<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant | |
Check the appropriate box:
|X| Preliminary Proxy Statement
| | Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
| | Definitive Proxy Statement
| | Definitive Additional Materials
| | Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Conversion Technologies International, Inc.
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(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than Registrant)
- --------------------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
| | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
| | Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
| | Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
- --------------------------------------------------------------------------------
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
3452 Lake Lynda Drive
Suite 280
Orlando, Florida 32817
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of Conversion Technologies International, Inc., a Delaware
corporation (the "Company"), will be held at the offices of the Company at 3452
Lake Lynda Drive, Suite 280, Orlando, Florida 32817 on Wednesday, November 19,
1997, at 10:00 a.m. (local time) for the following purposes:
1. to elect directors of the Company to serve until the next Annual
Meeting of Stockholders of the Company and until their successors are
duly elected and qualified;
2. to consider and vote upon a proposal to amend the Restated Certificate
of Incorporation of the Company, as amended, to increase the number of
authorized shares of Common Stock from 25,000,000 shares to 40,000,000
shares (see the Company's Proxy Statement for important information
concerning (i) agreements by certain shareholders to vote FOR this
proposal and (ii) consequences to the Company if this proposal is not
adopted);
3. to consider and vote upon a proposal to amend the Company's 1994 Stock
Option Plan for Non-Employee Directors (the "Plan") to increase the
maximum number of shares of Common Stock available for issuance from
100,000 to 250,000 shares;
4. to ratify the selection of Ernst & Young LLP as auditors for the
Company for the fiscal year ending June 30, 1998; and
5. to transact such other business as may properly come before the
Meeting or any adjournments thereof.
Only stockholders of record at the close of business on October 24, 1997,
are entitled to notice of and to vote at the Meeting.
By Order of the Board of Directors,
William L. Amt President
and Chief Executive Officer
Orlando, Florida
November 5, 1997
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE READ THE
ENCLOSED PROXY STATEMENT AND COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
IN THE ENVELOPE PROVIDED.
<PAGE>
PRELIMINARY PROXY STATEMENT
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
3452 Lake Lynda Drive
Suite 280
Orlando, Florida 32817
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 19, 1997
This Proxy Statement is being mailed to you in connection with the
solicitation of proxies by the Board of Directors (the "Board") of Conversion
Technologies International, Inc., a Delaware corporation (the "Company"), for
use at the Annual Meeting of Stockholders (the "Meeting") of the Company, to be
held on November 19, 1997 at 10:00 a.m. (local time) at the offices of the
Company at 3452 Lake Lynda Drive, Suite 280, Orlando, Florida and at any
adjournments thereof.
SOLICITATION OF PROXIES
All shares represented by duly executed proxies in the form enclosed
herewith that are received by the Company prior to the Meeting will be voted at
the Meeting as instructed in such proxies. There are boxes on the proxy card to
vote for or to withhold authority to vote for the director nominees, and there
are boxes to vote for or against or to abstain on each proposal described in
this Proxy Statement. If no instructions are given, the shares represented by
the proxies will be voted (i) FOR the eight nominees named herein as directors
of the Company, (ii) FOR the proposal to amend the Restated Certificate of
Incorporation of the Company, as amended, to increase the number of authorized
shares of Common Stock from 25,000,000 shares to 40,000,000; (iii) FOR the
proposal to amend the Company's 1994 Stock Option Plan for Non-Employee
Directors (the "Stock Option Plan for Non-Employee Directors") to increase the
maximum number of shares of Common Stock available for issuance from 100,000 to
250,000 shares; (iv) FOR the ratification of the appointment of Ernst & Young
LLP as auditors for the fiscal year ending June 30, 1998, and (v) at the
discretion of the proxy holders on any other matter that may properly come
before the meeting or any adjournment thereof.
A stockholder may revoke a previously executed proxy at any time prior to
its exercise by (i) delivering a later-dated proxy, (ii) giving written notice
of revocation to the Secretary of the Company at the address set forth above at
any time before such proxy is voted or (iii) voting in person at the Meeting. No
proxy will be voted if the stockholder attends the Meeting and elects to vote in
person. If a stockholder does not intend to attend the Meeting, any proxy or
notice should be returned to the Company for receipt by the Company not later
than the close of business on Friday, November 14, 1997.
<PAGE>
A copy of the Company's Annual Report on Form 10-KSB containing financial
statements for the fiscal year ended June 30, 1997 (sometimes referred to herein
as "Fiscal Year 1997"), is enclosed herewith. This Proxy Statement and the form
of proxy enclosed herewith were first mailed to stockholders on or about
November 5, 1997. The mailing address of the Company's principal executive
offices is 3452 Lake Lynda Drive, Suite 280, Orlando, Florida 32817.
The Board does not know of any matter other than as set forth herein that
is expected to be presented for consideration at the Meeting. If other matters
properly come before the Meeting, however, the persons named in the accompanying
proxy (each of whom is an officer of the Company) intend to vote thereon in
accordance with their judgment.
RECORD DATE, OUTSTANDING VOTING
SECURITIES AND VOTES REQUIRED
The record date for determining the holders of Common Stock entitled to
vote on the actions to be taken at the Meeting is the close of business on
October 24, 1997 (the "Record Date"). The Company has two classes of voting
securities outstanding: Common Stock, $0.00025 par value (the "Common Stock"),
and Series A Convertible Preferred Stock, par value $0.001, stated value $10.00
(sometimes referred to herein as the "Convertible Preferred Stock"). Each holder
of the Common Stock on the Record Date is entitled to cast one vote per share
held at the Meeting. The holders of the Convertible Preferred Stock are entitled
to vote together with the holders of the Common Stock and are entitled to the
number of votes equal to the number of shares of Common Stock issuable upon
conversion of the Convertible Preferred Stock as of the Record Date. At the
Record Date, each share of Convertible Preferred Stock was convertible into
eight shares of Common Stock. As of the Record Date, 5,539,745 shares of Common
Stock were outstanding and 414,500 shares of Convertible Preferred Stock were
outstanding. Accordingly, the holders of the shares of Common Stock and
Preferred Stock on the Record Date will be entitled to cast a total of 8,855,745
votes. There are no cumulative voting rights.
Holders of a majority of the shares entitled to vote must be present at the
Meeting, in person or by proxy, so that a quorum may be present for the
transaction of business. The affirmative vote of the holders of a majority of
the shares entitled to vote and present at the Meeting, in person or by proxy,
is necessary for the election of directors of the Company and for the approval
of each proposal described in this Proxy Statement. Broker non-votes will not be
counted as present at the Meeting. Abstentions will be counted as present and,
accordingly, will have the effect of a negate vote.
ELECTION OF DIRECTORS
At the Meeting, eight persons will be elected to serve as directors until
the Company's next Annual Meeting of Stockholders and until their successors
have been duly elected and qualified as provided in the Company's Restated
Certificate of Incorporation and By-Laws. The following persons have been
nominated and, if elected, have consented to serve as directors of the Company.
All nominees are presently members of the Board. Information about each such
nominee is set forth below.
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<PAGE>
William L. Amt, 56, joined the Company in August 1997 as President and
Chief Executive Officer and was appointed to the Board in September 1997. Prior
to joining the Company, Mr. Amt was the President and Chief Executive Officer of
Octagon, a publicly-held company providing radiological control and operations
and maintenance services to utilities and governmental agencies. From 1991 until
joining Octagon in November 1993, Mr. Amt was both the Vice President
International and the Vice President of the Chemicals Business Unit for Ford
Bacon & Davis, Incorporated, a multinational engineering and consulting firm
serving the chemical and hydrocarbon industry. From 1988 to 1991, Mr. Amt was
Director of Marketing and Business Development Manager for Simons Eastern
Consultants, Inc., a major international design and engineering firm. Mr. Amt is
a registered professional engineer and holds a B.S. Degree from Purdue
University.
Eckardt C. Beck, 54, has been a director of the Company since February
1995, Chairman of the Board since February 1997, and served as Acting President
and Chief Executive Officer from June to August 1997. Mr. Beck served as the
Chairman and Chief Executive Officer of Air & Water Technologies Corporation
from October 1987 through June 1994 and as a director from June 1990 through
November 1994. Mr. Beck has served as Chairman and Chief Executive Officer of
other environmental technologies companies prior to 1987. Mr. Beck also served
as the Assistant Administrator of the United States Environmental Protection
Agency in charge of the national water and waste programs and as the Regional
Administrator of EPA Region 2.
Douglas M. Costle, 58, was appointed to the Company's Board of Directors in
October 1997. Mr. Costle has been a director of Niagara Mohawk Power
Corporation, a publicly held utility company, from January 1991 through present.
Mr. Costle is currently a director of several privately held technology
companies and is an Independent Trustee of John Hancock Mutual Funds. Mr. Costle
served as Dean of Vermont Law School from 1987 to 1992 and is a former
Administrator of the U.S. Environmental Protection Agency.
Stephen D. Fish, 51, was appointed to the Company's Board of Directors in
October 1997. Mr. Fish has been President of Fish Enterprises, a privately held
real estate development and management company, from 1970 through present. Mr.
Fish also serves on the Advisory Board of Fleet Bank of Connecticut.
Peter H. Gardner, 31, has been a director of the Company since October
1995. Mr. Gardner is an Investment Officer at Technology Funding Inc., the
Managing General Partner of two investment funds which are stockholders of and
consultants to the Company. See "Security Ownership of Certain Beneficial
Owners, Directors and Management" and "Certain Relationships and Related
Transactions." Mr. Gardner joined Technology Funding Inc. in July 1994. Mr.
Gardner held the position of Project Leader and Project Scientist at Roy F.
Weston, Inc., an environmental engineering firm, from June 1990 through August
1993.
Scott A. Katzmann, 41, has been a director of the Company since October
1994. Mr. Katzmann is a Managing Director and the Head of Capital Markets at
Paramount Capital, Inc. Prior to joining Paramount Capital Inc. in March 1993,
Mr. Katzmann spent over 10 years with
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<PAGE>
The First Boston Corporation, where he specialized in early stage venture
capital financings, leveraged acquisition financings, investment partnerships,
oil and gas transactions, expansion capital financings and project financings.
Prior to that, he was an Investment Officer in the Investment Department of
Aetna Life & Casualty, where he specialized in private placements.
Alexander P. Haig, 45, has been a director of the Company since May 1996.
Since February 1996, Mr. Haig has been President and Chief Operating Officer of
Sky Station International Inc., a telecommunications company. Mr. Haig has
served since 1988 as a principal and legal counsel to Worldwide Associates,
Inc., a business adviser to both U.S. and foreign countries for marketing and
sales activities. Prior to 1988, Mr. Haig was an attorney in private practice.
Irwin M. Rosenthal, 68, was appointed as a director of the Company in May
1996. Mr. Rosenthal is an attorney and since 1960 has specialized in securities
law. He is currently a senior partner at Rubin Baum Levin Constant & Friedman.
From January 1990 to November 1991, Mr. Rosenthal was a senior partner at Baer,
Marks and Upham and prior thereto he was an attorney at various other law firms.
Mr. Rosenthal serves as Secretary and as a director of Magar Inc., a private
investment firm, of which he is a principal stockholder. He is also a director
of Magna-Lab, Inc., a publicly-traded medical technology company, Symbollon
Corporation, a publicly-traded chemical and medical technology company, Life
Medical Sciences, Inc., a public-traded medical technology company, and
Echocath, Inc., a public-traded medical technology company, and is a general
partner of Alliance which is a partnership which invests in companies and may
take on a management role in such companies.
The Board of Directors recommends that Stockholders vote FOR each of the
nominees for Board of Directors.
Meetings of the Board and Committees
- ------------------------------------
During the Fiscal Year 1997, the Board met nine times and acted by written
consent in lieu of a meeting one time. Of the incumbent directors of the Board,
Alexander P. Haig and Irwin M. Rosenthal each attended less than 75% of the
meetings of the Board held during Fiscal Year 1997. The Board of Directors has
established four committees -- the Audit Committee, the Compensation Committee,
the Fairness Committee and the Nominating Committee. The Executive Committee,
which ceased to exist by Board action as of September 29, 1997, formerly had all
of the powers of the Board, subject to limitations provided by the Delaware
General Corporation Law, and was comprised of Harvey Goldman, Scott A. Katzmann
and, after August 1996, Eckardt C. Beck and Peter H. Gardner. The Audit
Committee was comprised of Mr. Gardner and Mr. Katzmann during Fiscal Year 1997.
The Audit Committee oversees the activities of the Company's independent
auditors and reviews the Company's internal accounting procedures and controls.
The Compensation Committee was comprised of Mr. Gardner and Mr. Katzmann during
Fiscal Year 1997. The Compensation Committee makes recommendations to the Board
with respect to general compensation and benefit levels, determines the
compensation and benefits for the Company's executive officers and administers
the Company's stock option and incentive plans. The Nominating Committee makes
recommendations to the Board with
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<PAGE>
respect to candidates to fill vacancies on the Board, recommends an appropriate
slate of candidates for election each year, and reviews senior officer
candidates. Stockholders wishing to nominate director candidates for
consideration may do so by writing to the Nomination Committee at the Company at
3452 Lake Lynda Drive, Suite 280, Orlando, Florida 32817. The Fairness Committee
makes recommendations to the Board with respect to transactions involving
related parties, oversees trading and SEC compliance procedures and addresses
corporate governance issues.
During Fiscal Year 1997, the Compensation Committee did not meet, but acted
by written consent four times; the Executive Committee met twice and acted once
by written consent; and the Audit Committee met twice. The Fairness Committee
and the Nominating Committee were not formed until after Fiscal Year 1997. In
October 1997, the members of the Company's committees were reconstituted as
follows: Audit Committee - Irwin M. Rosenthal and Douglas M. Costle;
Compensation Committee - Peter H. Gardner and Scott Katzmann; Fairness Committee
- - Alexander P. Haig and Stephen D. Fish; and Nominating Committee - Scott A.
Katzmann and Peter H. Gardner.
EXECUTIVE OFFICERS
The following table sets forth the current executive officers of the
Company. See "Election of Directors" for a description of the business
experience of Mr. Amt.
Name Age Position
- ---- --- --------
William L. Amt 56 President and Chief Executive Officer
Jack D. Hays, Jr. 58 Executive Vice President - Operations and
Marketing and Secretary
Richard H. Hughes 54 Vice President - Sales and Marketing
Robert Dejaiffe 60 Vice President - Technology
Jack D. Hays, Jr. joined the Company in July 1997 as Executive Vice
President-Operations and Marketing and Secretary. Prior to joining the Company,
Mr. Hays was a consultant to Octagon. From July 1993 through June 1996, Mr. Hays
was a National Account Executive with the firm of Brown & Root, Inc., an
engineering, construction and environmental consulting firm. From February 1992
through March 1993, Mr. Hays was Executive Vice President of Ford, Bacon &
Davis, an engineering and construction consulting firm. Prior to joining Ford,
Bacon & Davis, Mr. Hays was with PPG Industries, Inc., where he had over 30
years of experience in various operating and management positions. Mr. Hays also
performed consulting services for various entities throughout his career. Mr.
Hays received a B.S. and M.S. in Chemical Engineering from Louisiana State
University and a M.B.A. from the University of Pittsburgh.
Richard H. Hughes joined the Company in July 1997 as Vice President-Sales
and Marketing. Mr. Hughes was a consultant to Octagon. From December 1995
through March
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<PAGE>
1997, Mr. Hughes acted as a consultant on various marketing projects for
companies in the Chemical processing industry from October 1990 through December
1995, Mr. Hughes was Vice President Sales and Marketing with ISE Chemical
Company, a division of Mitsubishi Industries. Mr. Hughes received his B.S. in
Chemistry and Mathematics from the University of Charleston.
Robert Dejaiffe is the Company's Vice President - Technology and has been
Vice President and Technical Director of the Company's wholly-owned subsidiary,
Dunkirk International Glass and Ceramics Corporation ("Dunkirk"), since joining
Dunkirk in July 1992. His career started as an engineer with Corning
Incorporated where he was responsible for the design and construction of several
specialty glass furnaces. Mr. Dejaiffe then became Manager of Research and
Development for the 48 Insulation Division of Foster Wheeler Corporation, where
he developed a new electric furnace design and worked with high temperature
industrial insulations using reduced glass. From 1981 to 1989, he was at Potters
Industries as Manager of Advanced Technology and Manager of Process Development
Engineering, and from October 1989 until joining the Company, he managed a
research and testing facility at Penn State University. He holds several patents
on glass composites, furnace accessories and refractory treatments. Mr. Dejaiffe
received his B.S. in Ceramics Engineering from Penn State University and M.B.A.
from Syracuse University.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS, DIRECTORS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of the Company's Common Stock and Convertible Preferred Stock as of
September 30, 1997 by (i) each person known by the Company to own beneficially
more than 5% of the outstanding Common Stock or Convertible Preferred Stock of
the Company, (ii) each of the Company's directors, (iii) each of the Company's
Named Executive Officers (defined herein), and (iv) all directors and executive
officers of the Company as a group. Holders of the Convertible Preferred Stock
are entitled to the number of votes equal to the number of shares of Common
Stock into which such shares of Convertible Preferred Stock are convertible, and
are entitled to vote together with the holders of the Common Stock. Accordingly,
the information in the table below reflects ownership by the above individuals
of each of the Company's Common Stock assuming the conversion of all outstanding
shares of Convertible Preferred Stock, and the Convertible Preferred Stock
separately. At September 30, 1997 each share of Convertible Preferred Stock was
convertible into eight shares of Common Stock.
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<PAGE>
Percentage
Number of of
Shares Convertible
Beneficially Percentage of Preferred
Name of Beneficial Owner (1) Owned(2) Voting Power(3) Stock(4)
- ---------------------------- ------------ --------------- -----------
Eckardt C. Beck (5).................... 165,171 1.9 2.4
William L. Amt (6)..................... 60,000 * -
Peter H. Gardner (7)................... 743,486 8.2 7.6
Alexander P. Haig (8).................. 9,992 * -
Scott A. Katzmann (9).................. 46,950 * -
Douglas M. Costle ..................... - * -
Stephen D. Fish........................ 160,000 1.8 4.8
Irwin M. Rosenthal (10)................ 5,121 * -
Jack D. Hays, Jr. (11)................. 20,000 * -
Richard H. Hughes (12)................. 15,000 * -
Technology Funding Venture Partners
V, An Aggressive Growth Fund,
L.P. (13)............................ 743,486 8.2 7.6
All officers and directors as a
group(11 persons) (14)............... 1,236,785 14.0 14.8
Harvey Goldman (15).................... 185,964 2.1 -
Perry A. Pappas (16)................... 66,923 * -
The Aries Trust ....................... 528,000 6.0 15.9
Aries Domestic Fund, L.P. ............. 272,000 3.1 8.2
Porter Partners, L.P. ................. 320,000 3.6 9.7
P.A.W. Offshore Fund, Ltd. ............ 400,000 4.5 12.1
J.F. Shea Co., Inc. a Nominee 1977-44.. 240,000 2.7 7.2
Pequot Scot Fund, LP .................. 180,000 2.0 5.4
- -----------
* Less than one percent.
(1) Unless otherwise indicated and subject to applicable community property
laws, each stockholder has sole voting and investment power with respect to
all shares of Common Stock beneficially owned by such stockholder. Unless
otherwise indicated, the address of each stockholder is c/o Conversion
Technologies International, Inc., 3452 Lake Lynda Drive, Suite 280,
Orlando, Florida 32817.
(2) The number of shares beneficially owned by each person named in the table
consists of the number of shares held by each individual of (i) the
Company's Common Stock; (ii) the Company's Preferred Stock, as converted
into Common Stock; and (iii) Common Stock subject to options and warrants
that are presently exercisable or exercisable within 60 days of September
30, 1997.
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(3) Applicable percentage of voting power is based on the 8,855,745 shares of
Common Stock entitled to vote at the Meeting. That number is comprised of
5,539,745 outstanding shares of Common Stock and 3,316,000 shares of Common
Stock issuable upon conversion of 414,500 outstanding shares of Convertible
Preferred Stock. Shares of Common Stock subject to options that are
presently exercisable or exercisable within 60 days are deemed to be
beneficially owned by the person holding such options for the purpose of
computing the percentage of ownership of such person but are not treated as
outstanding for the purpose of computing the percentage of any other
person.
(4) Applicable percentage of ownership is based on 3,316,000 shares of Common
Stock issuable upon conversion of the 414,500 shares of Convertible
Preferred Stock outstanding as of September 30, 1997.
(5) Includes currently exercisable options to purchase 61,338 shares of Common
Stock. Also includes options to purchase 10,000 shares of Common Stock
which are exercisable within 60 days. Excludes options to purchase 240,000
shares of Common Stock which are not exercisable within 60 days. The
address of such stockholder is 6345 NW 26th Terrace, Boca Raton, Florida
33496.
(6) Includes currently exercisable options to purchase 60,000 shares of Common
Stock. Excludes options to purchase 240,000 shares of Common Stock which
are not exercisable within 60 days.
(7) Includes securities beneficially owned by Technology Funding Partners III,
L.P. ("TFP III") and Technology Funding Partners V, An Aggressive Growth
Fund, L.P. ("TFVP V") (as detailed in footnote 13 to this table). Mr.
Gardner is an Investment Officer at Technology Funding, Inc. ("TFI") and
the Managing General Partner of TFP III and TFVP V. Mr. Gardner disclaims
beneficial ownership of all securities of the Company owned by TFP III and
TFVP V. Includes currently exercisable options to purchase 11,338 shares of
Common Stock. Excludes options to purchase 20,000 shares of Common Stock
which are not exercisable within 60 days. The address of such stockholder
is c/o Technology Funding Inc., 2000 Alameda de las Pulgas, San Mateo,
California 94403.
(8) Includes currently exercisable options to purchase 121 shares of Common
Stock. Also includes options to purchase 5,000 shares of Common Stock which
are exercisable within 60 days.
(9) Includes currently exercisable options and warrants to purchase 24,771
shares of Common Stock and 12,179 Escrow Shares beneficially owned by Scott
A. Katzmann. Also includes options to purchase 10,000 shares of Common
Stock which are exercisable within 60 days. Excludes options to purchase
20,000 shares of Common Stock which are not exercisable within 60 days.
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<PAGE>
(10) Includes currently exercisable options to purchase 121 shares of Common
Stock. Also includes options to purchase 5,000 shares of Common Stock which
are exercisable within 60 days.
(11) Includes currently exercisable options to purchase 20,000 shares of Common
Stock. Excludes options to purchase 80,000 shares of Common Stock which are
not exercisable within 60 days.
(12) Includes currently exercisable options to purchase 15,000 shares of Common
Stock. Excludes options to purchase 60,000 shares of Common Stock which are
not exercisable within 60 days.
(13) Includes (i) 207,547 shares of Common Stock, (ii) 7,875 shares of
Convertible Preferred Stock, (iii) warrants, exercisable within 60 days, to
purchase 84,027 shares of Common Stock, (iv) 69,180 shares of Common Stock
and 23,625 shares of Convertible Preferred Stock held by TFP III and (v)
warrants, exercisable within 60 days, to purchase 119,384 shares of Common
Stock held by TFP III. Includes currently exercisable options issued to
Peter Gardner to purchase 11,338 shares of Common Stock. Excludes options
issued to Peter Gardner to purchase 20,000 shares of Common Stock which are
not exercisable within 60 days. Excludes warrants to purchase (i) 2,104
shares of Common Stock held by TFVP V and (ii) 680 shares of Common Stock
held by TFP III, in each case, which are not exercisable within 60 days.
(14) Calculation does not include securities held by Mr. Goldman or Mr. Pappas
who are no longer directors or officers of the Company.
(15) Includes currently exercisable warrants to purchase 5,239 shares of Common
Stock. Mr. Goldman is no longer an officer or director of the Company. (See
"Certain Relationships and Related Transactions Consulting Agreements").
(16) Includes currently exercisable options to purchase 56,923 shares of Common
Stock. Mr. Pappas is no longer an officer of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Employment Agreements
- ---------------------
The Company has entered into employment agreements with William L. Amt, who
became President and Chief Executive Officer in August 1997, Jack D, Hays, Jr.,
who became Executive Vice President - Operations and Marketing and Secretary of
the Company in July 1997, and Richard H. Hughes, who also became Vice President
- - Sales and Marketing of the Company in July 1997. See "MANAGEMENT - Employment
Agreements."
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Consulting Agreements
- ---------------------
In March 1995, the Company entered into a Consulting Agreement with Eckardt
C. Beck. The Consulting Agreement was amended in February and August 1997.
Pursuant to the Consulting Agreement, Mr. Beck has agreed to, among other
things, assist the Company in strategic planning, business development, investor
relations, fund raising and such other activities as shall be reasonably
requested by the Board and within Mr. Beck's areas of expertise. Mr. Beck will
receive a monthly consulting fee of $8,000 pursuant to the Consulting Agreement
until its expiration in August 2000.
In May 1995, the Company entered into a consulting agreement with TFP III
and TFP V (the "TFI Consulting Agreement"). Pursuant to the TFI Consulting
Agreement, the consultants agreed to, among other things, introduce the Company
to strategic partners and potential customers, provide strategic marketing
advice, identify complementary technologies with strategic synergies, and
identify and assist in procuring appropriate media channels for the Company's
products. As compensation for their services, the consultants received warrants
which were amended in May 1996 to become warrants to purchase 69,177 shares of
the Company's common stock, at an exercise price of $5.28 per share. Peter H.
Gardner, a director of the Company, is an Investment Officer at TFI, the
Managing General Partner of TFP III and TFVP V, and serves as TFI's designee on
the Board of Directors.
In July 1995, the Company entered into a Project Development Assistance
Agreement with TFI (the "TFI Assistance Agreement"). Pursuant to the TFI
Assistance Agreement, certain designated principals of TFI will, among other
things, assist the Company in project development efforts both in the United
States and abroad by identifying potential strategic partners, assisting in
obtaining regulatory approvals and providing regulatory guidance and otherwise
facilitating project development activities. The Company will pay to TFI or its
designees a success fee of $75,000 for completed projects and a fee of 7% on any
funds invested in the Company by a strategic partner introduced by TFI (together
with warrants to purchase that number of shares of Common Stock of the Company
as is equal to 5% of the amount invested divided by the Common Stock share
purchase price, at an exercise price equal to 110% of such purchase price). The
term of the TFI Assistance Agreement is one year, subject to renewal, cancelable
by either party upon 30 days' prior written notice.
In June 1997, the Company entered into a Consulting Agreement with Harvey
Goldman, former Vice-Chairman, President and Chief Executive Officer of the
Company, which terminates his prior employment agreement with the Company and
contains mutual releases for claims under such prior agreement. Pursuant to the
Consulting Agreement, Mr. Goldman has agreed to, among other things, assist the
Company in project development, strategic planning and such other activities as
shall be reasonably requested by the Board of Directors and within Mr. Goldman's
areas of expertise. Mr. Goldman is entitled to receive a monthly consulting fee
of $10,000 per month for nine months terminating with the final payment due in
June 1998.
-10-
<PAGE>
Series A Convertible Preferred Stock
- ------------------------------------
On September 5, 1997, the Company closed on the second tranch of a private
placement of the Company's Convertible Preferred Stock. The placement agent for
the private placement (the "Placement Agent") has received an aggregate
placement fee to date of $373,050, which represents 9% of the aggregate gross
proceeds, and an expense allowance of $165,800 which represents 4% of the
aggregate gross proceeds. In addition, upon the closing of the private
placement, the Company will grant to the Placement Agent, and/or its designees,
warrants to purchase Convertible Preferred Stock equal to 110% of the total
number of shares of Convertible Preferred Stock sold in the Private Placement at
an exercise price equal to 10% of the offering price of the Convertible
Preferred Stock. The warrant(s) to be issued upon the closing of the private
placement are exercisable for ten years commencing six months from the final
closing of the private placement. The warrants contain certain antidilution and
registration rights provisions. Scott A. Katzmann, a director of the Company, is
a Managing Director of the Placement Agent.
Prior Preferred Stock Placement
- -------------------------------
Between August 1994 and May 1995, Paramount Capital, Inc. ("Paramount")
acted as placement agent in connection with the private placement of a prior
series of Preferred Stock (the "Old Preferred Shares"). Paramount received
$632,250 in commissions and a non-accountable expense allowance of $281,000 in
consideration of its services as placement agent. In addition, designees of
Paramount received, as additional compensation, warrants to purchase an
aggregate of 281,000 Old Preferred Shares, at an exercise price of $2.75 per
share, exercisable for a period of 10 years following the closing of the
offering. Such warrants were amended and restated in May 1996 to be warrants to
purchase 97,185 shares of Common Stock at an exercise price of $4.84 per share.
In connection with this private placement, until November 1997, Paramount will
be entitled to receive a fee of 13% on any investments received by the Company
from investors or corporate partners (excluding project finance investors) that
were introduced to the Company by Paramount. Scott A. Katzmann, a director of
the Company, is a Managing Director of Paramount.
Lindsay A. Rosenwald, M.D., is the President, Chairman and sole
stockholder, and Peter Kash is a Managing Director, of Paramount. In connection
with the private placement of Old Series A Shares, Dr. Rosenwald and Mr. Kash
received warrants to purchase shares of Old Series A Shares, which currently
represent warrants to purchase 34,353 and 4,788 shares of Common Stock,
respectively.
Bridge Loans
- ------------
In connection with a bridge financing in 1994 (the "1994 Financing"),
designees of Paramount received warrants to purchase an aggregate of 7,307
shares of Common Stock with an initial per share exercise price equal to $13.55.
Such warrants were amended and restated in May 1996 to become exercisable for
20,750 shares of Common Stock at an exercise price of $4.77 per share. Such
warrants include warrants to purchase 10,374 shares of Common Stock
-11-
<PAGE>
issued to Dr. Rosenwald and warrants to purchase 4,671 shares of Common Stock
issued to Mr. Kash.
In September, October and November 1995, the Company borrowed an aggregate
of $650,000 from stockholders of the Company or their affiliates for working
capital. Of such amount, an aggregate of $250,000 was provided by TFP III and
TFVP V, and an aggregate of $200,000 was provided by Aries Domestic Fund, L.P.
and The Aries Trust (collectively, the "Aries Funds"), two funds for which
Paramount Capital Asset Management, Inc. is the general partner and investment
manager, respectively. Dr. Rosenwald is the President and sole stockholder of
Paramount Capital Asset Management, Inc. The principal amount of such loans was
exchanged in December 1995 for $650,000 principal amount of new notes and
warrants to purchase 325,000 shares of Common Stock (which warrants were
exchanged automatically on the closing of the Company's initial public offering
("IPO") for Redeemable Class A Warrants to purchase 325,000 shares of Common
Stock). The notes received by such stockholders were repaid at the closing of
the IPO.
In March 1996, the Company borrowed an aggregate of $200,000 pursuant to
promissory notes bearing interest at the rate of 10% per annum. Of such amount,
Dr. Rosenwald provided $150,000, Scott A. Katzmann and Peter Kash each provided
$18,750 and Harvey Goldman provided $12,500. Such notes were repaid at the
closing of the IPO.
In May 1996, the Company borrowed $200,000 from Dr. Rosenwald pursuant to
promissory notes bearing interest at the rate of 10% per annum, which were
repaid at the closing of the IPO.
In July and August 1997, the Company borrowed an aggregate of $500,000 from
the Aries Funds pursuant to a line of credit agreement (the "1997 Bridge Loan").
The 1997 Bridge Loan bears interest at the rate of 12% per annum and was repaid
in August 1997. In connection with the 1997 Bridge Loan, the Company issued to
the Aries Funds warrants to purchase an aggregate of 100,000 shares of Common
Stock at a per share exercise price equal to $1 5/16. Such warrants expire July
21, 2002 and contain certain antidilution and registration rights provisions. In
August 1997, the Aires Funds purchased 100,000 shares of Convertible Preferred
Stock for $1,000,000.
Issuances of Securities to Executive Officers and Directors
- -----------------------------------------------------------
From the period from inception to December 1995, the Company granted
options to purchase an aggregate of 48,891 shares of Common Stock to executive
officers and directors of the Company with exercise prices ranging from $ 13.55
to $20.53 per share. Such options were repriced in May 1996 to $4.40 per share.
In April 1996, the Company issued non-qualified stock options outside of
the Employee Stock Option Plan, all of which are Escrow Options (defined
herein), to Mr. Goldman, to purchase 50,000 shares of Common Stock. Such options
have an exercise price of $4.40 per share and vest ratably over three years on
an annual basis. Mr. Goldman was also granted
-12-
<PAGE>
options to purchase 40,000 shares of Common Stock in October 1996 at an exercise
price of $4.40. All of Mr. Goldman's options have terminated.
On July 1, 1996, each director received an option to purchase 121 shares of
Common Stock pursuant to an automatic grant under the Company's Stock Option
Plan for Non-Employee Directors. Such options have an exercise price of $5.00
per share and are fully vested.
On October 11, 1996, Mr. Goldman and Mr. Pappas purchased 80,000 and 10,000
shares, respectively, of Common Stock for a purchase price of $.00025 per share,
pursuant to restricted stock grant awards under the 1996 Employee Incentive
Plan. Such shares vest in January 1998.
On October 15, 1996, the Board of Directors granted options to its
non-employee directors pursuant to the Stock Option Plan for Non-Employee
Directors to purchase an aggregate of 50,000 shares of Common Stock. Such
options have an exercise price of $3.125 per share and are fully vested.
On July 1, 1997, Messrs. Hays and Hughes were granted incentive stock
options to purchase 100,000 and 75,000 shares of Common Stock, respectively.
Messrs. Hays and Hughes' stock options have an exercise price of $1.675 per
share. Twenty percent (20%) of such options vested upon issuance and twenty
percent (20%) vest on the first, second, third and fourth anniversary of the
date of issuance.
On July 22, 1997, Messrs. Beck and Pappas were granted non-qualified stock
options to purchase 300,000 and 20,000 shares, respectively, of Common Stock at
an exercise price of $1.375. Mr. Beck's options vest twenty percent (20%) at
issuance and twenty percent (20%) on the first, second, third and fourth
anniversary of the date of issuance. Mr. Pappas' options were vested upon
issuance.
On August 1, 1997, Mr. Amt was granted a non-qualified stock option to
purchase 300,000 shares of Common Stock at an exercise price of $1.375. Twenty
percent (20%) vest on the first, second, third and fourth anniversary of the
date of issuance.
On August 29, 1997, Mr. Fish purchased 20,000 shares of Convertible
Preferred Stock for $200,000, and on September 5, 1997, Mr. Beck purchased
10,000 shares of Convertible Preferred Stock for $100,000.
Board Designee and Other TFI Covenants
- --------------------------------------
The Company, TFP III and TFVP V entered into a Series A Preferred Stock
Purchase Agreement in May 1995 with respect to the Old Preferred Shares. The
agreement, as amended in December 1995, provides that the Company will (i) use
its best efforts to nominate a designee of TFI to the Board of Directors and
(ii) sell shares of stock and grant options to employees, officers, directors
and consultants only pursuant to Board approved plans and agreements containing
three-year vesting provisions (except in the case of sales of stock or grants of
options to new employees where the Board determines otherwise for valid business
reasons). Such covenants terminate upon the earlier of (a) May 1999 and (b) such
time as TFP III and TFVP V
-13-
<PAGE>
cease to hold approximately 18,270 shares of Common Stock in the aggregate. At
September 30, 1997, TFP III and TFVP V collectively hold 276,727 shares of
Common Stock, 31,500 shares of Convertible Preferred and warrants to purchase an
additional 69,171 shares of Common Stock.
Escrow Securities
- -----------------
In connection with the IPO, 740,559 shares of Common Stock (the "Escrow
Shares") and options to purchase an aggregate of 71,923 shares of Common Stock
(the "Escrow Options"), of which options to purchase 50,000 shares of Common
Stock have been canceled, were deposited into escrow by the holders thereof. The
Escrow Shares include shares held by Harvey Goldman (100,725) and Scott A.
Katzmann (12,179 shares). The Escrow Securities are not assignable or
transferable. The holders thereof have the power to vote the Escrow Shares while
such shares are held in escrow. Holders of any options in escrow may exercise
their options prior to their release from escrow; however, the shares issuable
upon any such exercise will continue to be held in escrow as Escrow Shares. The
Escrow Securities will be released from escrow, on a pro rata basis, if, and
only if, one or more of the following conditions is/are met: (a) the Company's
net income before provision for income taxes and exclusive of any extraordinary
earnings or charges which would result from the release of the Escrow Securities
(all as audited by the Company's independent public accountants) (the "Minimum
Pretax Income") amounts to at least $4.7 million for the fiscal year ending June
30, 1998; (b) the Minimum Pretax Income amounts to at least $7.0 million for the
fiscal year ending June 30, 1999; (c) the Minimum Pretax Income amounts to at
least $9.3 million for the fiscal year ending June 30, 2000; (d) the Closing
Price (as defined) of the Company Common Stock averages in excess of $11.25 per
share for 60 consecutive business days during the 18-month period commencing on
May 16, 1996; (e) the Closing Price of the Company Common Stock averages in
excess of $15.00 per share for 60 consecutive business days during the 18-month
period commencing 18 months from May 16, 1996; or (f) during the periods
specified in (d) or (e) above, the Company is acquired by or merged into another
entity in a transaction in which the value of the per share consideration
received by the stockholders of the Company on the date of such transaction or
at any time during the applicable period set forth in (d) or (e), respectively,
equals or exceeds the applicable levels set forth in (d) or (e), respectively.
The Minimum Pretax Income amounts set forth above are those originally
established at the time of the IPO. Such Minimum Pretax Income amounts will be
increased as a result of the issuance of the Preferred Stock offered hereby.
The Minimum Pretax Income amounts shall (i) be calculated exclusive of any
extraordinary earnings or any charges to income resulting from release of the
Escrow Securities and (ii) be increased proportionately, with certain
limitations, in the event additional shares of the Common Stock or securities
convertible into, exchangeable for or exercisable into the Common Stock are
issued. The Closing Price amounts set forth above are subject to adjustment in
the event of any stock splits, reverse stock splits or other similar events.
Any money, securities, rights or property distributed in respect of the
Escrow Securities, including any property distributed as dividends or pursuant
to any stock split, merger,
-14-
<PAGE>
recapitalization, dissolution or total or partial liquidation of the Company,
shall be held in escrow until release of the Escrow Securities. If none of the
applicable Minimum Pretax Income or Closing Price levels set forth above have
been met by October 15, 2000, the Escrow Securities, as well as any dividends or
other distributions made with respect thereto, will be canceled and contributed
to the capital of the Company. The Company expects that the release of any
Escrow Securities to officers, directors, employees and consultants of the
Company will be deemed compensatory and, accordingly, will result in a charge to
reportable earnings, which would equal the fair market value of such shares on
the date of release. Such charge could increase the loss or reduce or eliminate
the Company's net income for financial reporting purposes for the period(s)
during which such shares are, or become probable of being, released from escrow.
Although the amount of compensation expense recognized by the Company will not
affect the Company's total stockholders' equity, it may have a negative effect
on the market price of the Company's securities.
The Minimum Pretax Income and Closing Price levels set forth above were
determined by negotiation between the Company and D.H. Blair Investment Banking
Corp., the underwriter of the IPO, and should not be construed to imply or
predict any future earnings by the Company or any increase in the market price
of its securities.
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation earned by
Eckardt C. Beck, the Company's Chairman who served as Acting Chief Executive
Officer from June 1997 to August 1997, Harvey Goldman, the Company's former
Vice-Chairman, President and Chief Executive Officer, and Perry A. Pappas, the
Company's former Vice President and General Counsel (collectively, the "Named
Executive Officers") for services rendered in all capacities to the Company
during the Company's fiscal years ended June 30, 1995, 1996 and 1997. No other
executive officer of the Company received salary and bonus compensation in
excess of $100,000 during Fiscal Year 1997. William L. Amt, the Company's
current President and Chief Executive Officer and Jack D. Hays, Jr., the
Company's current Executive Vice President - Operations and Marketing and
Secretary are not included below because their employment began after Fiscal
Year 1997.
<TABLE>
Summary Compensation Table
<CAPTION>
Annual
Compensation Long-Term Compensation
------------ ----------------------
Restricted Securities
Stock Underlying
Name and Principal Position Year Salary($) Awards($) Options/SARs(#)
- -------------------------------------------------------------- ---- ---------- ---------- ----------------
<S> <C> <C> <C> <C>
Eckardt C. Beck .............................................. 1997 $ 48,000(1) 10,121(2)
Chairman and Acting President and Chief Executive Officer from 1996 $ 12,000 1,217
June 1997 to August 1997 ..................................... 1995
Harvey Goldman ............................................... 1997 $168,750(3) $260,000(4) 40,000(5)
Former Vice - Chairman, President and Chief Executive Officer 1996 $180,000 50,000(6)
1995 $180,000
Perry A. Pappas .............................................. 1997 $119,790 $ 32,500(7) 15,000(8)
Former Vice President, General Counsel and Secretary 1996 $104,167 21,923
1995
-15-
<PAGE>
- -----------
<FN>
(1) Mr. Beck became Chairman in February 1997 and served as Acting President
and Chief Executive Officer from June 1997 to August 1997. Compensation
represents consulting fees pursuant to his Consulting Agreement with the
Company. See "Certain Relationships and Related Transactions." Mr. Beck
currently receives $8,000 per month under the Consulting Agreement.
(2) Granted in July and October 1996 pursuant to the Company's Non-Employee
Director Stock Option Plan. All options vest one year from grant date.
(3) Mr. Goldman ceased being an officer of the Company in June 1997. He is
currently a Consultant to the Company and receives $10,000 per month under
such Consulting Agreement through June 1998. See "Certain Relationships and
Related Transactions."
(4) Granted in October 1996 pursuant to the Company's Long-Term Employee
Incentive Plan. The shares vest in January 1998 and had a market value of
$130,000 on June 30, 1997. The shares are entitled to receive dividends if
and when declared by the Company. Mr. Goldman does not hold any other
restricted stock in the Company.
(5) Incentive Stock Options granted in October 1996 pursuant to the Company's
Employee Stock Option Plan. The options have terminated.
(6) Non-qualified stock options granted in April 1996. The options have
terminated.
(7) Granted in October 1996 pursuant to the Company's Long-Term Employee
Incentive Plan. The shares vest in January 1998 and had a market value of
$16,250 on June 30, 1997. The shares are entitled to receive dividends if
and when declared by the Company. Mr. Pappas does not hold any other
restricted stock in the Company.
(8) Incentive Stock Options granted in October 1996 pursuant to the Company's
Employee Stock Option Plan. The options have an exercise price of $4.40 per
share and are fully vested.
</FN>
</TABLE>
-16-
<PAGE>
Option Grants in Fiscal Year 1997
- ---------------------------------
The following table sets forth the number of individual stock option grants
made to each Named Executive Officer during Fiscal Year 1997.
<TABLE>
<CAPTION>
Number of Percent of Total
Securities Options/SARS
Underlying Granted to Exercise or
Options/SARs Employees in Base Price
Name Granted(#) Fiscal Year(1) ($/sh) Expiration Date
- ------------------------- ------------ ---------------- ----------- ---------------
<S> <C> <C> <C> <C>
Eckardt C. Beck.......... 121(2) * $4.40 7/1/06
10,000(3) 5.1% $5.00 10/15/06
Harvey Goldman........... 40,000(4) 20.5% $4.40
Perry A. Pappas.......... 15,000(5) 7.7% $4.40 7/23/03
- -----------
<FN>
(1) The Company granted options to purchase an aggregate of 155,347 shares of
Common Stock during Fiscal Year 1997.
(2) Granted on July 1, 1996 pursuant to the Company's Stock Option Plan for
Non-Employee Directors. These options vested on July 1, 1997.
(3) Granted on October 15, 1996 pursuant to the Company's Stock Option Plan for
Non-Employee Directors. These options vested on October 15, 1997.
(4) Non-qualified Options granted outside of the Company's Employee Stock
Option Plan. Mr. Goldman's options have terminated.
(5) Incentive Stock Options granted pursuant to the Company's Employee Stock
Option Plan. All options were vested in July 1997.
</FN>
</TABLE>
Aggregated Options/SAR Exercises in Last Fiscal Year and Year End Option Values
- -------------------------------------------------------------------------------
The following table sets forth the aggregate value of unexercised options
to acquire shares of the Company's Common Stock by the Named Executive Officers
exercised during Fiscal Year 1997. None of the Named Executive Officers
exercised options during Fiscal year 1997.
-17-
<PAGE>
<TABLE>
<CAPTION>
Number of
Unexercised Value of Unexercised In-the
Options at FY- Money Options at FY-
End(#) End($)(1)
------------------- ----------------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- ----------------------------------------- ------------------- ----------------------------
<S> <C> <C>
Eckardt C. Beck.......................... 1,338/10,000 $0/$0
Harvey Goldman........................... 0/0 $0/$0
Perry A. Pappas.......................... 7,308/29,615 $0/$0
<FN>
(1) Calculated based on the difference between the exercise price and the price
of a share of the Company's Common Stock on June 30, 1997. As of June 30,
1997, the exercise prices of each of the options held by the Named
Executive Officers exceeded the price of a share of the Company's Common
Stock.
</FN>
</TABLE>
Compensation of Directors
- -------------------------
In Fiscal Year 1997, Directors who were full-time employees of the Company
received no cash compensation for services rendered as members of the Board or
committees thereof. Directors who were not full-time employees of the Company
received reimbursement of out-of-pocket expenses for attendance at Board
meetings. The Company maintains a Stock Option Plan for Non-Employee Directors,
pursuant to which options to purchase an aggregate of 50,847 shares of Common
Stock were issued during Fiscal Year 1997. Such options vest one year from the
date of grant and contain exercise prices of between $3.125 and $5.00 per share.
Non-Employee directors receive no other compensation for their services as
directors.
The Company entered into a Consulting Agreement with Eckardt C. Beck in
March 1995, which was amended in February 1997 and August 1997. Pursuant to the
Consulting Agreement, Mr. Beck has agreed to, among other things, assist the
Company in strategic planning, business development, investor relations, fund
raising and such other activities as shall be reasonably requested by the Board
and within Mr. Beck's areas of expertise. Mr. Beck will receive a monthly salary
of $8,000 pursuant to the Consulting Agreement until its expiration in August
2000.
Employment Contracts and Employment Termination Arrangements
- ------------------------------------------------------------
William L. Amt is employed with the Company under a one-year employment
agreement, which provides for automatic one-year renewal options unless contrary
written notice is given by either party. Under the terms of the employment
agreement, which includes confidentiality and non-competition provisions, Mr.
Amt receives an annual salary of $160,000,
-18-
<PAGE>
subject to increase at the discretion of the Board of Directors. Mr. Amt will
not receive an annual bonus or an incentive bonus, except as may be provided by
the Board of Directors. Both the Company and Mr. Amt may terminate the
employment agreement at any time by providing written notice to the other party.
If the termination is initiated by the Company without cause, Mr. Amt is
entitled to receive severance in the amount of one years' salary. Mr. Amt has
also been granted incentive stock options to purchase 300,000 shares of Common
Stock at an exercise price of $1.375 per share. Twenty percent (20%) of such
options were vested immediately and twenty percent (20%) of such options will
vest on the first, second, third and fourth anniversary of the date of issuance.
Jack D. Hays, Jr. is employed with the Company under a one-year employment
agreement, which provides for automatic one-year renewal options unless contrary
written notice is given by either party. Under the terms of the employment
agreement, which includes confidentiality and non-competition provisions, Mr.
Hays receives an annual salary of $125,000, subject to increase at the
discretion of the Board of Directors. Mr. Hays will not receive an annual bonus
or an incentive bonus, except as may be provided by the Board of Directors. Both
the Company and Mr. Hays may terminate the employment agreement at any time by
providing written notice to the other party. If the termination is initiated by
the Company without cause, Mr. Hays is entitled to receive severance in the
amount of one years' salary. Mr. Hays has also been granted incentive stock
options to purchase 100,000 shares of Common Stock at an exercise price of $1
5/8 per share. Twenty percent (20%) of such options were vested upon issuance
and twenty percent (20%) of such options vest on the first, second, third and
fourth anniversary of the date of issuance.
Richard H. Hughes is employed with the Company under a one-year employment
agreement, which provides for automatic one-year renewal options unless contrary
written notice is given by either party. Under the terms of the employment
agreement, which includes confidentiality and non-competition provisions, Mr.
Hughes receives an annual salary of $90,000, subject to increase at the
discretion of the Board of Directors. Mr. Hughes will not receive an annual
bonus or an incentive bonus, except as may be provided by the Board of
Directors. Both the Company and Mr. Hughes may terminate the employment
agreement at any time by providing written notice to the other party. If the
termination is initiated by the Company without cause, Mr. Hughes is entitled to
receive severance in the amount of one years' salary. Mr. Hays has also been
granted incentive stock options to purchase 75,000 shares of Common Stock at an
exercise price of $1 5/8 per share. Twenty percent (20%) of such options were
vested upon issuance and twenty percent (20%) of such options vest on the first,
second, third and fourth anniversary of the date of issuance.
In June 1997, the Company entered into a Consulting Agreement with Harvey
Goldman, former Vice-Chairman, President and Chief Executive Officer of the
Company, which terminates his prior employment agreement with the Company and
contains mutual releases for any claims under such prior agreement. Mr. Goldman
is entitled to receive a monthly consulting fee of $10,000 pursuant to the
Consulting Agreement through June 1998. In the event that the Company fails to
pay the consideration due under the Consulting Agreement, Mr. Goldman retains
all rights that he had under his prior agreement with respect to termination.
-19-
<PAGE>
PROPOSAL TO AMEND THE RESTATED
CERTIFICATE OF INCORPORATION
Stockholders are being asked to consider and vote upon a proposal to amend
the Restated Certificate of Incorporation of the Company, as amended, to
increase the number of authorized shares of Common Stock from 25,000,000 to
40,000,000 to, among other things, reserve additional shares of Common Stock to
provide for the conversion of the Convertible Preferred Stock (see "Certain
Relationships and Related Transactions - Series A Convertible Preferred Stock").
In connection with the Company's Private Placement of Convertible Preferred
Stock, the Company has agreed to issue to the holders of the Convertible
Preferred Stock additional shares of such stock, equal to 0.25% of the shares of
Convertible Preferred Stock then held by each holder, for each day the Company
fails to authorize and reserve a sufficient number of shares of Common Stock to
permit conversion in full of all shares of Convertible Preferred Stock following
the 180th day after the final closing of the Private Placement. Such additional
issuances would have a substantial dilutive effect to the holders of the
Company's Common Stock. The final closing of the Private Placement has not yet
occurred. An affirmative vote of the majority of Stockholders constituting a
quorum is required to amend the Restated Certificate of Incorporation to
increase the number of authorized shares of Common Stock. The holders of the
Convertible Preferred Stock, who collectively have the power to vote 3,316,000
shares of Common Stock, or 37.5% of the voting stock, have agreed to vote FOR
this proposal to increase the number of authorized shares of Common Stock.
Stockholders are being asked to consider and vote upon this proposal to
increase the number of authorized shares of Common Stock also to: (i) reserve
additional shares of Common Stock for issuance upon the exercise of stock
options granted under the Company's 1994 Employee Stock Option Plan and Stock
Option Plan for Non-Employee Directors; (ii) provide the Company with additional
shares to issue under its 1996 Long-Term Employee Incentive Plan and (iii)
provide the Company flexibility to undertake future financings or negotiate
potential acquisition or partnering transactions although the Company has no
definitive agreements relating to such transactions. The Board of Directors does
not intend to solicit shareholder authorization for the issuance of such
additional shares of Common Stock, unless required by applicable law or the
requirements of Nasdaq. Of the 25,000,000 shares of Common Stock currently
authorized, as of September 30, 1997, 5,539,745 shares were issued and
outstanding and approximately 21,610,706 shares are subject to issuance upon the
exercise outstanding options and warrants and the conversion of outstanding
Convertible Preferred Stock.
In the event this proposal to amend the Restated Certificate of
Incorporation of the Company, as amended, is not approved by the Stockholders,
the Convertible Preferred Stock will continue to be outstanding.
The rights of the Company's Stockholders will be affected by the increase
in the number of shares of authorized Common Stock to the extent of the
potential ownership dilution of the Company. Holders of Common Stock are not
entitled to appraisal rights under the Delaware General Corporation Law for this
proposal.
-20-
<PAGE>
The Board Of Directors has approved and recommends a vote FOR the proposal
to amend the Restated Certificate Of Incorporation, as amended.
PROPOSAL TO AMEND THE COMPANY'S
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
General
- -------
In June 1994, the Board of Directors adopted, and in April 1995 the
stockholders of the Company approved, the Company's Stock Option Plan for
Non-Employee Directors. The purpose of the Stock Option Plan for Non-Employee
Directors is to attract and retain the services of experienced and knowledgeable
independent directors of the Company for the benefit of the Company and its
stockholders and to provide additional incentive for such directors to continue
to work for the best interests of the Company and its stockholders through
continuing ownership of Common Stock. The total number of shares which may be
issued upon exercise of options granted pursuant to the Stock Option Plan for
Non-Employee Directors is 100,000 shares.
The Stock Option Plan for Non-Employee Directors is administered by the
Board. Subject to the terms of the Stock Option Plan for Non-Employee Directors,
the Board has the sole authority to determine questions arising under, and to
adopt rules for the administration of, the Stock Option Plan for Non-Employee
Directors.
Directors of the Company who are not, and who have not been during the
immediately preceding 12-month period, employees of the Company or any
subsidiary of the Company (a "Non-Employee Director") are automatically
participants in the Stock Option Plan for Non-Employee Directors.
On October 15, 1996, the Board amended the Stock Option Plan for
Non-Employee Directors to provide that grants of options to eligible directors
shall be on a discretionary, rather than automatic basis. The price of shares
that may be purchased upon exercise of an option is the fair market value of the
Common Stock on the date of grant, as evidenced by the average of the high and
low sales paces of Common Stock on such date as reported on the Nasdaq SmallCap
Market or the closing price, if applicable, or the average of the last bid and
asked prices on the date of the grant as reported on the Nasdaq SmallCap Market.
If there is no public trading market for such shares, the fair value of such
shares shall be determined in good faith by the Board. Options may not be
assigned or transferred except by will or by operation of the laws of descent
and distribution. The Stock Option Plan for Non-Employee Directors may be
terminated at any time by the Board, but such action will not affect options
previously granted pursuant thereto. Options granted under the Stock Option Plan
for Non-Employee Directors vest one year after grant date and expire ten years
after grant date.
In the event of a Change in Control of the Company (as defined below), an
option granted to a Non-Employee Director will become fully exercisable if,
within one year of such Change in Control, such Non-Employee Director ceases for
any reason to be a member of the Board. A Change in Control will be deemed to
have occurred if (a) there is consummated any consolidation or merger of the
Company in which the Company is not the continuing or
-21-
<PAGE>
surviving corporation or any sale of all, or substantially all, of the assets of
the Company; (b) the stockholders approve any plan or proposal for the
liquidation or dissolution of the Company; (c) any person or entity becomes the
beneficial owner of 50% or more of the outstanding Common Stock; or (d) during
any period of two consecutive years, individuals who at the beginning of such
period constitute the entire Board cease for any reason to constitute a majority
thereof unless the election, or the nomination for election by the Company's
stockholders, of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of the
period. Any exercise of an option permitted in the event of a Change of Control
must be made within 180 days of the relevant Non-Employee Director's termination
as a director of the Company.
Previously Granted Options Under the Stock Option Plan for Non-Employee
Directors
- --------------------------------------------------------------------------------
As of September 30, 1997, the Company had granted options to purchase an
aggregate of 98,300 shares of Common Stock under the Stock Option Plan for
Non-Employee Directors. The following table sets forth the options granted under
such plan to all current directors, each of whom has been nominated for
re-election, and all such directors as a group. At September 30, 1997, the only
other Options granted under the Stock Option Plan for Non-Employee Directors
were to former directors none of whom has been nominated for re-election.
<TABLE>
<CAPTION>
Weighted Average
Name Options Granted Exercise Price
- ---- --------------- -- --------------
<S> <C> <C>
Eckardt C. Beck.................. 11,338 $3.28
Peter H. Gardner................. 31,338 2.38
Alexander P. Haig................ 5,121 3.17
Scott A. Katzmann................ 31,338 2.38
Irwin M. Rosenthal............... 5,121 3.17
All current directors............ 84,256 2.60
</TABLE>
At September 30, 1997, the market value of the Company's Common Stock was
$1.625.
Tax Consequences
- ----------------
The options to be issued under the Stock Option Plan for Non-Employee
Directors will receive no special tax treatment, but are instead taxed pursuant
to Section 83 of the Code. Under the provisions of that Section and the related
regulations, if an option is granted to an employee or director in connection
with the performance of services and the option itself has a "readily
ascertainable fair market value" at the time of the grant, the employee or
director will be deemed to have received compensation income in the year of
grant in an amount equal to the excess of the fair market value of the option at
the time of grant over the amount, if any, paid by the
-22-
<PAGE>
optionee for the option. However, an option generally has "readily ascertainable
fair market value" only when the option is actively traded on an established
market and/or when certain requirements are met.
If the option does not have a readily ascertainable fair market value at
the time of the grant, the option is not included as compensation income at the
time of grant. Rather, the optionee realizes compensation income only when the
option is exercised, and the optionee has become substantially vested in the
shares transferred. The shares are considered to be substantially vested when
they are either transferable or not subject to a substantial risk of forfeiture.
The amount of income realized is equal to the excess of the fair market value of
the shares at the time the shares become substantially vested over the sum of
the exercise price plus the amount, if any, paid by the optionee for the option.
If an option is exercised through payment of the exercise price by the
delivery of Common Stock, to the extent that the number of shares received by
the optionee exceeds the number of shares surrendered, ordinary income will be
realized by the optionee at that time only in the amount of the fair market
value of such excess shares, and the tax basis of such excess shares will be
such fair market value.
Generally, the optionee's basis in the shares will be the exercise price
plus the compensation income realized at the time of grant or exercise,
whichever is applicable, and the amount, if any, paid by the optionee for the
option. In the compensatory option context, the optionee's basis in the shares
will generally be equal to the exercise price of the option plus the amount of
compensation income realized by the optionee plus the amount, if any, paid by
the optionee for the option. The capital gain or loss will be short-term if the
shares are disposed of within one year after the option is exercised, and
long-term if the shares are disposed of more than one year after the option is
exercised. If the shares are disposed of more than 18 months after the option is
exercised, the optionee should qualify for a further reduction in the applicable
tax rate for long-term capital gains.
If an option is taxed at the time of grant and expires or lapses without
being exercised, it is treated in the same manner as the lapse of an investment
option. The lapse is deemed to be a sale or exchange of the option on the day
the option expires and the amount of income realized is zero. The optionee
recognizes a capital loss in the amount of the optionee's basis (compensation
income realized at the time of the grant plus the amount, if any, paid by the
optionee for the option) in the option at the time of the lapse. The loss is
short-term or long-term, depending on the optionee's holding period in the
option.
If an option is not taxed at the time of grant and expires without being
exercised, the optionee will have no tax consequences unless the optionee paid
for the option. In such case, the optionee would recognize a loss in the amount
of the price paid by the optionee for the option.
The Company is generally entitled to a deductible compensation expense in
an amount equivalent to the amount included as compensation income to the
optionee. This deduction is allowed in the Company's taxable year in which the
income is included as compensation to the optionee.
-23-
<PAGE>
The preceding discussion is based upon federal tax laws and regulations in
effect on the date of this Proxy Statement, which are subject to change, and
upon an interpretation of the relevant sections of the Code, their legislative
histories and the income tax regulations which interpret similar provisions of
the Code. Optionees may also be subject to state and local taxes in connection
with the grant or exercise of options granted under the Stock Option Plan for
Non-Employee Directors and the sale or other disposition of shares acquired upon
exercise of the options. Each employee receiving a grant of options should
consult with his or her personal tax advisor regarding federal, state and local
tax consequences of participating in the Stock Option Plan for Non-Employee
Directors.
Proposed Amendment
- ------------------
As of September 30, 1997, the Company had options to purchase an aggregate
of 98,330 shares of Common Stock outstanding under the Stock Option Plan for
Non-Employee Directors, all of which had exercise prices ranging from $1.875 to
$5.00. By this proposal, the Company seeks to increase the number of shares
available for issuance under the Stock Option Plan for Non-Employee Directors
from 100,000 to 250,000 shares.
This proposal is not required to be submitted to security holders to be
adopted by the Company. However, the NASD has adopted new corporate governance
rules for Nasdaq SmallCap issuers which will soon require proposals similar to
this proposal to be submitted for stockholder approval. Accordingly, the Company
is voluntarily seeking stockholder approval for this proposal in anticipation of
the new requirements. The Board believes that this amendment provides an
important inducement to recruit and retain experienced and knowledgeable
independent directors for the benefit of the Company and its stockholders. If
this proposal is not adopted by the stockholders, the Company will not amend the
Stock Option Plan for Non-Employee Directors and would be forced to seek other
alternatives, which may or may not be available, to effectively recruit and
retain qualified directors.
The Board Of Directors unanimously recommends a vote FOR the approval of
the Amendment.
PROPOSAL TO RATIFY THE SELECTION OF AUDITORS
The Board has selected the firm of Ernst & Young LLP to serve as
independent auditors for the Company for the fiscal year ending June 30, 1998.
Ernst & Young LLP has served as the Company's auditors since 1994. It is
expected that a representative of Ernst & Young LLP will be present at the
Meeting and will be available to make a statement (if he or she desires to do
so) and to respond to appropriate questions at the Meeting. If the stockholders
do not ratify the selection of Ernst & Young LLP, the Board may consider
selection of other independent auditors, but no assurances can be made that the
Board will do so or that any other independent auditors would be willing to
serve. The vote of a majority of the shares of Common Stock represented in
person or by proxy at the Meeting is required to ratify the selection of
auditors.
The Board unanimously recommends a vote FOR ratification of this selection.
-24-
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors and persons who are beneficial owners of ten percent or more of the
Company's Common Stock to file reports of ownership and changes in ownership of
the Company's securities with the Securities and Exchange Commission. Such
officers, directors and beneficial owners are required by applicable regulations
to provide to the Company copies of all forms they file under Section 16(a).
Based solely upon a review of the copies of forms furnished to the Company,
and written representations from certain reporting persons, the Company believes
that during the fiscal year ended June 30, 1997, all filing requirements
applicable to its officers, directors and ten percent beneficial owners were
complied with except that Donald R. Kendall, Jr., a former director of the
Company, filed a Form 5 on August 25, 1997 which was required to be filed on
August 14, 1997.
STOCKHOLDER PROPOSALS
It is presently contemplated that the 1998 Annual Meeting of Stockholders
will be held on or about November 1, 1998. Proposals by stockholders intended
for inclusion in the proxy statement to be furnished to all stockholders
entitled to vote at the next annual meeting of the Company must be received at
the Company's principal executive offices not later than June 30, 1998. In order
to curtail controversy as to the date on which a proposal was received by the
Company, it is suggested that proponents submit their proposals by certified
mail, return receipt requested. Any such proposal must also meet the other
requirements of the rules of the Securities and Exchange Commission relating to
stockholder proposals.
EXPENSES AND SOLICITATION
The Company will bear the cost of soliciting proxies, including expenses in
connection with the preparation and mailing of this Proxy Statement and all
papers which now accompany or may hereafter supplement it. solicitation of
proxies will be primarily by mail. However, proxies may also be solicited by
directors, officers and regular employees of the Company (who will not be
specifically compensated for such services) by telephone or otherwise. Brokerage
houses and other custodians, nominees and fiduciaries will be requested to
forward proxies and proxy material to the beneficial owners of Common Stock, and
the Company will reimburse them for their expenses.
-25-
<PAGE>
The Company will provide without charge to each person being solicited by
this Proxy Statement, upon written request, a copy of the Company's Annual
Report on Form 10-KSB for the fiscal year ended June 30, 1997, filed with the
Securities and Exchange Commission. All such requests should be directed to,
Conversion Technologies International, Inc., 3452 Lake Lynda Drive, Suite 280,
Orlando, Florida 32817.
By Order of the Board of Directors
Eckardt C. Beck
Chairman of the Board
Orlando, Florida
October [[DAY]], 1997
-26-
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby constitutes and appoints Richard H. Hughes and Jack
D. Hays, Jr., and each of them, his or her true and lawful agent and proxy with
full power of substitution in each, to represent and to vote on behalf of the
undersigned all of the shares of Conversion Technologies International, Inc.
(the "Company") which the undersigned is entitled to vote at the Annual Meeting
of Stockholders of the Company to be held at 10:00 A.M., local time, on November
19, 1997 at the Company at 3452 Lake Lynda Drive, Suite 280, Orlando, Florida
32817 and at any adjournment or adjournments thereof, upon the following
proposals more fully described in the Notice of Annual Meeting of Stockholders
and Proxy Statement for the Meeting (receipt of which is hereby acknowledged).
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted FOR proposals 1, 2, 3 and 4.
1. ELECTION OF DIRECTORS.
Nominees: William L. Amt, Eckardt C. Beck, Douglas M. Costle., Scott
A. Katzmann, Peter H. Gardner, Alexander P. Haig, Stephen
D. Fish, and Irwin M. Rosenthal.
(Mark one only)
VOTE FOR all the nominees listed above; except vote withheld from the following
nominees (if any).
---------
- --------------------------------------------------------------------------------
VOTE WITHHELD from all nominees.
---------
2. APPROVAL OF PROPOSAL TO AMEND THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FROM
25,000,000 TO 40,000,000 SHARES.
FOR AGAINST ABSTAIN
------ ------ ------
3. APPROVAL FOR PROPOSAL TO AMEND THE COMPANY'S 1994 STOCK OPTION PLAN FOR
NON-EMPLOYEE DIRECTORS (THE "PLAN") TO INCREASE THE MAXIMUM NUMBER OF SHARES OF
COMMON STOCK AVAILABLE FOR ISSUANCE UNDER THE PLAN FROM 100,000 TO 250,000
SHARES.
FOR AGAINST ABSTAIN
------ ------ ------
(continued and to be signed on reverse side)
<PAGE>
4. APPROVAL OF PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE
INDEPENDENT AUDITORS OF THE COMPANY FOR THE YEAR ENDING JUNE 30, 1998.
FOR AGAINST ABSTAIN
------ ------ ------
5. In his discretion, the proxy is authorized to vote upon other matters as may
properly come before the Meeting.
Dated: This proxy must be signed
------------------------ exactly as the name appears
hereon. When shares are held
by joint tenants, both should
- ------------------------------ sign. If the signer is a
Signature of Stockholder corporation, please sign full
corporate name by duly
authorized officer, giving full
- ------------------------------ title as such. If a
Signature of Stockholder if held jointly partnership, please sign in
partnership name by authorized
person.
I will will not attend the
---- ---- Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AMENDED 1994 STOCK OPTION PLAN
FOR
NON-EMPLOYEE DIRECTORS
----------------------
1. PURPOSE
-------
The purpose of the CONVERSION TECHNOLOGIES INTERNATIONAL, INC. 1994 STOCK
OPTION PLAN FOR NON-EMPLOYEE DIRECTORS (the "Plan") is to attract and retain the
services of experienced and knowledgeable independent directors of CONVERSION
TECHNOLOGIES INTERNATIONAL, INC., a Delaware corporation (the "Company"), for
the benefit of the Company and its stockholders and to provide additional
incentive for such directors to continue to work for the best interests of the
Company and its stockholders through continuing ownership of its Class A Common
Stock, $.001 par value (the "Common Stock").
2. SHARES SUBJECT TO THE PLAN
--------------------------
The total number of shares (the "Shares") of Common Stock of the Company
for which options may be granted under the Plan shall not exceed 250,000 in the
aggregate, subject to adjustment in accordance with Section 12 hereof. Within
the foregoing limitations, Shares for which options have been granted pursuant
to the Plan but which options have lapsed or otherwise terminated shall become
available for the grant of additional options.
3. ADMINISTRATION OF PLAN
----------------------
The Plan shall be administered by the Board of Directors of the Company
(the "Board"). The Board shall have the power to construe the Plan, to determine
all questions arising thereunder, and to adopt and amend such rules and
regulations for the administration of the Plan as it may deem desirable.
4. ELIGIBILITY; GRANT OF OPTION
----------------------------
Subject to the provisions of the Plan, options may be granted under the
Plan at any time and from time to time, and the Board shall have plenary
authority, in its discretion, to determine:
(i) the Participants (as defined below) to whom options shall be
granted;
(ii) the time or times at which options shall be granted;
(iii) the number of shares subject to each option;
(iv) the exercise price of the shares subject to each option, which
price shall not be less than the minimum specified in Section 6;
and
(v) the time or times when each option shall become exercisable and
the duration of the exercise period.
<PAGE>
Each director of the Company who is not, and during the immediately
preceding 12-month period has not been, an officer or employee of the Company or
any subsidiary of the Company shall be deemed to be a participant in the Plan
(each, a "Participant").
5. OPTION AGREEMENT
----------------
Each option granted under the Plan shall be evidenced by an option
agreement (the "Agreement") duly executed on behalf of the Company and by the
Participant to whom such option is granted, which Agreements may but need not be
identical and which shall (i) comply with and be subject to the terms and
conditions of the Plan and (ii) provide that the Participant agrees to continue
to serve as a director of the Company during the term for which he or she was
elected. Any Agreement may contain such other terms, provisions and conditions
not inconsistent with the Plan as may be determined by the Board. No option
shall be deemed granted within the meaning of the Plan and no purported grant of
any option shall be effective, until such Agreement shall have been duly
executed on behalf of the Company and the Participant to whom the option is to
be granted.
6. OPTION EXERCISE PRICE
---------------------
The option exercise price per Share for an option granted under the Plan
shall be the Fair Market Value (as hereinafter defined) of the Common Stock on
the date on which such option is granted or, if such date is not a business day
on which the Common Stock is traded, the next immediately preceding trading day
(the "Pricing Date"). For purposes hereof, the Fair Market Value of the Common
Stock shall be equal to:
(a) If such shares are publicly traded, (i) if the Common Stock is then
traded on a national securities exchange, the average of the high and low prices
on the date of grant or, if such date is not a business day on which shares are
traded, the next immediately preceding trading day, or (ii) the closing price,
if applicable, or the average of the last bid and asked prices on the date of
grant or, if such date is not a business day on which shares are traded, the
next immediately preceding trading day, in the over-the-counter market as
reported by NASDAQ; or
(b) if there is no public trading market for such shares, the fair value of
such shares on the date of grant as determined by the Board after taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arms' length.
Anything contained in the Plan to the contrary notwithstanding, all
determinations pursuant to Section 6(b) shall be made without regard to any
restriction other than a restriction which, by its terms, will never lapse.
7. TIME AND MANNER OF EXERCISE OF OPTION
-------------------------------------
(a) Options granted under the Plan shall become exercisable in full on the
first anniversary of the date of the grant.
-2-
<PAGE>
(b) To the extent that the right to exercise an option has accrued and is
in effect, the option may be exercised from time to time, by giving written
notice, signed by the person or persons exercising the option, to the Company,
stating the number of Shares with respect to which the option is being
exercised, accompanied by payment in full for such Shares.
(c) Upon exercise of the option, delivery of a certificate for fully paid
and non-assessable Shares shall be made at the principal office of the Company
to the person or persons exercising the option as soon as practicable (but in no
event more than 30 days) after the date of receipt of the notice of exercise by
the Company, or at such time, place and manner as may be agreed upon by the
Company and the person or persons exercising the option.
8. TERM OF OPTIONS
---------------
Each option shall expire ten years from the date of the granting thereof,
but shall be subject to earlier termination as follows:
(a) In the event of the death of a Participant, the option granted to such
Participant may be exercised, to the extent exercisable on the date of death
pursuant to Section 7(a), by the estate of such Participant, or by any person or
persons who acquired the right to exercise such option by will or by the laws of
descent and distribution. Such option may be exercised at any time within 90
days after the date of death of such Participant or prior to the date on which
the option expires by its terms, whichever is earlier.
(b) In the event that a Participant ceases to be a director of the Company,
other than by reason of his or her death, the option granted to such Participant
may be exercised, to the extent exercisable on the date the Participant ceases
to be a director, for a period of 30 days after such date, or prior to the date
on which the option expires by its terms, whichever is earlier.
9. MERGER, CONSOLIDATION, SALE OF ASSETS, ETC., RESULTING
-------------------------------------------------------
IN A CHANGE OF CONTROL
----------------------
(a) In the event of a Change in Control (as hereinafter defined),
notwithstanding the provisions of Sections 7(a) and 8, an option granted to a
Participant shall become fully exercisable if, within one year of such Change in
Control, such Participant shall cease for any reason to be a member of the
Board. For purposes hereof, a Change in Control of the Company shall be deemed
to have occurred if (i) there shall be consummated (x) any consolidation or
merger of the Company in which the Company is not the continuing or surviving
Company or pursuant to which shares of the common stock of the Company would be
converted into cash, securities or other property, other than a merger of the
Company in which the holders of the common stock of the Company immediately
prior to the merger have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger, or (y) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company; (ii)
the stockholders of the Company approve any plan or proposal for the liquidation
or dissolution of the Company; (iii) any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as
-3-
<PAGE>
amended (the "Exchange Act"), shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of 50% or more of the Company's
outstanding Common Stock; or (iv) during any period of two consecutive years,
individuals who at the beginning of such period constitute the entire Board of
Directors shall cease for any reason to constitute a majority thereof unless the
election, or the nomination for election by the Company's stockholders, of each
new director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period.
(b) Any exercise of an option permitted pursuant to Section 9(a) shall be
made within 180 days of the related Participant's termination as a director of
the Company.
10. OPTIONS NOT TRANSFERABLE
------------------------
The right of any Participant to exercise an option granted to him or her
under the Plan shall not be assignable or transferable by such Participant,
other than by will or the laws of descent and distribution, and any such option
shall be exercisable during the lifetime of such Participant only by him or her.
11. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE
---------------------------------------
Neither the recipient of an option under the Plan nor his or her successors
in interest shall have any rights as a stockholder of the Company with respect
to any Shares subject to an option granted to such person until such person
becomes a holder of record of such Shares.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
------------------------------------------
In the event that the outstanding shares of the Common Stock of the Company
are changed into or exchanged for a different number or kind of shares or other
securities of the Company or of another corporation, by reason of any
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, combination of shares or dividend payable in capital stock,
appropriate adjustment shall be made in the number and kind of shares subject to
and reserved for issuance or transfer under the Plan and as to which outstanding
options (or portions thereof then unexercised) shall be exercisable, to the end
that the proportionate interest of Participants and prospective Participants,
with respect to options theretofore granted and to be granted, shall be
maintained as before the occurrence of such event. Such adjustment in
outstanding options shall be made without change in the total price applicable
to the unexercised portion of such options, but with a corresponding adjustment
in the option price per share.
13. RESTRICTIONS ON ISSUE OF SHARES
-------------------------------
Anything in this Plan to the contrary notwithstanding, the Company may
delay the issuance of Shares covered by the exercise of any option and the
delivery of a certificate for such Shares until one of the following conditions
shall be satisfied:
-4-
<PAGE>
(a) the Shares with respect to which an option has been exercised are at
the time of the issue or transfer of such Shares effectively registered under
applicable Federal securities laws now in force or hereafter amended; or
(b) counsel for the Company shall have given an opinion, which opinion
shall not be unreasonably conditioned or withheld, that such Shares are exempt
from the registration under applicable Federal securities laws now in force or
hereafter amended.
It is intended that all exercises of options shall be effective. Accordingly,
the Company shall use its best efforts to bring about compliance with the above
conditions within a reasonable time, except that the Company shall be under no
obligation to cause a registration statement or a post-effective amendment to
any registration statement to be prepared at its expense solely for the purpose
of covering the issuance or transfer from the Company's treasury of Shares in
respect of which any option may be exercised.
14. PURCHASE FOR INVESTMENT
-----------------------
Unless the Shares to be issued upon exercise of an option granted under the
Plan have been effectively registered under the Securities Act of 1933 as now in
force or hereafter amended, the Company shall be under no obligation to issue or
transfer any Shares covered by any option unless the person or persons who
exercise such option, in whole or in part, shall give a written representation
and undertaking to the Company, which is satisfactory in form and scope to
counsel to the Company and upon which, in the opinion of such counsel, the
Company may reasonably rely, that he or she is acquiring the Shares issued or
transferred to him or her pursuant to such exercise of the option for his or her
own account as an investment and not with a view to, or for sale in connection
with, the distribution for any such Shares, and that he or she will make no
transfer of the same except in compliance with any rules and regulations in
force at the time of such transfer under the Securities Act of 1933, or any
other applicable law, and that if Shares are issued or transferred without such
registration a legend to this effect may be endorsed upon the certificates
representing the Shares.
15. EFFECTIVE DATE
--------------
The effective date (the "Effective Date") of this Plan shall be the date
which is the later of (i) the date on which the Plan is approved by the
stockholders of the Company and (ii) the date on which the initial public
offering of the Common Stock of the Company is consummated.
16. EXPENSES OF THE PLAN
--------------------
All costs and expenses of the adoption and administration of the Plan shall
be borne by the Company and none of such expenses shall be charged to any
Participant.
-5-
<PAGE>
17. TERMINATION AND AMENDMENT OF PLAN
---------------------------------
Unless sooner terminated as herein provided, the Plan shall terminate ten
years from the Effective Date. The Board may at any time terminate the Plan or
make such modification or amendment thereof as it deems advisable; provided,
however, that the Plan may not be amended more than once every six months, other
than to comport with changes in the Internal Revenue Code, the Employee
Retirement Income Security Act or the rules thereunder; and provided further,
however, that, except as provided in Section 12, the Board may not, without the
approval of a majority of the stockholders of the Company increase the maximum
aggregate number of shares for which options may be granted under the Plan or
the number of Shares for which an option may be granted to any Participant.
Termination or any modification or amendment of the Plan shall not, without the
consent of a Participant, affect his or her rights under an option previously
granted to him or her.
As adopted by the Board of Directors of CONVERSION TECHNOLOGIES INTERNATIONAL,
INC. on June 8, 1994, revised to reflect increase in shares of Common Stock
subject to the Plan as a result of a four-for-one stock split.
