or such
similar Warrants are referred to as the "Warrants", (viii) the holder of this
Warrant is referred to as the "Holder" and the holder of this Warrant and all
other Warrants, Warrant Shares and Conversion Shares are referred to as the
"Holders" and Holders of more than fifty percent (50%) of the outstanding
Warrants, Warrant Shares, Preferred Stock and Conversion Shares are referred to
as the "Majority of the Holders") and (ix) the then current Market Price per
share on any particular date (the "Market Price") shall be deemed to be the last
sale price of the Common Stock on the trading day prior to such date or, in case
no such reported sales take place on such day, the
-1-
<PAGE>
average of the last reported bid and asked prices of the Common Stock on such
day, in either case on the principal national securities exchange on which the
Common Stock is admitted to trading or listed, or if not listed or admitted to
trading on any such exchange, the representative closing bid price of the Common
Stock as reported by the Nasdaq SmallCap Market ("Nasdaq"), or other similar
organization if Nasdaq is no longer reporting such information, or, if the
Common Stock is not reported on Nasdaq, the high per share bid price for the
Common Stock in the over-the-counter market as reported by the National
Quotation Bureau or similar organization, or if not so available, the fair
market value of the Common Stock as determined in good faith by the Board of
Directors. The then current "Market Price Per Share of Preferred Stock" shall
equal the then current Market Price multiplied by the then effective "conversion
rate" (as defined and used in the Certificate of Designation for the Preferred
Stock) or if not so available, the fair market value of the Preferred Stock (or
the Common Stock following conversion of all the Preferred Stock) as determined
in good faith by the Board of Directors. The Aggregate Warrant Price is not
subject to adjustment. The Per Share Warrant Price is subject to adjustment as
hereinafter provided; in the event of any such adjustment, the number of Warrant
Shares or Conversion Shares, as the case may be, deliverable upon exercise of
this Warrant shall be adjusted by dividing the Aggregate Warrant Price by the
Per Share Warrant Price in effect immediately after such adjustment. The
Warrants shall not be subject to redemption by the Company nor will they be
callable or manditorily convertible by the Company.
1. Exercise of Warrant.
-------------------
(a) This Warrant may be exercised, in whole at any time or in part from
time to time, commencing on [ , 1998] and prior to 5:00 P.M., New York City
time, on [ , 2008] by the Holder:
(i) by the surrender of this Warrant (with the subscription form at
the end hereof duly executed) at the address set forth in Subsection 9(a)
hereof, together with proper payment of the Aggregate Warrant Price, or the
proportionate part thereof if this Warrant is exercised in part, with
payment for Warrant Shares or Conversion Shares, as the case may be, made
by certified or official bank check payable to the order of the Company; or
(ii) by the surrender of this Warrant (with the cashless exercise form
at the end hereof duly executed) (a "Cashless Exercise") at the address set
forth in Subsection 9(a) hereof. Such presentation and surrender shall be
deemed a waiver of the Holder's obligation to pay the Aggregate Warrant
Price, or the proportionate part thereof if this Warrant is exercised in
part. In the event of a Cashless Exercise, the Holder shall exchange its
Warrant for that number of Warrant Shares or Conversion Shares, as the case
may be, subject to such Cashless Exercise multiplied by a fraction, the
numerator of which shall be the difference between the then Current Market
Price Per Share of Preferred Stock (or the Common Stock into which the
Preferred Stock is convertible) and the Per Share Warrant Price, and the
denominator of which shall be the Market Price (or the Common Stock into
which the Preferred Stock is convertible). For purposes of any computation
under this Section 1(a), the then current Market Price shall be based on
the trading day prior to the Cashless Exercise.
(b) If this Warrant is exercised in part, this Warrant must be exercised
for a number of whole shares of the Preferred Stock, (or the Common Stock
following conversion of all the Preferred Stock) and the Holder is entitled to
receive a new Warrant covering the Warrant
-2-
<PAGE>
Shares or Conversion Shares, as the case may be, which have not been exercised
and setting forth the proportionate part of the Aggregate Warrant Price
applicable to such Warrant Shares or Conversion Shares, as the case may be. Upon
surrender of this Warrant, the Company will (i) issue a certificate or
certificates in the name of the Holder for that number of whole shares of the
Preferred Stock (or the Common Stock following conversion of all the Preferred
Stock) to which the Holder shall be entitled and, if this Warrant is exercised
in whole, in lieu of any fractional share of the Preferred Stock (or the Common
Stock following conversion of all the Preferred Stock) to which the Holder shall
be entitled, pay to the Holder cash in an amount equal to the fair value of such
fractional share (determined in such reasonable manner as the Board of Directors
of the Company shall determine), and (ii) deliver the other securities and
properties receivable upon the exercise of this Warrant, or the proportionate
part thereof if this Warrant is exercised in part, pursuant to the provisions of
this Warrant.
(c) If this Warrant is exercised on or after the date on which all shares
of Preferred Stock have been converted into shares of Common Stock (the
"Conversion Date"), then this Warrant shall be exercisable only for Conversion
Shares, each at the then applicable Per Share Warrant Price (including any
adjustment pursuant to Section 3(f) below).
2. Reservation of Warrant Shares and Conversion Shares; Listing. The
-----------------------------------------------------------------
Company agrees that, prior to the expiration of this Warrant, the Company shall
at all times (a) have authorized and in reserve, and shall keep available,
solely for issuance and delivery upon the exercise of this Warrant, the shares
of the Preferred Stock and other securities and properties as from time to time
shall be receivable upon the exercise of this Warrant, free and clear of all
restrictions on sale or transfer, other than under Federal or state securities
laws, and free and clear of all preemptive rights and rights of first refusal
and (b) subject to the Company's obligation to increase the number of authorized
shares of Common Stock, as described in the Confidential Term Sheet dated August
8, 1997, as supplemented and amended, have authorized and in reserve, and shall
keep available, solely for issuance or delivery upon conversion of the Warrant
Shares or the exercise of this Warrant following the conversion of all shares of
Preferred Stock into Common Stock, the shares of Common Stock and other
securities and properties as from time to time shall be receivable upon such
conversion, free and clear of all restrictions on sale or transfer, other than
under Federal or state securities laws, and free and clear of all preemptive
rights and rights of first refusal; and (c) if the Company hereafter lists its
Common Stock on any national securities exchange, use its best efforts to keep
the Conversion Shares authorized for listing on such exchange upon notice of
issuance.
3. Protection Against Dilution.
---------------------------
(a) If, at any time or from time to time after the date of this Warrant,
the Company shall issue or distribute to the holders of shares of Preferred
Stock evidence of its indebtedness, any other securities of the Company or any
cash, property or other assets (excluding a subdivision, combination or
reclassification, or dividend or distribution payable in shares of Preferred
Stock, referred to in Subsection 3(b), and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor in the full
amount thereof (any such non-excluded event being herein called a "Special
Dividend")), the Per Share Warrant Price shall be adjusted by multiplying the
Per Share Warrant Price then in effect by a fraction, the numerator of which
shall be the then current Market Price in effect on the record date of such
issuance or distribution less the fair market value (as determined in good faith
by the Company's Board of Directors) of the evidence of indebtedness, cash,
securities or property, or other assets issued or distributed in such Special
Dividend applicable to one share of Preferred Stock and the denominator of which
shall be the then current Market Price in effect on the record date of such
-3-
<PAGE>
issuance or distribution. An adjustment made pursuant to this Subsection 3(a)
shall become effective immediately after the record date of any such Special
Dividend.
(b) In case the Company shall hereafter (i) pay a dividend or make a
distribution on its capital stock in shares of Preferred Stock, (ii) subdivide
its outstanding shares of Preferred Stock into a greater number of shares, (iii)
combine its outstanding shares of Preferred Stock into a smaller number of
shares or (iv) issue by reclassification of its Preferred Stock any shares of
capital stock of the Company (other than the Conversion Shares), the Per Share
Warrant Price shall be adjusted to be equal to a fraction, the numerator of
which shall be the Aggregate Warrant Price and the denominator of which shall be
the number of shares of Preferred Stock or other capital stock of the Company
which he would have owned immediately following such action had such Warrant
been exercised immediately prior thereto. An adjustment made pursuant to this
Subsection 3(b) shall become effective immediately after the record date in the
case of a dividend or distribution and shall become effective immediately after
the effective date in the case of a subdivision, combination or
reclassification.
(c) Except as provided in Subsections 3(a), 3(b) and 3(d), in case the
Company shall hereafter issue or sell any Preferred Stock, any securities
convertible into Preferred Stock, any rights, options or warrants to purchase
Preferred Stock or any securities convertible into Preferred Stock, in each case
for a price per share or entitling the holders thereof to purchase Preferred
Stock at a price per share (determined by dividing (i) the total amount, if any,
received or receivable by the Company in consideration of the issuance or sale
of such securities plus the total consideration, if any, payable to the Company
upon exercise or conversion thereof (the "Total Consideration") by (ii) the
number of additional shares of Preferred Stock issuable upon exercise or
conversion of such securities) which is less than either the then Current Market
Price Per Share of Preferred Stock in effect on the date of such issuance or
sale or the Per Share Warrant Price, the Per Share Exercise Price shall be
adjusted as of the date of such issuance or sale by multiplying the Per Share
Warrant Price then in effect by a fraction, the numerator of which shall be (x)
the sum of (A) the number of shares of Preferred Stock outstanding on the record
date of such issuance or sale plus (B) the Total Consideration divided by the
then current Market Price of the Preferred Stock or the current Per Share
Warrant Price, whichever is greater, and the denominator of which shall be (y)
the number of shares of Preferred Stock outstanding on the record date of such
issuance or sale plus the maximum number of additional shares of Preferred Stock
issued, sold or issuable upon exercise or conversion of such securities.
(d) No adjustment in the Per Share Warrant Price shall be required in the
case of the issuance by the Company of Preferred Stock (i) pursuant to the
exercise of any Warrant or (ii) pursuant to the exercise of any stock options or
warrants currently outstanding or securities issued after the date hereof
pursuant to any Company benefit plan.
(e) In case of any capital reorganization or reclassification, or any
consolidation or merger to which the Company is a party other than a merger or
consolidation in which the Company is the continuing corporation, or in case of
any sale or conveyance to another entity of the property of the Company as an
entirety or substantially as a entirety, or in the case of any statutory
exchange of securities with another corporation (including any exchange effected
in connection with a merger of a third corporation into the Company), the Holder
of this Warrant shall have the right thereafter to receive on the exercise of
this Warrant the kind and amount of securities, cash or other property which the
Holder would have owned or have been entitled to receive immediately after such
reorganization, reclassification, consolidation, merger, statutory exchange,
-4-
<PAGE>
sale or conveyance had this Warrant been exercised immediately prior to the
effective date of such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance and in any such case, if necessary,
appropriate adjustment shall be made in the application of the provisions set
forth in this Section 3 with respect to the rights and interests thereafter of
the Holder of this Warrant to the end that the provisions set forth in this
Section 3 shall thereafter correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant. The above
provisions of this Subsection 3(e) shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, statutory
exchanges, sales or conveyances. The Company shall require the issuer of any
shares of stock or other securities or property thereafter deliverable on the
exercise of this Warrant to be responsible for all of the agreements and
obligations of the Company hereunder. Notice of any such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
and of said provisions so proposed to be made, shall be mailed to the Holders of
the Warrants not less than thirty (30) days prior to such event. A sale of all
or substantially all of the assets of the Company for a consideration consisting
primarily of securities shall be deemed a consolidation or merger for the
foregoing purposes.
(f) Upon the conversion of all the Preferred Stock into Common Stock the
Per Share Warrant Price shall be adjusted to be equal to a fraction, the
numerator of which shall be the Aggregate Warrant Price and the denominator of
which shall be the number of shares of Common Stock or other capital stock of
the Company which the Holder would have owned immediately following such
conversion had this Warrant been exercised (assuming a cash exercise)
immediately prior thereto.
(g) No adjustment in the Per Share Warrant Price shall be required unless
such adjustment would require an increase or decrease of at least $0.05 per
share of Preferred Stock; provided, however, that any adjustments which by
-------- -------
reason of this Subsection 3(g) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment; provided, further,
-------- -------
however, that adjustments shall be required and made in accordance with the
provisions of this Section 3 (other than this Subsection 3(g)) not later than
such time as may be required in order to preserve the tax-free nature of a
distribution to the Holder of this Warrant or Preferred Stock issuable upon the
exercise hereof. All calculations under this Section 3 shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be. Anything
in this Section 3 to the contrary notwithstanding, the Company shall be entitled
to make such reductions in the Per Share Warrant Price, in addition to those
required by this Section 3, as it in its discretion shall deem to be advisable
in order that any stock dividend, subdivision of shares or distribution of
rights to purchase stock or securities convertible or exchangeable for stock
hereafter made by the Company to its stockholders shall not be taxable.
(h) Whenever the Per Share Warrant Price is adjusted as provided in this
Section 3 and upon any modification of the rights of a Holder of Warrants in
accordance with this Section 3, the Company shall promptly prepare a brief
statement of the facts requiring such adjustment or modification and the manner
of computing the same and cause copies of such certificate to be mailed to the
Holders of the Warrants. The Company may, but shall not be obligated to unless
requested by a Holders of more than fifty percent (50%) of the outstanding
Warrants, Warrant Shares and Conversion Shares, obtain, at its expense, a
certificate of a firm of independent public accountants of recognized standing
selected by the Board of Directors (who may be the regular auditors of the
Company) setting forth the Per Share Warrant Price and the number of Warrant
Shares or Conversion Shares, as the case may be, after such adjustment or the
effect of such modification, a brief statement of the facts requiring such
adjustment or modification and the manner of computing the same and cause copies
of such certificate to be mailed to the Holders of the Warrants.
-5-
<PAGE>
(i) If the Board of Directors of the Company shall declare any dividend or
other distribution with respect to the Preferred Stock or Common Stock other
than a cash distribution out of earned surplus, the Company shall mail notice
thereof to the Holders of the Warrants not less than ten (10) days prior to the
record date fixed for determining stockholders entitled to participate in such
dividend or other distribution.
(j) If, as a result of an adjustment made pursuant to this Section 3, the
Holder of any Warrant thereafter surrendered for exercise shall become entitled
to receive shares of two or more classes of capital stock or shares of Preferred
Stock and other capital stock of the Company, the Company's Board of Directors
(whose determination shall be conclusive and shall be described in a written
notice to the Holder of any Warrant promptly after such adjustment) shall
determine the allocation of the adjusted Per Share Warrant Price between or
among shares or such classes of capital stock or shares of Preferred Stock and
other capital stock.
(k) For purposes of the anti-dilution protection contained in this Section
3, at all times following the conversion of all shares of Preferred Stock into
shares of Common Stock, the term Preferred Stock shall be read to be Common
Stock, context permitting, so that the anti-dilution provisions will continue to
protect the purchase rights represented by this Warrant after the conversion of
all the Preferred Stock into the Common Stock in accordance with the essential
intent and principles of this Section 3 (it being understood that prior to such
conversion, the anti-dilution provisions of the Preferred Stock shall protect
the Holder from dilution of the Common Stock).
(l) Upon the expiration of any rights, options, warrants or conversion
privileges, if such shall not have been exercised, the number of Warrant Shares
purchasable upon exercise of this Warrant, to the extent this Warrant has not
then been exercised, shall, upon such expiration, be readjusted and shall
thereafter be such as they would have been had they been originally adjusted (or
had the original adjustment not been required, as the case may be) on the basis
of (A) the fact that Preferred Stock, if any, actually issued or sold upon the
exercise of such rights, options, warrants or conversion privileges, and (B) the
fact that such shares of Preferred Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise plus the
consideration, if any, actually received by the Company for the issuance, sale
or grant of all such rights, options, warrants or conversion privileges whether
or not exercised; provided, however, that no such readjustment shall have the
effect of decreasing the number of Conversion Shares purchasable upon exercise
of this Warrant by an amount in excess of the amount of the adjustment initially
made in respect of the issuance, sale or grant of such rights, options, warrants
or conversion privileges.
4. Fully Paid Stock; Taxes. The Company agrees that the shares of Preferred
-----------------------
Stock represented by each and every certificate for Warrant Shares delivered on
the exercise of this Warrant and the shares of Common Stock delivered upon the
conversion of the Warrant Shares or the exercise of this Warrant following the
conversion of all shares of Preferred Stock into Common Stock, shall at the time
of such delivery, be validly issued and outstanding, fully paid and
nonassessable, and not subject to preemptive rights or rights of first refusal,
and the Company will take all such actions as may be necessary to assure that
the par value or stated value, if any, per share of the Preferred Stock and the
Common Stock is at all times equal to or less than the then Per Share Warrant
Price. The Company further covenants and agrees that it will pay, when due and
payable, any and all Federal and state stamp, original issue or similar taxes
which may be payable in respect of the issue of any Warrant Share, Conversion
Share or any certificate thereof to the extent required because of the issuance
by the Company of such security.
-6-
<PAGE>
5. Registration Under Securities Act of 1933. (a) The Holder shall with
--------------------------------------------
respect to the Conversion Shares only, have the right to participate in the
registration rights granted to purchasers of Preferred Stock pursuant to Article
5 of the subscription agreements (the "Subscription Agreements") between such
purchasers and the Company that were entered into at the time of the initial
sale by the Company of the Preferred Stock. By acceptance of this Warrant, the
Holder agrees to comply with the provisions in Article 5 of the Subscription
Agreement to same extent as if it were a party thereto.
(b) Until all Conversion Shares have been sold under a Registration
Statement or pursuant to Rule 144 ("Rule 144") as promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), the Company shall use
its reasonable best efforts to file with the Securities and Exchange Commission
all current reports and the information as may be necessary to enable the Holder
to effect sales of its shares in reliance upon Rule 144 promulgated under the
Act.
6. Investment Intent; Limited Transferability.
------------------------------------------
(a) The Holder represents, by accepting this Warrant, that it understands
that this Warrant and any securities obtainable upon exercise of this Warrant
have not been registered for sale under Federal or state securities laws and are
being offered and sold to the Holder pursuant to one or more exemptions from the
registration requirements of such securities laws. The Holder understands that
it must bear the economic risk of its investment in this Warrant and any
securities obtainable upon exercise of this Warrant for an indefinite period of
time, as this Warrant and such securities have not been registered under Federal
or state securities laws and therefore cannot be sold unless subsequently
registered under such laws or unless an exemption from such registration is
available.
(b) The Holder, by his acceptance of this Warrant, represents to the
Company that he is acquiring this Warrant and will acquire any securities
obtainable upon exercise of this Warrant for his own account for investment and
not with a view to, or for sale in connection with, any distribution thereof in
violation of the Securities Act. The Holder agrees that this Warrant and any
such securities will not be sold or otherwise transferred unless (i) a
registration statement with respect to such transfer is effective under the
Securities Act and any applicable state securities laws or (ii) the Holder
delivers to the Company an opinion of counsel reasonably satisfactory to the
Company that such registration statement is not required.
(c) In addition to the requirements set forth in Section 6(b) above, this
Warrant may not be sold, transferred, assigned or hypothecated for six (6)
months from the date hereof except (i) to any firm or corporation that succeeds
to all or substantially all of the business of Paramount Capital, Inc., (ii) to
any of the officers, employees or affiliated companies of Paramount Capital,
Inc., or of any such successor firm, (iii) to any member of the National
Association of Securities Dealers, Inc. ("NASD") participating in the Offering
or any officer or employee of any such NASD member, provided such issuance may
be made in compliance with Regulation D or (iv) in the case of an individual,
pursuant to such individual's last will and testament or the laws of descent and
distribution, and is so transferable only upon the books of the Company which it
shall cause to be maintained for such purpose. The Company may treat the
registered Holder of this Warrant as he or it appears on the Company's books at
any time as the Holder for all purposes. The Company shall permit any Holder of
a Warrant or its duly authorized attorney, upon written request during ordinary
business hours, to inspect and copy or make extracts from its books showing the
registered holders of Warrants. All warrants issued upon the transfer or
assignment of this Warrant will be dated the same date as this Warrant, and all
rights of the holder thereof shall be identical to those of the Holder.
-7-
<PAGE>
(d) This Warrant and all shares of Preferred Stock or Common Stock issued
upon conversion thereof shall be stamped or imprinted with legends in
substantially the form set forth below (in addition to any legend required by
state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SECURITIES AND ANY SECURITIES OR SHARES ISSUED HEREUNDER MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT.
COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SECURITIES AND
RESTRICTING THEIR TRANSFER OR SALE MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD HEREOF TO THE SECRETARY OF THE COMPANY
AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.
7. Loss, etc., of Warrant. Upon receipt of evidence satisfactory to the
-----------------------
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver to the Holder, in lieu of this Warrant, a new Warrant
of like date, tenor and denomination.
8. Warrant Holder Not Stockholder. This Warrant does not confer upon the
--------------------------------
Holder any right to vote or to consent to or receive notice as a stockholder of
the Company, as such, in respect of any matters whatsoever, or any other rights
or liabilities as a stockholder, prior to the exercise hereof; this Warrant
does, however, require certain notices to Holders as set forth herein.
9. Communication. No notice or other communication under this Warrant shall
-------------
be effective unless, but any notice or other communication shall be effective
and shall be deemed to have been given if, the same is in writing and is mailed
by first-class mail, postage prepaid, addressed to:
(a) the Company at Conversion Technologies International, Inc., 3452
Lake Lynda Drive, Suite 280, Orlando, Florida 32817, Attn: President, or
at such other address as the Company has designated in writing to the
Holder, or
(b) the Holder at c/o Placement Agent's Address, or at other such
address as the Holder has designated in writing to the Company.
10. Headings. The headings of this Warrant have been inserted as a matter
--------
of convenience and shall not affect the construction hereof.
11. Applicable Law. This Warrant shall be governed by and construed in
---------------
accordance with the law of the State of New York without giving effect to the
principles of conflicts of law thereof.
12. Amendment, Waiver, etc. Except as expressly provided herein, neither
------------------------
this Warrant nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment,
-8-
<PAGE>
waiver, discharge or termination is sought; provided, however, that any
provisions hereof may be amended, waived, discharged or terminated upon the
written consent of the Company and the then current Majority of the Holders of
the Warrants only.
-9-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
President and its corporate seal to be hereunto affixed and attested by its
Secretary this ___th day of ____________ , 1997.
CONVERSION TECHNOLOGIES
INTERNATIONAL, INC.
By:
--------------------------------
Name:
Title:
ATTEST:
- -----------------------------
Secretary
[Corporate Seal]
-10-
<PAGE>
SUBSCRIPTION
------------
The undersigned, ___________________, pursuant to the provisions of the
foregoing Warrant, hereby agrees to subscribe for and purchase
____________________ shares of the Series A Preferred Stock, par value $.01 per
share, of Conversion Technologies International, Inc. covered by said Warrant,
and makes payment therefor in full at the price per share provided by said
Warrant.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Series A Convertible Preferred Stock or the
Common Stock to be issued upon conversion thereof are being acquired solely for
the account of the undersigned and not as a nominee for any other party, and for
investment, and that the undersigned will not offer, sell or otherwise dispose
of any such shares of Series A Preferred Stock or Common Stock except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
Please issue a certificate or certificates representing said shares of
Series A Convertible Preferred Stock in the name of the undersigned or in such
other name as is specified below.
-----------------------------------
Name
Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is specified
below:
-----------------------------------
Name
Dated: Signature:
------------------ -------------------------
Address:
-------------------------
CASHLESS EXERCISE
-----------------
The undersigned ___________________, pursuant to the provisions of the
foregoing Warrant, hereby elects to exchange its Warrant for ___________________
shares of Series A Preferred Stock, par value $.01 per share, of Conversion
Technologies International, Inc. pursuant to the Cashless Exercise provisions of
the Warrant.
Dated: Signature:
------------------ -------------------------
Address:
-------------------------
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<PAGE>
ASSIGNMENT
----------
FOR VALUE RECEIVED _______________ hereby sells, assigns and transfers unto
____________________ the foregoing Warrant and all rights evidenced thereby, and
does irrevocably constitute and appoint _____________________, attorney, to
transfer said Warrant on the books of Conversion Technologies International,
Inc.
The undersigned also represents that, by assignment hereof, the Assignee
acknowledges that this Warrant and the shares of stock to be issued upon the
exercise hereof or conversion thereof are being acquired for investment and that
the Assignee will not offer, sell or otherwise dispose of this Warrant or any of
the shares of stock to be issued upon exercise hereof or conversion thereof
except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended, or any state securities laws.
Dated: Signature:
------------------ -------------------------
Address:
-------------------------
PARTIAL ASSIGNMENT
------------------
FOR VALUE RECEIVED _______________ hereby assigns and transfers unto
____________________ the right to purchase _______ shares of the Preferred
Stock, par value $.001 per share, of Conversion Technologies International, Inc.
covered by the foregoing Warrant, and a proportionate part of said Warrant and
the rights evidenced thereby, and does irrevocably constitute and appoint
____________________, attorney, to transfer that part of said Warrant on the
books of Conversion Technologies International, Inc.
Dated: Signature:
------------------ -------------------------
Address:
-------------------------
[FORM OF]
[____________,] 1997
Conversion Technologies International, Inc.
3452 Lake Lynda Drive
Suite 280
Orlando, Florida 32817
Re: Financial Advisory Agreement
Dear Sirs:
1. This is to confirm our understanding that Placement Agent, its
affiliates and designees have been engaged as a non-exclusive financial advisor
of Conversion Technologies International, Inc. (the "Company") for a period of
twenty-four (24) months commencing on the date hereof (as extended pursuant to
Paragraph 12 hereto, or by mutual agreement of the parties hereto, the "Term").
2. The Company shall pay in cash all out-of-pocket expenses incurred by
Placement Agent in providing its services hereunder, including reasonable fees
and disbursements of Placement Agent's counsel, such expenses to be paid upon
submission of a bill or bills by Placement Agent from time to time.
3. Upon the Closing of each Investment (as defined below) during the Term
or during the twelve-month period following the expiration or earlier
termination of the Term, the Company shall pay to Placement Agent a fee in an
amount equal to nine percent (9%) of the aggregate value of such Investment and
shall issue to Placement Agent warrants to purchase an amount of securities
equal to ten percent (10%) of the securities sold as part of such Investment at
an exercise price equal to one-hundred-ten percent (110%) of the price of such
securities, exercisable until ten (10) years from the date of issuance of such
warrants. Other than with respect to trades made in the open market, for the
purposes of this Agreement, an Investment shall mean any purchase of securities
of the Company which is made during the Term or during the twelve-month period
following the expiration of the Term by an investor first introduced to the
Company by or through Placement Agent during or prior to the Term; provided that
no compensation shall be due to Placement Agent pursuant to this paragraph 3 for
an Investment with respect to which Placement Agent is entitled to compensation
pursuant to that certain Placement Agency Agreement dated April 1, 1997 (the
"Placement Agency Agreement") and provided further that if the terms of both the
Placement Agency Agreement and this Agreement
1
<PAGE>
would be applicable to any particular investment, the terms of the Placement
Agency Agreement shall govern and Placement Agent shall be entitled to the
compensation set forth therein.
4. (a) Should the Company enter into an agreement with a party first
introduced to the Company by or through Placement Agent during or prior to the
Term pursuant to which the Company consummates a sale, merger, consolidation,
tender offer, business combination or similar transaction involving a majority
of the business assets or stock of the Company (a "Sale") during the Term, or
during the twelve-month period following the expiration of such Term, then the
Company shall pay Placement Agent: (i) a cash fee equal to ten percent (10%) of
the aggregate consideration paid to the Company by the acquiror, such fee to be
payable in cash simultaneously with the closing of such Sale; and (ii) a warrant
(a "Warrant") to purchase a number of shares of Common Stock of the surviving
entity equal to the product of (x) the quotient of the aggregate amount of the
aggregate consideration received by the Company or the aggregate amount of
equity received by the Company's shareholders as a result of the Sale divided by
the lesser of (i) the per share value attributed to the Common Stock in the
Sale, if any (determined by dividing the aggregate consideration received by the
Company by the number of shares received by the Company as a result of the
Sale), and (ii) the per share fair market value of the Common Stock at the time
of the closing of the Sale, and (y) eight percent (8%). Each Warrant shall be
exercisable for at least ten (10) years from the date of their respective
issuances at an exercise price which is 110% of the fair market value of the
Common Stock at the time each such Warrant is granted.
(b) Should the Company enter into an agreement with a party first
introduced to the Company by or through Placement Agent during or prior to the
Term pursuant to which the Company consummates a transaction wherein the Company
acquires all or substantially all of the business assets or stock of another
entity in which the Company is the surviving entity (an "Acquisition") during
the Term, or during the twelve-month period following the expiration of such
Term, then the Company shall pay Placement Agent: (i) a fee equal to ten percent
(10%) of the aggregate consideration paid by the Company to the entity acquired,
such fee to be payable simultaneously with the closing of such Acquisition; and
(ii) a warrant (a "Warrant") to purchase a number of shares of Common Stock of
the Company equal to the product of (x) the quotient of the aggregate amount of
the aggregate consideration received by the Company as a result of the
Acquisition divided by the lesser of (i) the per share value attributed to the
Common Stock in the Acquisition, if any (determined by dividing the aggregate
consideration received by the Company by the number of shares received by the
Company as a result of the Acquisition), and (ii) the per share fair market
value of the Common Stock at the time of the closing of the Acquisition, and (y)
eight percent (8%). Each Warrant shall be exercisable for at least ten (10)
years from the date of their respective issuances at an exercise price which is
110% of the fair market value of the Common Stock at the time each such Warrant
is granted.
(c) For purposes of calculating Placement Agent's fee under this Paragraph
4, the aggregate consideration paid with respect to the business, assets or
stock of the
2
<PAGE>
Company shall be equal to the total of all cash, securities and/or other assets
paid for such business, assets or stock by the acquiror. Aggregate consideration
shall also include: (i) any commercial bank or similar indebtedness of the
Company which is repaid or for which the responsibility to pay is assumed by the
acquiror in connection with such transaction; (ii) the greater of the stated
value or the liquidation value of preferred stock of the Company which is
assumed or acquired by the acquiror and which is not converted into common stock
upon the consummation of such transaction; (iii) future payments for which the
acquiror is obligated absolutely ("Acquiror Future Payments"); and (iv) future
payments for which the acquiror is obligated upon the attainment of milestones
or financial results ("Acquiror Contingent Payments"). The fee to be paid to
Placement Agent as a result of Acquiror Future Payments shall be paid upon the
date of closing of such Acquisition and shall be valued at the present value of
the Acquiror Future Payments. The fee to be paid to Placement Agent as a result
of Acquiror Contingent Payments shall be paid upon the receipt of such payments
by the Company. In the event that a Sale of the Company or an Acquisition by the
Company is consummated through a multiple-step transaction wherein the acquiror
is not obligated either absolutely or upon the attainment of milestones or
financial results to make future payments to further increase the acquiror's
ownership in the Company (the "Multiple-Step Payments"), the Company agrees to
pay Placement Agent a fee on such Multiple-Step Payments which shall be
calculated pursuant to this Paragraph 4. Such fee shall be paid to Placement
Agent upon receipt by the Company of such Multiple-Step Payments and shall be in
addition to the fee paid to Placement Agent in the first step of such
transaction.
5. Should the Company enter into an agreement with an investor first
introduced to the Company by or through Placement Agent during or prior to the
Term pursuant to which the Company consummates a Strategic Alliance(s) (as
defined below), or during the twelve-month period following the expiration of
such Term, then the Company shall pay Placement Agent: (a) a cash fee equal to
ten percent (10%) of the present value of the Aggregate Consideration (as
defined below) to be received by the Company, its shareholders or employees in
each such transaction (such fee shall be paid to Placement Agent in cash
simultaneously with the closing of each such transaction); and (b) a payment in
the form of equity securities in an amount to be agreed upon between the
parties, but in no event less than ten percent (10%) of the Aggregate
Consideration. For the purpose of calculating Placement Agent's fee under this
Paragraph 5, Aggregate Consideration shall include, but not be limited to: (i)
all payments made at the closing of such transaction for equity securities,
equity security rights or similar rights; (ii) technology access fees or similar
up-front payments, (iii) other future payments, including without limitation,
licensing fees, lump sum payments, royalties and deferred technology access
fees, to be made to the Company or its employees for which the Strategic
Alliance partner(s) or other counter-parties (each a "Partner") is obligated
either absolutely ("Strategic Future Payments") or upon the attainment of
milestones or on a percentage or royalty basis ("Strategic Contingent
Payments"); (iv) funding provided, arranged or introduced by the Partner
(through reimbursement or otherwise) relative to research and development,
testing, clinical trials and related expenditures, whether such work is
performed, subcontracted or managed by the Company or the Partner; and (v) the
repayment or assumption by the Partner of obligations of the
3
<PAGE>
Company, including indebtedness for money borrowed or amounts owed by the
Company to inventors or owners of technology. It is further understood that
Aggregate Consideration shall not be reduced by the amount of the fee due to
Placement Agent hereunder. Any portion of the Aggregate Consideration
constituting Strategic Future Payments shall be paid at closing and shall be
valued at the present value of the Strategic Future Payments. The fee to be paid
to Placement Agent as a result of Strategic Contingent Payments shall be paid
upon the receipt of such payments and shall be in addition to any fees paid at
closing. A "Strategic Alliance" may include, but is not limited to: (i) any
joint venture, partnership, license or other contract for the research,
development, manufacturing, marketing, distribution, sale or other activity
relating to the Company's present and/or future products; (ii) the purchase of,
or commitment to purchase from the Company, less than a majority of the
business, assets or stock of the Company by a Partner(s); (iii) the sale of any
of the Company's assets or any rights in respect to its products and /or
technology; and (iv) a commitment to provide funding for all or part of the
Company's research and development activities, whether such work is performed or
managed by the Company or Partner.
For purposes of calculating the present value of any Strategic Future
Payments, Strategic Contingent Payments, Acquiror Future Payments or Acquiror
Contingent Payments, the Company and Placement Agent agree to discount all such
payments by a discount factor equal to fifteen percent (15%) per annum, and,
where necessary, to use the projections which have been provided to prospective
Partners in the course of the transaction to quantify these Strategic Future
Payments, Strategic Contingent Payments, Acquiror Future Payments or Acquiror
Contingent Payments. For the purposes of calculating Placement Agent's fee,
securities constituting part of Aggregate Consideration which are traded on a
national or recognized foreign securities exchange or the Nasdaq National Market
System shall be valued at the last closing bid price thereof prior to the date
of the consummation or closing of any such transaction. Such securities which
are traded over-the-counter shall be valued at the mean between the latest bid
and asked prices prior to date of the consummation or closing of any such
transaction.
6. Should Placement Agent introduce the Company to a potential product,
process, intellectual property or technology which is subsequently licensed or
otherwise acquired by the Company, the Company and Placement Agent shall
negotiate in good faith a fee for such introduction provided that in no event
shall such fee be less than: (a) two hundred thousand dollars ($200,000) in
cash; and (b) an equity payment in an amount to be agreed upon between the
parties, but in no event less than ten percent (10%) of the total outstanding
shares of common stock of the Company on a fully diluted basis.
7. In the event that the Company, its directors or management initiate any
discussions with a third party in furtherance of any Sale, Acquisition,
Investment or Strategic Alliance or receive any meaningful inquiry or are aware
of the interest of any third party concerning a Sale, Acquisition, Investment or
Strategic Alliance which is the subject of this Agreement, they shall promptly
inform Placement Agent of the party and its interest.
4
<PAGE>
8. Any financial advice rendered by Placement Agent pursuant to this
Agreement (and the existence of this Agreement) shall not be disclosed publicly
in any manner without Placement Agent's prior written approval and shall be
treated by the Company as confidential information. The Company shall provide
Placement Agent with all financial and other information requested by Placement
Agent for the purposes of rendering its services pursuant to this Agreement.
9. (a) The Company agrees not to divulge information which Placement Agent
discloses to it and which is marked as "Confidential" (the "Confidential
Information") to any third party or parties. The Company further agrees to limit
disclosure only to those of its officers, employees, agents, affiliates and
consultants as the Company considers necessary. The Company shall use its best
efforts to prevent the disclosure of the Confidential Information as provided
herein. This obligation shall be binding upon the Company and shall continue for
a period of five (5) years from the date of this Agreement.
10. All non-public information given to Placement Agent by the Company
shall be treated by Placement Agent as confidential information and shall not be
used by Placement Agent except in rendering its services pursuant to this
Agreement. Placement Agent may rely, without independent verification, on the
accuracy and completeness of any information furnished to Placement Agent by the
Company, subject to its obligations under the securities laws.
11. In the event that Placement Agent becomes involved in any capacity in
any action, proceeding, investigation or inquiry in connection with any matter
referred to in this Agreement or arising out of the matters contemplated by this
Agreement, the Company shall reimburse Placement Agent for its legal and other
expenses (including the cost of any investigation and preparation) as they are
incurred by Placement Agent in connection therewith. The Company also agrees to
indemnify each of Placement Agent, the directors, officers, employees and agents
thereof (the "Indemnitees"), pay on demand and protect, defend, save and hold
each Indemnitee harmless from and against any and all liabilities, damages,
losses, settlements, claims, actions, suits, penalties, fines, costs or expenses
(including, without limitation, attorneys' fees) (any of the foregoing, a
"Claim") incurred by or asserted against any Indemnitee of whatever kind or
nature, arising from, in connection with or occurring as a result of this
Agreement or the matters contemplated by this Agreement. The foregoing agreement
shall be in addition to any rights that any Indemnitee may have at common law or
otherwise.
12. The Term of this Agreement shall be twenty-four (24) months commencing
on the date hereof. Thereafter, this Agreement shall continue on a month to
month basis until terminated by either party upon not less than sixty (60) days
notice with the monthly retainer fee payable on the first day of each month (the
"Extended Term"); provided, however that, regardless of any termination,
Paragraphs 4, 5, 6, 11, 13 and 15 shall survive. In addition to any retainer
fees, Placement Agent shall be entitled to the reimbursement of reasonable
expenses incurred by Placement Agent as a result of services rendered prior to
the date of the termination.
5
<PAGE>
13. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflicts of
law. The parties hereto irrevocably consent to the jurisdiction of the courts of
the State of New York and of any federal court located in such State in
connection with any action or proceeding arising out of or relating to this
Agreement, any document or instrument delivered pursuant to, in connection with
or simultaneously with this Agreement, or a breach of this Agreement or any such
document or instrument. In any such action or proceeding, each party hereto
waives personal service of any summons, complaint or other process and agrees
that service thereof may be made in accordance with this Section 13. Within
thirty (30) days after such service, or such other time as may be mutually
agreed upon in writing by the attorneys for the parties to such action or
proceeding, the party so served shall appear or answer such summons, complaint
or other process.
14. This Agreement shall be binding upon Placement Agent and the Company
and the successors and assigns of Placement Agent. The Company shall not assign
or sell all or substantially all of the Company's business and/or assets without
first requiring in writing that such assignee or successor is bound by the
provisions of this Agreement.
15. (a) Placement Agent shall not be in any way precluded from (i) entering
into similar agreements with companies which engage in similar business
activities or lines of business as the Company or developing or marketing any
products, services or technologies that do or may in the future compete,
directly or indirectly, with those of the Company, (ii) investing or owning any
interest publicly or privately in, or developing a business relationship with,
any corporation, partnership or other person or entity engaged in the same or
similar activities or lines or business as, or otherwise in competition with,
the Company or (iii) doing business with any client, collaborator, licensor,
consultant, vendor or customer of the Company. Placement Agent and any of its
officers, directors, employees or former employees and affiliates shall not have
any obligation, or be liable, to the Company solely on account of the conduct
described in the preceding sentence. The Company recognizes that Placement Agent
is not obligated to present any opportunities for an Investment, Sale,
Acquisition, Strategic Alliance or any other opportunities to the Company and
nothing in this Agreement shall be construed to limit Placement Agent's ability
to introduce Investment, Sale, Acquisition, Strategic Alliance or any other
opportunities to any other company. In the event that Placement Agent and/or any
officer, director, employee or former employee or affiliate thereof acquires
knowledge of a potential transaction, agreement, arrangement or other matter
which may be a corporate opportunity for both Placement Agent and the Company,
neither Placement Agent nor any of its officers, directors, employees or former
employees or affiliates shall have any duty to communicate or offer such
corporate opportunity to the Company and neither Placement Agent nor any of its
officers, directors, employees or former employees or affiliates shall be liable
to the Company for breach of any fiduciary or other duty, as a stockholder or
otherwise, solely by reason of the fact that Placement Agent or any of its
officers, directors, employees or former employees or affiliates pursue or
acquire such corporate opportunity for Placement Agent, direct such
6
<PAGE>
corporate opportunity to another person or entity or communicate or fail to
communicate such corporate opportunity or entity to the Company.
(b) The provisions of this Section 15 shall be enforceable to the fullest
extent permitted by law.
Please confirm that the foregoing is in accordance with your understanding
by signing and returning to us the enclosed duplicate of this letter.
Sincerely yours,
PLACEMENT AGENT
By:
-------------------------------
Name:
Title:
Confirmed as of the date hereof:
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
By:
----------------------------------
Name:
Title:
[FORM OF]
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT. ANY SUCH TRANSFER
MAY ALSO BE SUBJECT TO APPLICABLE STATE SECURITIES LAWS.
CONVERSION TECHNOLOGIES
INTERNATIONAL, INC.
Warrant for the Purchase of Shares of
-------------------------------------
Common Stock
------------
No. [ ] [ ] Shares
FOR VALUE RECEIVED, CONVERSION TECHNOLOGIES INTERNATIONAL, INC., a Delaware
corporation (the "Company"), hereby certifies that Holder, or its permitted
assigns, is entitled to purchase from the Company, at any time or from time to
time commencing on _______, 1997, and prior to 5:00 P.M., New York City time, on
July __, 2002 (the "Termination Date"), [ ] ([ ]) fully paid and non-assessable
shares of the Common Stock, $.00025 par value per share, of the Company at an
exercise price equal to the greater of (a) $.01 and (b) the Offering Price (as
defined in the PPM) of the Common Stock of the Company issued in connection with
the Company's current private placement offering pursuant to the confidential
Term Sheet dated ________, 1997 (as hereafter supplemented and amended, the
"PPM") (Hereinafter, (i) said Common Stock, together with any other equity
securities which may be issued by the Company with respect thereto or in
substitution therefor, is referred to as the "Common Stock", (ii) the shares of
the Common Stock purchasable hereunder or under any other Warrant (as
hereinafter defined) are referred to as the "Warrant
1
<PAGE>
Shares", (iii) the aggregate purchase price payable for the Warrant Shares
hereunder is referred to as the "Aggregate Warrant Price", (iv) the price
payable for each of the Warrant Shares hereunder is referred to as the "Per
Share Warrant Price", (v) this Warrant, all similar Warrants issued on the date
hereof and all warrants hereafter issued in exchange or substitution for this
Warrant or such similar Warrants are referred to as the "Warrants" and (vi) the
holder of this Warrant is referred to as the "Holder" and the holder of this
Warrant and all other Warrants or Warrant Shares issued upon the exercise of any
Warrant are referred to as the "Holders"). The Aggregate Warrant Price is not
subject to adjustment. The Per Share Warrant Price is subject to adjustment as
hereinafter provided; in the event of any such adjustment, the number of Warrant
Shares shall be adjusted by dividing the Aggregate Warrant Price by the Per
Share Warrant Price in effect immediately after such adjustment.
1. Exercise of Warrant.
--------------------
(a) This Warrant may be exercised, in whole at any time or in part from
time to time, commencing on July __, 1997 and prior to the Termination Date, by
the holder:
(i) by the surrender of this Warrant (with the subscription form at
the end hereof duly executed) at the address set forth in Subsection 9(a)
hereof, together with proper payment of the Aggregate Warrant Price, or the
proportionate part thereof if this Warrant is exercised in part, with
payment for Warrant Shares made by certified or official bank check payable
to the order of the Company; or
(ii) by the surrender of this Warrant (with the cashless exercise form
at the end hereof duly executed) (a "Cashless Exercise") at the address set
forth in Subsection 9(a) hereof. Such presentation and surrender shall be
deemed a waiver of the Holder's obligation to pay the Aggregate Warrant
Price, or the proportionate part thereof if this Warrant is exercised in
part. In the event of a Cashless Exercise, the Holder shall exchange its
Warrant for that number of Warrant Shares subject to such Cashless Exercise
multiplied by a fraction, the numerator of which shall be the difference
between the then current Market Price per share (as hereinafter defined) of
Common Stock and the Per Share Warrant Price, and the denominator of which
shall be the then current Market Price per share of Common Stock. The then
current market price per share of the Common Stock at any date (the
2
<PAGE>
"Market Price") shall be deemed to be the last sale price of the Common
Stock on the business day prior to the date of the Cashless Exercise or, in
case no such reported sales take place on such day, the average of the last
reported bid and asked prices of the Common Stock on such day, in either
case on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, or if not listed or admitted to
trading on any such exchange, the representative closing bid price of the
Common Stock as reported by the Nasdaq National Market System or the Nasdaq
SmallCap Market ("NASDAQ"), or other similar organization if NASDAQ is no
longer reporting such information, or if not so available, the fair market
price of the Common Stock as determined in good faith by the Board of
Directors.
(b) If this Warrant is exercised in part, this Warrant must be exercised
for a number of whole shares of the Common Stock and the Holder is entitled to
receive a new Warrant covering the Warrant Shares which have not been exercised
and setting forth the proportionate part of the Aggregate Warrant Price
applicable to such Warrant Shares. Upon surrender of this Warrant, the Company
will (i) issue a certificate or certificates in the name of the Holder for the
largest number of whole shares of the Common Stock to which the Holder shall be
entitled and, if this Warrant is exercised in whole, in lieu of any fractional
share of the Common Stock to which the Holder shall be entitled, pay to the
Holder cash in an amount equal to the fair value of such fractional share
(determined in such reasonable manner as the Board of Directors of the Company
shall determine), and (ii) deliver the other securities and properties
receivable upon the exercise of this Warrant, if any, or the proportionate part
thereof if this Warrant is exercised in part, pursuant to the provisions of this
Warrant.
2. Reservation of Warrant Shares; Listing. The Company agrees that, prior
---------------------------------------
to the expiration of this Warrant, the Company will at all times (a) have
authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock and
other securities and properties as from time to time shall be receivable upon
the exercise of this Warrant, free and clear of all restrictions on sale or
transfer, except for the restrictions on sale or transfer set forth in the
Securities Act of 1933, as amended (the "Act"), and restrictions created by or
on behalf of the Holder, and free and clear of all preemptive rights and rights
of first refusal; and (b) when the Company prepares and files a registration
statement covering the shares of Common Stock issued or issuable upon exercise
of this Warrant with the Securities and Exchange Commission (the "SEC") which
registration statement is
3
<PAGE>
declared effective by the SEC under the Act and the Company lists its Common
Stock on any national securities exchange or other quotation system, it will use
its reasonable best efforts to cause the shares of Common Stock subject to this
Warrant to be listed on such exchange or quotation system.
3. Protection Against Dilution.
---------------------------
(a) If, at any time or from time to time after the date of this Warrant,
the Company shall issue or distribute to the holders of shares of Common Stock
evidence of its indebtedness, any other securities of the Company or any cash,
property or other assets (excluding a subdivision, combination or
reclassification, or dividend or distribution payable in shares of Common Stock,
referred to in Subsection 3(b), and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor in the full
amount thereof, which together with the value of other dividends and
distributions made substantially concurrently therewith or pursuant to a plan
which includes payment thereof, is equivalent to not more than 5% of the
Company's net worth) (any such non-excluded event being herein called a "Special
Dividend"), the Per Share Warrant Price shall be adjusted by multiplying the Per
Share Warrant Price then in effect by a fraction, the numerator of which shall
be the then current Market Price of the Common Stock less the fair market value
(as determined in good faith by the Company's Board of Directors) of the
evidence of indebtedness, cash, securities or property, or other assets issued
or distributed in such Special Dividend applicable to one share of Common Stock
and the denominator of which shall be the then current Market Price of the
Common Stock. An adjustment made pursuant to this Subsection 3(a) shall become
effective immediately after the record date of any such Special Dividend.
(b) In case the Company shall hereafter (i) pay a dividend or make a
distribution on its capital stock in shares of Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a greater number of shares, (iii)
combine its outstanding shares of Common Stock into a smaller number of shares
or (iv) issue by reclassification of its Common Stock any shares of capital
stock of the Company, the Per Share Warrant Price shall be adjusted to be equal
to a fraction, the numerator of which shall be the Aggregate Warrant Price and
the denominator of which shall be the number of shares of Common Stock or other
capital stock of the Company which he would have owned immediately following
such action had such Warrant been exercised immediately prior thereto. An
adjustment made pursuant to this Subsection 3(b) shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately
4
<PAGE>
after the effective date in the case of a subdivision, combination or
reclassification.
(c) Except as provided in Subsections 3(a) and 3(d), in case the Company
shall hereafter issue or sell any Common Stock, any securities convertible into
Common Stock or any rights, options or warrants to purchase Common Stock or
securities convertible into Common Stock, in each case for a price per share or
entitling the holders thereof to purchase Common Stock at a price per share
(determined by dividing (i) the total amount, if any, received or receivable by
the Company in consideration of the issuance or sale of such securities plus the
total consideration, if any, payable to the Company upon exercise or conversion
thereof (the "Total Consideration") by (ii) the number of additional shares of
Common Stock issuable upon exercise or conversion of such securities) less than
the then either the current Market Price of the Common Stock or the current Per
Share Warrant Price in effect on the date of such issuance or sale, the Per
Share Warrant Price shall be adjusted by multiplying the Per Share Warrant Price
then in effect by a fraction, the numerator of which shall be (x) the sum of (A)
the number of shares of Common Stock outstanding on the date of such issuance or
sale plus (B) the Total Consideration divided by either the current Market Price
of the Common Stock or the current Per Share Warrant Price, whichever is
greater, and the denominator of which shall be (y) the number of shares of
Common Stock outstanding on the date of such issuance or sale plus the maximum
number of additional shares of Common Stock issued, sold or issuable upon
exercise or conversion of such securities.
(d) No adjustment in the Per Share Warrant Price shall be required in the
case of the issuance by the Company of (i) Common Stock pursuant to the exercise
or conversion of any Warrant or any other options, warrants or any convertible
securities currently outstanding or outstanding as a result of securities issued
pursuant to the PPM; provided, that the exercise price or conversion price at
which such options, warrants or convertible securities are exercised or
converted, as the case may be, is equal to the exercise price or conversion
price in effect as of the date of this Warrant or as of the date of issuance
with respect to securities issued pursuant to the PPM (except for standard
anti-dilution adjustments set forth therein) and (ii) shares of Common Stock
issued or sold pursuant to stock purchase or stock option plans or other similar
arrangements that are approved by the Company's Board of Directors.
(e) In case of any capital reorganization or reclassification, or any
consolidation or merger to which the Company is a party other than a merger or
consolidation in which the Company is the continuing corporation,
5
<PAGE>
or in case of any sale or conveyance to another entity of the property of the
Company as an entirety or substantially as an entirety, or in the case of any
statutory exchange of securities with another corporation (including any
exchange effected in connection with a merger of a third corporation into the
Company), the Holder of this Warrant shall have the right thereafter to receive
on the exercise of this Warrant the kind and amount of securities, cash or other
property which the Holder would have owned or have been entitled to receive
immediately after such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance had this Warrant been exercised
immediately prior to the effective date of such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
and in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Section 3 with respect to the
rights and interests thereafter of the Holder of this Warrant to the end that
the provisions set forth in this Section 3 shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the exercise of
this Warrant. The above provisions of this Subsection 3(e) shall similarly apply
to successive reorganizations, reclassifications, consolidations, mergers,
statutory exchanges, sales or conveyances. The issuer of any shares of stock or
other securities or property thereafter deliverable on the exercise of this
Warrant shall be responsible for all of the agreements and obligations of the
Company hereunder. Notice of any such reorganization, reclassification,
consolidation, merger, statutory exchange, sale or conveyance and of said
provisions so proposed to be made, shall be mailed to the Holders of the
Warrants not less than 30 days prior to such event. A sale of all or
substantially all of the assets of the Company for a consideration consisting
primarily of securities shall be deemed a consolidation or merger for the
foregoing purposes.
(f) In case any event shall occur as to which the other provisions of this
Section 3 are not strictly applicable but as to which the failure to make any
adjustment would not fairly protect the purchase rights represented by this
Warrant in accordance with the essential intent and principles hereof then, in
each such case, the Holders of Warrants representing the right to purchase a
majority of the Warrant Shares subject to all outstanding Warrants may appoint a
firm of independent public accountants of recognized national standing
reasonably acceptable to the Company, which shall give their opinion as to the
adjustment, if any, on a basis consistent with the essential intent and
principles established herein, necessary to preserve the purchase rights
represented by the Warrants. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the Holder of this Warrant and shall make the
adjustments described
6
<PAGE>
therein. The fees and expenses of such independent public accountants shall be
borne by the Company.
(g) No adjustment in the Per Share Warrant Price shall be required unless
such adjustment would require an increase or decrease of at least $0.05 per
share of Common Stock; provided, however, that any adjustments which by reason
-------- -------
of this Subsection 3(g) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment; provided, further, however,
-------- -------
that adjustments shall be required and made in accordance with the provisions of
this Section 3 (other than this Subsection 3(g)) not later than such time as may
be required in order to preserve the tax-free nature of a distribution to the
Holder of this Warrant or Common Stock issuable upon the exercise hereof. All
calculations under this Section 3 shall be made to the nearest cent or to the
nearest 1/100th of a share, as the case may be. Anything in this Section 3 to
the contrary notwithstanding, the Company shall be entitled to make such
reductions in the Per Share Warrant Price, in addition to those required by this
Section 3, as it in its discretion shall deem to be advisable in order that any
stock dividend, subdivision of shares or distribution of rights to purchase
stock or securities convertible or exchangeable for stock hereafter made by the
Company to its stockholders shall not be taxable.
(h) Whenever the Per Share Warrant Price is adjusted as provided in this
Section 3 and upon any modification of the rights of a Holder of Warrants in
accordance with this Section 3, the Chief Financial Officer of the Company shall
promptly prepare a certificate setting forth the Per Share Warrant Price and the
number of Warrant Shares after such adjustment or the effect of such
modification and a brief statement of the facts requiring such adjustment or
modification and the manner of computing the same and cause copies of such
certificate to be mailed to the Holders of the Warrants. In the event of a
dispute with respect to any adjustment required pursuant to Section 3, the
Holder may appoint, at the Company's expense, an independent financial advisor
(e.g. an investment banking or accounting firm)reasonably acceptable to the
Company to calculate such adjustment. Such determination shall be binding upon
the Holder and the Company.
(i) If the Board of Directors of the Company shall declare any dividend or
other distribution with respect to the Common Stock, the Company shall mail
notice thereof to the Holders of the Warrants not less than 15 days prior to the
record date fixed for determining stockholders entitled to participate in such
dividend or other distribution.
7
<PAGE>
(j) If, as a result of an adjustment made pursuant to this Section 3, the
Holder of any Warrant thereafter surrendered for exercise shall become entitled
to receive shares of two or more classes of capital stock or shares of Common
Stock and other capital stock of the Company, the Board of Directors (whose
determination shall be conclusive and shall be described in a written notice to
the Holder of any Warrant promptly after such adjustment) shall determine the
allocation of the adjusted Per Share Warrant Price between or among shares or
such classes of capital stock or shares of Common Stock and other capital stock.
4. Fully Paid Stock; Taxes. The Company agrees that the shares of the
-------------------------
Common Stock represented by each and every certificate of Warrant Shares
delivered on the exercise of this Warrant be validly issued and outstanding,
fully paid and nonassessable, and not subject to preemptive rights or rights of
first refusal, and the Company will take all such actions as may be necessary to
assure that the par value or stated value, if any, per share of the Common Stock
is at all times equal to or less than the then Per Share Warrant Price. The
Company further covenants and agrees that it will pay, when due and payable, any
and all Federal and state stamp, original issue or similar taxes which may be
payable in respect of the issue of any Warrant Share or any certificate thereof.
5. Registration Under Securities Act of 1933.
-----------------------------------------
(a) The Company shall include the Warrant Shares on the Shelf Registration
Statement (as defined in the PPM) and the Holder shall otherwise have the
registration rights set forth in Section 5 of the subscription agreement (the
"Subscription Agreement") to be entered into between the purchasers of units (as
described in the PPM) and the Company. By acceptance of this Warrant, the Holder
agrees that it shall have the same obligations, and otherwise comply with, the
provisions in such Section 5 of the Subscription Agreement to same extent as if
it were a party thereto. To the extent that no Final Closing Date (as defined in
the Subscription Agreement) occurs or the Offering is terminated, the rights
granted to Holder hereunder to have its shares registered shall begin as of
November 19, 1997 on the same terms as provided in Section 5 of the Subscription
Agreement.
(b) The Company agrees that if, at any time and from time to time during
the Registration Period, the Board of Directors of the Company shall authorize
the filing of a registration statement under the Act (other than pursuant to the
Shelf Registration Statement) in connection with the proposed offer of any of
its securities by it or any of its stockholders, the Company will (i) promptly
notify each Holder of the Warrants and each holder
8
<PAGE>
of Warrant Shares that such registration statement will be filed and that the
Warrant Shares which are then held, and/or may be acquired upon exercise of the
Warrants by the Holder and such holders will be included in such registration
statement at the Holder's and such holders' request, (ii) cause such
registration statement to cover all of such Common Stock which it has been so
requested to include, (iii) use its best efforts to cause such registration
statement to become effective as soon as practicable and (iv) take all other
action necessary under any Federal or state law or regulation of any
governmental authority to permit all such Common Stock which it has been so
requested to include in such registration statement to be sold or otherwise
disposed of, and will maintain such compliance with each such Federal and state
law and regulation of any governmental authority for the period necessary for
the Holder and such Holders to effect the proposed sale or other disposition.
(c) Until all Warrant Shares have been sold under a Registration Statement
or pursuant to Rule 144, the Company shall use its reasonable best efforts to
file with the Securities and Exchange Commission all current reports and the
information as may be necessary to enable the Holder to effect sales of its
shares in reliance upon Rule 144 promulgated under the Act.
6. Limited Transferability. This Warrant may not be sold, transferred,
------------------------
assigned or hypothecated by the Holder except in compliance with the provisions
of the Act and the applicable state securities "blue sky" laws. The Company may
treat the registered Holder of this Warrant as he or it appears on the Company's
books at any time as the Holder for all purposes. The Company shall permit any
Holder of a Warrant or his duly authorized attorney, upon written request during
ordinary business hours, to inspect and copy or make extracts from its books
showing the registered holders of Warrants. All warrants issued upon the
transfer or assignment of this Warrant will be dated the same date as this
Warrant, and all rights of the holder thereof shall be identical to those of the
Holder.
7. Loss, etc., of Warrant. Upon receipt of evidence satisfactory to the
-----------------------
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
8. Warrant Holder Not Shareholder. Except as otherwise provided herein,
-------------------------------
this Warrant does not confer upon the Holder any right to
9
<PAGE>
vote or to consent to or receive notice as a stockholder of the Company, as
such, in respect of any matters whatsoever, or any other rights or liabilities
as a stockholder, prior to the exercise hereof.
9. Communication. No notice or other communication under this Warrant shall
-------------
be effective unless, but any notice or other communication shall be effective
and shall be deemed to have been given if, the same is in writing and is mailed
by first-class mail, postage prepaid, addressed to:
(a) the Company at Conversion Technologies International, Inc., Bethany
Crossing Office Center, 82 Bethany Road Hazlet, New Jersey 07730, Attention:
Chief Executive Officer or other address as the Company has designated in
writing to the Holder, or
(b) the Holder at c/o
--------------------------------------
or other such address as the Holder has designated in writing to the Company.
10. Headings. The headings of this Warrant have been inserted as a matter
--------
of convenience and shall not affect the construction hereof.
11. Applicable Law. This Warrant shall be governed by and construed in
---------------
accordance with the law of the State of New York without giving effect to the
principles of conflicts of law thereof.
10
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer and its corporate seal to be hereunto affixed and
attested by its Secretary this __th day of _____________ 1997.
CONVERSION TECHNOLOGIES
INTERNATIONAL, INC.
By:
-------------------------------------
ATTEST:
- -------------------------------
Secretary
[Corporate Seal]
11
<PAGE>
SUBSCRIPTION
------------
The undersigned, --------------------------------, pursuant to the
provisions of the foregoing Warrant, hereby agrees to subscribe for and purchase
shares of the Common Stock, par value $.00025 per share, of
- --------------------
Conversion Technologies International, Inc. covered by said Warrant, and makes
payment therefor in full at the price per share provided by said Warrant.
Dated: Signature:
------------------- -------------------------------
Address:
-------------------------------
CASHLESS EXERCISE
-----------------
The undersigned, --------------------------------, pursuant to the
provisions of the foregoing Warrant, hereby elects to exchange its Warrant for
shares of Common Stock, par value $.00025 per share, of -------------------
Conversion Technologies International, Inc. pursuant to the Cashless Exercise
provisions of the Warrant.
Dated: Signature:
------------------- -------------------------------
Address:
-------------------------------
ASSIGNMENT
----------
FOR VALUE RECEIVED hereby sells, assigns and transfers unto ---------------
the foregoing Warrant and all rights evidenced thereby, and --------------------
does irrevocably constitute and appoint , attorney, to ---------------------
transfer said Warrant on the books of Conversion Technologies International,
Inc.
Dated: Signature:
------------------- -------------------------------
Address:
-------------------------------
12
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PARTIAL ASSIGNMENT
------------------
FOR VALUE RECEIVED hereby assigns and transfers unto
---------------
the right to purchase shares of the
- ---------------------- --------------
Common Stock, par value $.00025 per share, of Conversion Technologies
International, Inc. covered by the foregoing Warrant, and a proportionate part
of said Warrant and the rights evidenced thereby, and does irrevocably
constitute and appoint , attorney, to transfer that part of
--------------------
said Warrant on the books of Conversion Technologies International, Inc.
Dated: Signature:
------------------- -------------------------------
Address:
-------------------------------
Empire Development Letterhead
-----------------------------
July 22, 1997
Mr. Eckardt C Beck
Dunkirk International Glass & Ceramics Corp.
181 Stegelske Avenue
P.O. Box 1202
Dunkirk, New York 14048
Re: Key Bank Note #5 - $1,450,978.98
Key Bank Note #3 - 436,892.17
JDA Loan No. 01-9303050 - 347,287.72
JDA Loan No. 69-9406010 - 74,237.84
Dear Mr. Beck:
This is to confirm that in the event Key Bank declares a default with respect to
the above referenced Key Bank Notes, Empire State Development Corporation/JDA
("ESDC") will execute Option B, under its Loan Guarantee to Key Bank and among
other things, assume the Notes and make regularly scheduled payments on behalf
of Dunkirk and per further request from Dunkirk concerning the above referenced
JDA Project Loans, "ESDC" hereby commits to payment modifications in
consideration of the following terms and conditions:
1. Reduction of Key Bank Note #5 by application of approximately $436,892.17
in Escrow Account Funds to current outstanding principal loan balance.
2. Monthly payment deferral of principal and interest payments for the debt
obligations due to Key Bank (Notes #5 & #3) through January, 1998.
Regularly scheduled payments of Principal and Interest will continue to
accrue and will be due at the end of the current maturity date of each
Note.
3. Borrower to provide access to facilities to allow third-party consultants
to conduct collateral appraisals for the benefit of "ESDC". (This to
include M&E Appraisal and Real Estate Appraisal.) Cost of appraisals to be
the responsibility of Dunkirk International Glass and Ceramics
Corporation. Borrower will also forward copies of all environmental site
reports, at Borrower's expense.
4. Reaffirmation of all existing corporate and personal guarantees and
indemnifications and receipt of updated financial statements and/or
federal tax returns. Borrower will use best reasonable efforts to obtain
reaffirmation of all personal guarantees and indemnifications with respect
to loans.
5. Certified Corporate Resolution that Mr. Chris Beck will remain as
Chairman of the Board and serve as Borrower's chief environmental
officer for at least 3 years. In such capacity, Mr. Beck will
communicate with "ESDC" on a regular basis, at least once a month,
regarding the progress of the Company, including progress reports and
company prepared
<PAGE>
financial reports on sales and reduction in inventory and work-in progress
materials. "ESDC" will retain the right to engage a third-party consultant
to inspect Borrower's facility, the fees and expenses of whom shall be
borne by Dunkirk, provide that any such third-party inspections shall not
occur more than once during any quarter. The departure of Mr. Beck from the
borrower's employment, management function or oversight of environmental
concerns, shall be deemed by "ESDC" an act of default by the Borrower.
Except as modified herein, all other terms, and conditions of the promissory
notes and other loan documents continue to remain in full force and effect.
If you understand and agreed to the terms and conditions set forth above, please
indicate your consent by signing and returning one copy of this agreement.
Very truly yours,
/s/ Wendell Harris
Wendell Harris
Assistant Vice President
Agreed to and Accepted this
29th day of July, 1997
Dunkirk International Glass and Ceramic Corporation
By: /s/Eckardt C. Beck
----------------------------------
Eckardt C. Beck
Acting President
Conversion Technologies International, Inc.
By: /s/Eckardt C. Beck
---------------------------------
Eckardt C. Beck
Acting President and Chairman
/s/ Gerald P. Balcar
- ------------------------------------
Gerald P. Balcar
/s/Margaret A. Gwynne
- ------------------------------------
Margaret A. Gwynne
Key BankLetterhead
------------------
July 30, 1997
Wendell Harris
Assistant Vice-President
Empire State Development Corporation
633 Third Avenue
New York, New York 10017-6754
Re: Dunkirk International Glass and Ceramics Corporation
Guarantee Nos: 9317120 and 9317121
Dear Mr. Harris:
This letter confirms our conversation in which JDA acknowledges receipt of
KeyBank's letters dated July 24, 1997 to JDA and July 23, 1997 to Dunkirk and
hereby waives the need for Demands for Payment and further time periods to cure
permitted under the guarantee agreements. JDA elects to and hereby does honor
its guarantee obligations pursuant to ss. 5.03(B) of the guarantee agreements.
In consideration for the foregoing, KeyBank will refrain from exercising any of
its remedies under the terms of the Loan instruments and will upon commencement
of JDA's performance of its payment obligations simultaneously assign Loan
instruments or any other agreements between Lender and Borrower affecting the
Project collateral.
Please countersign the document further confirming your agreement to same.
Very truly yours
/s/ Donald F. VerHague, Jr.
---------------------------
Donald F. VerHague, Jr.
Vice President
Confirmed by Empire State Development Corporation
f/k/a New York Job Development Authority
BY: /s/ Garry P. Ryan, Controller
- -----------------------------------
Exhibit 11
CONVERSION TECHNOLOGIES INTERNATIONAL, INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF NET (LOSS) PER SHARE
For the years ended June 30, 1997 and June 30, 1996
Year Ended Year Ended
June 30, 1997 June 30, 1996
------------- -------------
Net (loss) before extraordinary item.... $ (12,855,169) $ (4,110,951)
============== ============
Net (loss) as reported ................. $ (12,855,169) $ (4,552,951)
============== ============
Weighted average number of
common shares outstanding ........... 4,773,311 1,559,908
============== ============
Shares used in the computation.......... 4,773,311 1,559,908
============== ============
Net (loss) per common share
before extraordinary item(1) ...... $ (2.69) $ (2.64)
============== ============
Net (loss) as reported per
common share(1) ................... $ (2.69) $ (2.92)
============== ============
(1) Calculations of fully diluted and primary earnings per share are identical.
Dunkirk International Glass and Ceramics Corporation, a corporation formed under
the laws of Delaware.
Advance Particle Technologies, Inc., a corporation formed under the laws of
Delaware.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000923978
<NAME> Conversion Technologies International, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 325,092
<SECURITIES> 0
<RECEIVABLES> 146,225
<ALLOWANCES> 18,000
<INVENTORY> 521,060
<CURRENT-ASSETS> 1,180,902
<PP&E> 8,396,392
<DEPRECIATION> 1,456,610
<TOTAL-ASSETS> 9,436,924
<CURRENT-LIABILITIES> 4,575,456
<BONDS> 10,480,819
0
0
<COMMON> 1,385
<OTHER-SE> (5,963,674)
<TOTAL-LIABILITY-AND-EQUITY> 9,436,924
<SALES> 1,429,008
<TOTAL-REVENUES> 1,429,008
<CGS> 3,952,374
<TOTAL-COSTS> 13,582,667
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,277,310
<INCOME-PRETAX> (12,855,169)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,855,169)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,855,169)
<EPS-PRIMARY> (2.69)
<EPS-DILUTED> (2.69)
</TABLE>
