SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: Commission File No.:
June 30, 1998 000-28198
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CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
(Exact name of Small Business Issuer as specified in its charter)
Delaware 13-3754366
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) I.D. Number)
7 San Bartola Drive
St. Augustine, Florida 32086
(Address of principal executive offices) (Zip Code)
(904) 808-0503
(Issuer's telephone number including area code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, Redeemable Class A Warrants and Redeemable Class B Warrants
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for past 90 days. Yes |_| No |X|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |X|
Issuer's revenues for the fiscal year ended June 30, 1998 were $1,897,980. The
aggregate market value of the common stock of the registrant, $.00025 par value
per share (the "Common Stock"), held by non-affiliates of registrant was
$1,162,106.09 as of March 1, 1999. As of March 1, 1999, the issuer had
outstanding 5,603,045 shares of Common Stock.
Documents Incorporated by Reference
None.
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Introductory Note
Conversion Technologies International, Inc., a Delaware Corporation (the
"Company" or "Conversion") is engaged in developing, manufacturing, marketing
and processing various substrates and advanced materials. As used herein, the
term Company includes each of the Company's subsidiaries, unless the context
otherwise requires.
This report on the Form 10-KSB (this "Report") contains forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), including, without limitation, statements
regarding the Company's cash needs and ability to fund its ongoing working
capital requirements, efforts to shift its focus away from the sales of its
abrasives to manufacture and sell, on a commercial scale, its decorative
particles and the possibility to outsource ALUMAGLASS(R) production. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. See "Item 1. Description of Business - Risk Factors"
for a discussion of these risks. When used in this Report, statements that are
not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "anticipates," "plans,"
"intends," "expects" and similar expressions are intended to identify such
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
Report. The Company undertakes no obligation to publicly release the result of
any revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Part I
Item 1. Description of Business
Overview
For a discussion of certain recent developments concerning the Company and its
business, see "- Certain Recent Events."
The Company is engaged in the business of manufacturing and processing various
substrates and advanced materials that visually and texturally enhance
structural materials. These substrates and advanced materials include (i)
industrial abrasives which can be used for surface cleaning and surface
preparation applications such as in cleaning steel structures, railcars,
aircraft parts, and equipment in loose grain blasting operations; (ii)
decorative particles (exposed aggregates) that visually enhance structural
materials such as plasters, tiles, grouts, wall systems and roofing and
flooring; and (iii) performance aggregates which can be used as structural and
textural enhancers, fillers and additives, and to strengthen and add consistency
to materials such as cements, plasters, grouts, roofing and flooring, and glass
and ceramic materials. During the reporting period, the Company began to shift
its focus away from industrial abrasives in favor of
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decorative particles and performance aggregates due to the increased costs of
production for industrial abrasives relative to their market sales price.
Until recently, the Company was also engaged in recycling cathode ray tube
("CRT") glass produced in the manufacture of televisions for resale to
television manufacturers and others, which business accounted for approximately
65% of the Company's revenues for the year ended June 30, 1998. In March 1998,
as part of the shift in the Company's focus, the Company agreed to subcontract
its recycling operations to Dlubak Glass Company ("Dlubak"). See
"Products-Recycled CRT Glass." The phase out of its CRT recycling operations
resulted in a decline in the Company's CRT revenues during the fourth quarter of
the reporting period when the Company commenced its subcontracting arrangement
with Dlubak, and such revenues have continued to decrease during the first two
quarters of fiscal 1999.
The Company was incorporated in June 1993 for the purpose of acquiring Dunkirk
International Glass and Ceramics Corporation ("Dunkirk"), and conducted no
business activities prior to such acquisition. The Company acquired Dunkirk in
August 1994 pursuant to a merger in which holders of the common stock of Dunkirk
received Common Stock of the Company. Prior to such acquisition, Dunkirk was a
development stage company, principally engaged in the construction of its
manufacturing facilities and initial CRT glass recycling efforts. The Company
currently owns one hundred percent of the issued and outstanding shares of
Dunkirk.
Advanced Particle Technologies, Inc. ("APT"), also a wholly-owned subsidiary of
the Company, was formed in October 1996 by the Company and a former joint
venture partner for the purpose of applying color coatings to particles. In June
1997, the Company purchased all of its former joint venture partner's 50%
interest in APT.
The Company recently relocated its executive offices to 7 San Bartola Drive, St.
Augustine, Florida 32086. The Company's telephone number is (904) 808-0503.
The Company's industrial abrasives and construction material substrates include
ALUMAGLASS(R), an alumino-silicate glass produced in a patented process
utilizing industrial waste streams and certain virgin materials, as well as
other glass and fired ceramic materials produced using the Company's
manufacturing equipment. ALUMAGLASS(R) was introduced in 1995, but has generated
only minimal sales to date. Although the Company intends to continue to market
ALUMAGLASS(R), in the fall of 1996 the Company shut down the melter used to
manufacture ALUMAGLASS(R) at its Dunkirk, New York facility (the "Dunkirk
facility"). The Company does not intend to restart the melter in the foreseeable
future. The melter was shut down after a significant inventory of material had
been produced and after determining that the cost of production was too high
relative to the market sales price for ALUMAGLASS(R). The Company is currently
satisfying limited orders for ALUMAGLASS(R) from inventory.
The Company's decorative particles include CERAMAGLASS(R) and CERAMAQUARTZ(R).
In 1996, the Company constructed a semi-works, low-volume production facility in
St. Augustine, Florida (the "St. Augustine facility") to produce these
materials. Market introductions of these products were made concurrently with
construction. The St. Augustine facility began operating in the spring of 1997
and the Company began accepting orders for production level quantities in June
1998. Although preliminary evaluations of the production facility indicate that
product quality, production costs and capacity are within all design parameters,
there can be no assurance that under long term production runs these parameters
will be maintained at levels satisfactory to the Company.
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The Company's performance aggregates, fillers and enhancers are currently
produced in the Company's St. Augustine facility. Market introductions of
fillers and enhancers were made in St. Augustine concurrently with construction
of the St. Augustine facility. The Company began accepting orders for production
level quantities of these products in May and June 1998. Although preliminary
evaluations indicate that the product quality, cost of goods produced and
through put and capacity are within all design parameters, there can be no
assurance that under long term production runs these parameters will be
maintained at levels satisfactory to the Company.
Products
Abrasives
The Company's industrial abrasives include ALUMAGLASS(R) and other glass and
ceramic formulation materials, marketed as VISIGRIT(TM) and GREAT WHITE(TM). The
Company ceased production of industrial abrasives in October 1998, and the
Company's current limited sales are made from remaining inventory. As loose
grain abrasives, these industrial abrasives can be applied with blasting
equipment for industrial cleaning and maintenance and manufacturing operations.
Potential purchasers of the Company's remaining inventory of industrial
abrasives include military and defense agencies, entities engaged in the
electronics, aerospace, automotive, glass products and construction industries
and entities engaged in surface finishing, coating removal and maintenance of
manufacturing and processing equipment, buildings, highways, bridges and
commercial vehicles and vessels.
In January 1998, the Company entered into a letter of agreement with Ormet
Primary Aluminum Corporation ("Ormet"), a producer of aluminum foil, whereby
Ormet would employ its production facility in Hannibel, Ohio to formulate and
produce ALUMAGLASS(R) for further processing in the Dunkirk manufacturing
facility. Although the Company continues to be in discussions with Ormet, there
can be no assurance that a formal agreement will be entered into on terms
satisfactory to the Company, or at all, or that there will ever be significant
sales of ALUMAGLASS(R).
Decorative Particles
The Company's St. Augustine facility color coats various glass substrates to
produce decorative particles. Decorative particles are widely used in the
construction industry to visually enhance structural materials such as plasters,
tiles, grouts, wall systems and roofing and flooring. Decorative particles are
also incorporated into countertops and cabinetry. The Company believes that its
proprietary color coating process yields a coating of superior visual quality
and endurance compared to competing products and believes that there is a
potential market for these products.
Performance Aggregates
ALUMAGLASS(R) and the Company's other glass and ceramic products, individually
or in blended combinations, can also be used as structural or textural
enhancers, fillers and additives. These products, which can be sized according
to industry standards, can be used to strengthen and add consistency to
materials such as cements, plasters, grouts, mortars, roofing and flooring and
other glass and ceramic materials.
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Recycled CRT Glass
During the reporting period, the Company had engaged in the recycling of CRT
glass used in televisions. In March 1998, the Company entered into a letter
agreement with Dlubak (the "Dlubak Letter Agreement") which outlined the
fundamental terms of a subcontract arrangement. Although the Company and Dlubak
have not entered into a formal contract, the parties have been operating on the
basis of such subcontract arrangement. The Dlubak Letter Agreement provides,
among other things, that (i) the Company will subcontract the processing of its
CRT glass to Dlubak for a five-year period; (ii) the Company will receive
royalties of $20-$28 per ton of glass processed by Dlubak; (iii) Dlubak will
purchase from the Company glass cullet (glass tube pieces) inventory and other
waste materials, (iv) Dlubak has the option to rent certain space at the
Company's Dunkirk facility for processing CRT glass; (v) at the end of the five
year period, the Company is required to sell its glass cullet processing
equipment to Dlubak for one dollar ($1) and at that time Dlubak has the option
to purchase the Dunkirk facility. Under the Dlubak Letter Agreement, Dlubak
agreed to assume the Company's obligations under two promissory notes in the
aggregate principal amount of $250,000 issued by the Company to two of its
customers (although the Company was not released of its obligations thereunder).
This agreement was designed to provide the Company with a nominal positive cash
flow for every ton of CRT material processed by Dlubak at the Dunkirk facility
and to reduce the deferred revenue and disposal liability that had been
previously recorded in the Company's financial statements. Since the Company has
ceased operations at Dunkirk, Dlubak has failed to make installments on the
assumed promissory notes to the two customers. See " - Certain Recent Events."
Manufacturing and Recycling Processes
During the reporting period, the Company manufactured its abrasives and
performance aggregate products at its Dunkirk facility. The Company utilized its
equipment, principally its post-melting, abrasives finishing equipment, to sort,
clean and/or grind and crush the material into the desired form. The material
was then packaged and shipped to customers.
The Company's St. Augustine facility is used to color coat and package
decorative particles and performance aggregates. The proprietary manufacturing
process consists of applying various pigments and other coating materials in a
thermodynamic process to particles that are purchased locally or supplied by
customers. The material is then packaged on site and shipped to customers.
Research and Development
The Company has temporarily curtailed its research and development efforts until
the Company can achieve an acceptable return on equity for its existing
products. The Company has an on-site laboratory at its St. Augustine facility
where various analyses, tests and other research and development activities are
conducted. The Company maintains a relationship with the Center for Advanced
Ceramic Technology ("CACT") at Alfred University for any additional research and
development needs. CACT is the Company's primary outside research and
development partner, and works on various matters from time to time as requested
by the Company. In December 1998, the Company entered into a consulting
agreement with 4C Technologies, Inc. for research and development of new plaster
products on an as needed basis.
Although the Company's research and development activities are presently
limited, the Company plans to continue to engage in research and development
activities from time to time. It is
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anticipated that such efforts will be focused in the near term on ALUMAGLASS(R)
licensing possibilities and expanding color coating markets for the Company's
decorative particles.
Markets for Products and Services
Abrasives
A variety of media and methodologies have traditionally been used as industrial
abrasives. In particular, sand used in blasting applications and chemical
solvents have held a significant share of the market. In recent years, however,
increased regulations relating to the environment and worker health and safety
have resulted in a dramatic decline in the use of sand, which is known to
contribute to the lung disease silicosis. In addition, given the greater demand
for reclaimable abrasives, which reduce the amount of spent abrasive material
subject to landfill and potential environmental liability, the Company believes
that non-reclaimable abrasives, such as sand and metal slags, are competitively
disadvantaged. The use of chemical solvents in many applications has also
decreased due to regulatory changes, particularly regulations which have
resulted in increased disposal costs. Products such as ALUMAGLASS(R), glass
beads and mineral, metallic and plastic abrasives are less affected by such
regulations due to the nature of their composition, the fact that they are
reclaimable for multiple uses, and have a lower quantity for disposal.
ALUMAGLASS(R), for example, does not contain free silica, which causes
silicosis, and, depending on the application, could potentially be recycled
rather than disposed of after use. Other approaches such as high pressure water
and dry ice blasting are also gaining acceptance as industrial abrasives.
Loose grain abrasives, typically applied with blasting equipment, are used in
numerous industries throughout the world for equipment and facilities
maintenance. Applications include cleaning, stripping and other surface
treatment or surface preparation applications, such as industrial metal
finishing, coating removal, structural steel and commercial vehicle cleaning,
paint removal and the cleaning and preparation of surface substrates. Potential
purchasers include utilities, military and defense agencies, entities engaged in
the electronics, aerospace, automotive, glass products and construction
industries and entities engaged in surface finishing, coating removal and the
maintenance of manufacturing and process industries equipment, facilities,
buildings, highways, bridges and commercial vehicles and vessels.
Decorative Particles
The Company believes that there is a large market for decorative particles. End
users for decorative substrates or particles include ceramic tile manufacturers,
producers of swimming pool plasters, decorative roofing and wall systems,
pottery and porcelain producers and others.
The production of plasters, mortars, terrazzo, and ceramic tiles requires large
quantities of fillers and expanders. While crushed marble, white sand, kaolin or
similar low cost white calcium based materials have traditionally been used as
fillers and expanders, the high cost of coloring agents, pigments and the
process to coat substrates makes it non-economical to color coat large volumes
of these fillers. As a substitute, the construction industry adds small
quantities of previously color coated particles into the fillers. The resulting
mixture, when viewed over a large surface area and from a distance, appears to
have a consistent color or hue.
The Company believes that market acceptance of colored particles is largely a
function of the brilliance and endurance of the color, which results from the
level of translucence or reflectivity
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of the substrate. In most applications, the coated surface of a particle is
subject to erosion. Consequently, colored substrates must have translucent
properties in order to maintain their color characteristics with a translucent
or clear particle, in order to ensure that as the color is eroded from the
exposed surface of the particle embedded in the mortar or plaster, the color on
the back side of the particle will remain visible, thereby extending the life of
the color application significantly. Traditionally quartz and high quality
silica sands have been used as substrates to produce translucent colored
particles. The Company believes that its proprietary coating process will
produce a coating of superior endurance and visual appeal.
Performance Aggregates
The Company believes that there is a large market for performance aggregates.
Materials such as plasters, mortars, terrazzo, flooring tiles, and other ceramic
or cement based mixtures require fillers, expanders or particulates that will
add consistency or texture for functional purposes. The Company has the ability,
if necessary, to size its aggregates within narrow specifications for specialty
applications. The Company has only recently begun to explore the use of its
various substrates for this market. The Company believes that its fired ceramic
substrates will also have applicability in these markets, particularly as filler
for tiles and plasters. The Company further believes that because many of its
substrates are produced from waste material, it may have production cost
advantages over certain materials traditionally used in this market, such as
mined substrates.
Recycled CRT Glass
The Company had engaged in the recycling of CRT glass. In March 1998, the
Company subcontracted its CRT glass recycling business to Dlubak and the Company
currently generates only nominal revenues from this arrangement. The Company
does not anticipate that Dlubak will be expanding this business activity because
of the relatively few television manufacturers located in the United States, the
relatively low percentage of CRT glass that becomes waste prior to being
incorporated into televisions and the shipping costs associated with doing
business with manufacturers located at significant distances from the Company.
Dependence on Certain Customers
The Company has a limited number of customers for all its products. For the year
ended June 30, 1998, 69.0% of the Company's revenue was derived from three major
customers. Revenue generated from each of those customers amounted to $893,747,
$219,958 and $196,431, which represents 47.1%, 11.6% and 10.3% of total revenue,
respectively. The Company's principal CRT glass recycling customer, Techneglas,
accounted for 47.1% of the Company's revenues. Techneglas ceased purchasing
recycled CRT glass from the Company during the fourth quarter of fiscal 1998 (as
defined below) as a result of the Company's subcontract with Dlubak.
The customer base for abrasives, decorative particles and performance
aggregates, though still limited, is not as concentrated as the recycled CRT
business. In its abrasives business, the Company's main customer, N.T. Ruddock &
Company, accounted for 11.6% of the Company's total revenue, while the Company's
main purchaser of decorative particles, VANGKOE Industries, Inc. ("VANGKOE"),
accounted for 10.3% of the Company's total revenue. Because the distributor
agreement with VANKGOE was terminated during 1998, the Company does not
anticipate that VANGKOE will continue to be a major customer. See "Description
of Business - Certain Recent Events." The Company now sells decorative particles
directly to customers.
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Sales and Marketing
The Company's abrasive products have been marketed and distributed in the United
States primarily through distributors and limited direct sales efforts by the
Company. N.T. Ruddock & Company, Fusco Abrasive Systems, Inc., Standard Sand &
Silica Co. and Porter Warner Industries, Inc. are regional distributors of the
Company's abrasives and are large-volume distributors of loose grain abrasives
in the United States. The Company has also established relationships with
distributors in the United Kingdom, Canada, Mexico, China and Israel. The
Company currently employs one individual who is dedicated to sales and marketing
and also uses its management team to support the sales and marketing effort. The
Company's marketing strategies include, among others, telemarketing, direct mail
and trade journal advertising, product sampling programs and customer support
programs, such as technical assistance programs and testing support.
To date, the Company's efforts through distributors have failed to generate
significant sales of ALUMAGLASS(R). Accordingly, the Company plans to explore
joint ventures and other corporate teaming efforts to increase outlets for
ALUMAGLASS(R), which may include product bundling or composite production. The
Company also intends to review and evaluate its distributor relationships and
incentives as well as its direct sales initiatives. There can be no assurance,
however, that such efforts will be successful.
After the termination of the distributor agreement with VANGKOE (covering
decorative particles) in May 1998, the Company initiated a direct sales and
marketing effort which targeted select manufacturers of swimming pool plasters
and decking materials in the Southeastern United States.
Intellectual Property
The Company has been granted two United States patents. The first patent was
issued in December 1993 and relates to the Company's process for manufacturing
abrasive particles from inorganic waste materials, including sludges from
various industrial processes and waste water treatment, emission control dusts
from high temperature industrial processes, fly ash from incineration of
industrial and residential wastes and certain other process specific effluents.
Examples of such inorganic wastes are: spent pot liner from the aluminum
industry, refractory wastes from smelting, melting or refining furnaces, various
types of slags and precipitants related to metal recovery operations, foundry
sands, glass wastes, including television and computer monitor CRT glass, and
certain wastes from the manufacture of ceramic products. The Company's second
patent was issued in October 1995 and relates to the pre-melting batching
process involved in the manufacture of the Company's abrasives. In addition, the
Company has filed jointly with another party an application for a U.S. patent on
the X-ray fluorescence technology that has been used in the Company's CRT glass
recycling operations. The Company has three additional patent applications on
file. These patent applications relate to ALUMAGLASS(R) and to the use of the
Company's products as aggregates in construction materials. The Company's logo
and ALUMAGLASS(R) are registered trademarks.
In connection with the agreement to terminate the distribution agreement with
VANGKOE, the Company purchased the trademarks for CERAMAGLASS(TM) and
CERAMAQUARTZ(TM) from VANGKOE for the sum of $50,000.
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Competition
The Company's products and services are subject to substantial competition. The
Company's abrasives compete with product offerings of other companies,
principally aluminum oxide, glass beads, plastic abrasives, garnet, steel grit,
coal slag and, with respect to certain applications, sand or water blasting
techniques. Many of the companies offering such products are large corporations
with substantially greater financial resources than the Company. Large
international competitors of manufactured metallic abrasives include:
Exolon-ESK, General Abrasives Triebacher, Inc., Washington Mills Electro
Minerals Corp., Irvin Industries, Inc., Norton/St. Gobain and others. Various
other manufacturers produce mined, plastic, glass bead and mineral abrasives, as
well as high speed water jet spray abrasive systems. The Company's ability to
effectively compete against these companies could be adversely affected by the
ability of these competitors to offer their products at lower prices than the
Company's products and to devote greater resources to the marketing and
promotion of their products than are available to the Company.
The Company's decorative particles and performance aggregates will also face
substantial competitive pressures. The Company believes that Minnesota Mining
and Manufacturing Company ("3M") has a significant share of the market for
decorative particles. 3M has available to it financial, technical and other
resources far superior to those of the Company. In addition, certain customers
of other products may be unwilling to switch to the Company's particles due to
factors such as personal preferences for a competitor's color selections,
consistency with colors previously sold, performance concerns or satisfaction
with its current products. The Company's performance aggregates will face
similar competitive pressures from producers of mined minerals, aluminum oxide
and other abrasives. These producers include 3M and Norton/St. Gobain, each with
resources superior to those of the Company. There can be no assurance that the
Company can stay in business in the face of strong competition from various
manufacturers with such advantages.
Environmental Matters
The federal environmental legislation and policies that the Company believes are
applicable to its manufacturing operations include the Comprehensive
Environmental Response, Compensation and Liability Act of 1978, as amended
("CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended
("RCRA"), the Clean Air Act of 1970, as amended, the Federal Water Pollution
Control Act of 1976, as amended, the Superfund Amendments and Reauthorization
Act ("SARA") and the Pollution Prevention Act of 1990. The Company is also
subject to state air, water and solid and hazardous waste laws and regulations
that affect its manufacturing operations.
To maximize market acceptance of the Company's manufacturing technology, the
Company chose to focus its initial efforts on the development of recycling
processes, materials and products which are most likely to qualify for
exemptions or favorable regulatory treatment. For example, the Company uses
materials that are not solid wastes and are not subject to RCRA permitting
requirements (as an example, reclaimed characteristically hazardous by-products
or sludges). The Company handles secondary materials in a manner that allows
such materials to qualify for exclusions under state or federal RCRA regulations
(for example, use of materials as effective substitutes for other products in a
manufacturing process), and the Company stores materials in an environmentally
sound manner (for example, within the manufacturing building or on a concrete
slab).
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The New York State Department of Environmental Conservation ("NYSDEC") has been
delegated authority to administer the RCRA program in New York, and has adopted
regulations governing the treatment, storage and disposal of solid and hazardous
wastes. NYSDEC regulations require the Company to obtain regulatory exemptions
and/or beneficial use determinations for each hazardous waste material it
accepts for recycling purposes. Without these regulatory exemptions and/or
beneficial use determinations, the Company would be required to obtain a state
RCRA permit to operate its facility, and would become subject to onerous RCRA
regulatory requirements.
CERCLA and subsequent amendments under SARA impose continuing liability upon
generators of hazardous substances and owners and operators of facilities where
hazardous waste is released or threatened to be released, as well as upon
parties who arrange for the transportation of hazardous substances to such
facilities. CERCLA effectively imposes strict, joint and several liability upon
these parties. Accordingly, although the Company strives to operate its
facilities in compliance with regulatory requirements, there can be no assurance
that the Company will not incur liability as an owner or operator for releases
of hazardous substances, or possibly as a hazardous waste generator.
During the year ended June 30, 1998 ("fiscal 1998"), the Company was carrying a
potential environmental liability on its books which was caused by unprocessed
materials at its Dunkirk facility. This liability was reduced as a result of an
agreement that the Company entered into with Dlubak which, in part, requires the
removal of all inventory of unprocessed CRT materials from its Dunkirk facility.
In December, 1998, the Company was notified by NYSDEC that a remedial plan needs
to be submitted regarding the completion of its petroleum storage tank removal
project. The Company is currently discussing an arrangement with the NYSDEC to
remedy this potential environmental liability.
Employees
As of March 1, 1999, the Company had 14 full-time employees consisting of 9
employees in manufacturing and 5 employees in finance and administration. None
of the Company's employees are subject to a collective bargaining agreement and
the Company has not experienced any work stoppages, nor to the Company's
knowledge, are any threatened.
Certain Recent Events
New Management
There have been a number of management changes recently. In August 1997, William
L. Amt was hired as President and Chief Executive Officer. In October 1997, Gary
Jellum was hired as Vice President of Administration. In January 1998, Jack D.
Hays, Jr. and Richard H. Hughes resigned their positions as Executive Vice
President of Operations and Marketing and Vice President of Sales and Marketing,
respectively, to pursue other business interests. On March 31, 1998, at the
Company's annual meeting of stockholders, David R. Walner was elected as a
director of the Company. Mr. Walner served as a director until his resignation
in September 1998. In October 1998, Stephen R. Archer, who had been hired in
August 1998 as Vice President, Sales and Marketing - Industrial Materials,
resigned. In October 1998, William L. Amt and Gary Jellum resigned from their
positions as President and Chief Executive Officer and Vice President of
Administration, respectively. Eckardt C. Beck, who continues to act as the
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Company's Chairman of the Board, has been serving as Acting President and Chief
Executive Officer of the Company since October 1998.
Write-Down of Non-Productive Assets and Related Charges to Earnings
As part of the change in focus of the Company's business, the Company no longer
plans to produce ALUMAGLASS(R) (but may license its patent to a third party for
production). Accordingly, the Company no longer requires use of the glass melter
and associated equipment that were used for the production of ALUMAGLASS(R) at
the Dunkirk facility. The Company ceased operations at the Dunkirk facility in
October 1998 and has been considering the possibility of selling the Dunkirk
assets. In the quarter ended June 30, 1998, the Company adjusted the value of
such assets to reflect their estimated net realizable value. This write-down has
resulted in a $4,913,422 charge to earnings for such quarter, increasing the
Company's loss for such quarter by an equal amount.
VANGKOE Distribution Agreement
In June 1997, the Company terminated its joint venture with VANGKOE and the
parties entered into a distribution agreement (the "Distribution Agreement").
The Distribution Agreement provided for VANGKOE to purchase colored particles
from APT and sell the particles to distributors and other third parties.
Pursuant to the terms of the Distribution Agreement, VANGKOE was the exclusive
distributor of APT's colored particles for swimming pool and other pool-related
markets. APT acted as the exclusive supplier of colored particles to VANGKOE,
subject to APT's continued ability to supply such particles. In order to
maintain its exclusivity as a distributor of APT's colored particles, VANGKOE
was required to meet certain sales targets. In May 1998, the Company and VANGKOE
mutually agreed to terminate the Distribution Agreement. In connection with the
termination, the Company paid $75,000 to VANGKOE and the Company purchased the
trademarks for CERAMAGLASS(TM) and CERAMAQUARTZ(TM) from VANGKOE for the sum of
$50,000. Upon termination of the Distribution Agreement, the Company initiated a
direct sales and marketing effort to selected manufacturers of swimming pool
plasters and decking materials.
Working Capital Line of Credit
On May 8, 1998, the Company entered into a Senior Secured Line of Credit
Agreement (as amended, the "Credit Agreement") with the Aries Domestic Fund,
L.P. and The Aries Fund, a Cayman Island trust (collectively, the "Funds"), two
significant stockholders of the Company. See "Certain Relationships and Related
Transactions." The Credit Agreement provides for a line of credit (the "Line of
Credit") of up to $1,200,000 pursuant to which the Company can draw down up to
$300,000 per month, although draw downs beyond the initial $300,000 are at the
discretion of the Funds. The Line of Credit is secured by the receivables and
inventory of the Company and its subsidiaries. Amounts borrowed under the Line
of Credit accrue interest at an annual rate of 12%. In connection with the Line
of Credit (including an amendment increasing the amount available thereunder by
$90,000 (discussed below)), the Company issued to the Funds warrants to purchase
an aggregate of 385,075 shares of Common Stock at an exercise price equal to
$0.67 per share (after giving effect to antidilution adjustments resulting from
a reset of the conversion price of the Company's Series A Convertible Preferred
Stock (the "Series A Preferred Stock") on December 8, 1998). Of such warrants,
warrants to purchase 29,850 shares of Common Stock vest upon each $100,000 (or
ratable portion thereof) being drawn under the Credit Agreement. The Line of
Credit matures on the earlier of May 8, 1999 or upon the
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completion of any financing of at least $1,500,000. The Credit Agreement
contains customary covenants and default provisions. In addition, upon an Event
of Default (as defined in the Credit Agreement), but only after a 60-day cure
period, the Funds will be entitled to appoint a majority of the Company's Board
of Directors. In addition, upon an Event of Default, but only after a 90-day
cure period, the Funds may convert any outstanding principal amount plus
interest, into shares of Common Stock of the Company at the then fair market
value of the Common Stock. As of December 15, 1998, the Line of Credit was
amended to increase the amount available thereunder by $90,000, although formal
documentation of the amendment has not been fully executed. As of January 13,
1999, the Company had drawn down the full $1,290,000 available under the Line of
Credit.
On February 22, 1999, the Funds agreed to provide interim financing to the
Company (the "Aries Interim Financing") in the amount of up to $150,000
($135,000 of which has been drawn upon), although formal documentation of the
Aries Interim Financing has not been fully executed. In consideration for the
Aries Interim Financing, the Company agreed that in the event that the Company
is unable to obtain additional financing of at least $1,500,000 by April 1,
1999, the Funds will have the right to, in exchange for their right to repayment
of the Aries Interim Financing, convert any outstanding principal amount plus
interest, into either (i) shares of Common Stock of the Company at the then fair
market value of the Common Stock or (ii) shares of APT equal to 10% of the
issued and outstanding shares of the common stock of APT. In further
consideration for the Aries Interim Financing, the Company agreed to amend the
Line of Credit in order to allow the Funds to have the option to exchange their
full right to payment for 90% of the issued and outstanding shares of APT,
although formal documentation of the amendment has not been fully executed. See
"Certain Relationships and Related Transactions."
Other Changes to Indebtedness
Dunkirk was obligated with respect to $1,888,000 outstanding aggregate principal
amount of equipment term notes made by Dunkirk to Key Bank of New York ("Key
Bank") in December 1994 and January 1995, which were guaranteed by the Empire
State Development Corporation/Job Development Authority (the "ESDC"). In July
1997, the ESDC agreed to honor its guarantee of such equipment term loans (in
full) and in December 1997 the ESDC paid such guarantee (in full) and Key Bank
assigned such notes to the ESDC. In connection with the assignment of the notes
to ESDC, the ESDC agreed to defer all interest and principal payments due under
the loans through July 1, 1998 until the maturity date of the notes, with
interest continuing to accrue on such deferred amounts payable at maturity. On
December 2, 1997, the ESDC forgave $500,000 in principal amount of the debt.
Also, the balance of the related debt service fund of $459,000 was applied
against outstanding principal and accrued interest, resulting in a principal
balance (after debt forgiveness) of $1,032,798. On June 22, 1998, the ESDC
agreed to defer principal payments due under the loans through January 1, 1999
until the maturity date of the notes. The Company is currently negotiating with
the ESDC to reduce the amounts owed to the ESDC in exchange for the Company
paying a reduced amount to the ESDC. Principal and interest payments on the
notes are currently in default.
Amendment to Certificate of Incorporation
Following the Company's annual meeting of stockholders held on March 31, 1998,
the Company's Certificate of Incorporation was amended to increase the
authorized number of common shares to fifty million.
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Illiquid Position
The Company does not currently possess sufficient funds to conduct its business
and satisfy its liabilities. The Company has significant past due payables and
is in default in payment of principal and interest on substantially all of its
indebtedness for borrowed money other than the Line of Credit. In order to allow
the Company to continue operating in the short term, Eckardt C. Beck, the Acting
President and Chief Executive Officer of the Company, has advanced to the
Company, or has not received accrued compensation of, an aggregate of $190,000,
and the Funds have provided the Aries Interim Financing. The Company is
currently seeking additional financing through a private placement of its equity
securities. There can be no assurance that the Company will be able to obtain
necessary financing. If the Company is not able to obtain immediate financing,
the Company may be forced to further limit or even cease operations.
Risk Factors
As described in the "Introductory Note," certain statements made herein that are
not historical are forward-looking within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements involve known
and unknown risks and uncertainties. Many factors could cause the actual
results, performance or achievements of the Company to be materially different
from any future statements, including, among others, those described below.
Accumulated Deficit; History of Operating Losses; Going Concern Paragraph in
Auditors' Reports
The Company has experienced significant operating losses since its inception.
The Company had an accumulated deficit of approximately $(35,308,000) at June
30, 1998. The Company incurred an operating loss of approximately $(8,442,000)
for the fiscal year ended June 30, 1998, and approximately $(12,154,000) for the
fiscal year ended June 30, 1997. As a result, the Company has experienced a
deficiency in cash flows from operations. Such losses have resulted principally
from limited revenues from operations and costs associated with the development
of the Company's technologies, pretax gains on debt retirement, general and
administrative expenses and a number of large one-time, non-cash charges to
operations. The Company expects to incur a substantial loss for the fiscal year
ending June 30, 1999 and to continue to incur operating losses until such time,
if ever, as product sales generate sufficient revenue to fund the Company's
continuing operations. The Company received an explanatory paragraph in the
reports of its independent auditors accompanying its consolidated financial
statements for the fiscal years ended June 30, 1998 and 1997, indicating that
there is substantial doubt as to the ability of the Company to continue as a
going concern. No assurance can be given that the Company will ever achieve
profitable operations.
Need for Additional Financing; Possibility of Bankruptcy
The Company is in immediate need of significant additional financing. At June
30, 1998, the Company had a net working capital deficiency of approximately
$4,309,000. The Company presently has large past due payables and is in default
on principal and interest payments with respect to substantially all of its
indebtedness for borrowed money, other than the Line of Credit. The Company's
limited cash resources have strained relations with suppliers and trade
creditors and have caused certain suppliers to provide products and services
only on a cash basis. The Company's creditors, whether lenders or trade
creditors, could commence suit to enforce their debts (and certain creditors
have commenced litigation) or could force the Company into bankruptcy. In the
event of a bankruptcy, unless there are assets available after the satisfaction
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in full of the claims of creditors, there will be no recovery by the holders of
equity. Furthermore, the Company's default on indebtedness entitles the lenders
to accelerate their debt, liquidate their collateral and otherwise pursue the
rights and remedies available to them pursuant to applicable law and their loan
documents. The Company has no commitments or other arrangements for any future
financing and there can be no assurance that any debt or equity financing will
be available within the needed time frame. Furthermore, the Company's
Certificate of Incorporation and the loan documents to which the Company is a
party restrict its ability to incur additional debt. Any equity financings will
be dilutive to the Company's stockholders and any debt financings will likely
contain restrictive covenants and additional debt service requirements, which
could adversely affect the Company's operating results. If the Company is not
able to obtain additional financing, the Company may be required to
significantly limit or even cease operations.
Substantial Indebtedness; Payment Defaults; Potential Loss of Collateral and APT
At June 30, 1998, the Company had outstanding an aggregate of approximately
$2,524,000 of indebtedness (excluding amounts borrowed under the Line of Credit
and capital lease obligations), substantially all of which is secured by the
assets of its wholly-owned subsidiary Dunkirk. Accordingly, the Company is
subject to all of the risks associated with substantial indebtedness, including
the risk that cash flow may not be sufficient to make required payments of
principal and interest on indebtedness. To the extent that substantially all of
the Company's assets continue to be pledged, such assets will not be available
to secure additional indebtedness, which may adversely affect the Company's
ability to borrow in the future. Of the Company's $2,524,000 in indebtedness at
June 30, 1998, $1,358,355 was principal owed to the ESDC. On June 22, 1998, the
ESDC agreed to defer principal payments due under the loans through January 1,
1999 until the maturity date of the notes. The Company is currently negotiating
with the ESDC to reduce the amounts owed to the ESDC in exchange for the Company
agreeing to pay a reduced amount to the ESDC. The Company is currently in
default with respect to principal and interest payments on the ESDC loans. In
the event that the Company is unable to reach a settlement with the ESDC with
respect to the Company's repayment of debt to the ESDC, ESDC, as a secured
party, may be able to force a sale of the equipment located at the Dunkirk
facility which secures the debt. In addition, most of the Company's indebtedness
is subject to various covenants. In the event of a default in payment of
outstanding indebtedness (such as currently exists), or in the event of a
default arising out of a violation of any covenants, the Company, APT and/or
Dunkirk may lose all or a portion of its assets and the Company, APT and/or
Dunkirk may be forced to materially reduce its business activities or cease its
operations. As agreed to with the Funds in consideration for additional interim
financing subsequent to fiscal 1998, since the Company has not raised $1,500,000
prior to April 1, 1999, the Funds may convert the Company's existing debt to
them into shares of the Common Stock of the Company or exchange all of such
existing portions of debt for all of the issued and outstanding stock of APT.
Certain of the instruments governing the Company's indebtedness also contain
default provisions relating to insolvency and the inability to pay debts as they
become due. See "Certain Relationships and Related Transactions."
Limited Revenues and Product Sales; Lack of Profitable Business; New Business
The Company presently lacks a profitable business initiative. The Company
commenced recycling CRT glass used in the manufacture of televisions in 1994 and
production of industrial abrasives in 1995. Substantially all of the Company's
limited revenues to date have been derived from recycling CRT glass; however,
the Company has phased out its CRT recycling operations. Additionally, the
Company has generated only minimal revenues to date from sales of
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ALUMAGLASS, its initial industrial abrasive product, which has received limited
acceptance in the marketplace. The Company has recently commenced production of
certain other glass and fired ceramic substrates and decorative particles that
visually embrace structured materials; however, there can be no assurance that
these products will generate significant sales. While attempting to
commercialize its products, the Company is subject to risks inherent in a new
business generally, such as marketing problems, unanticipated problems relating
to environmental regulatory compliance, manufacturing and the competitive
environment in which the Company operates, and additional costs and expenses
that may exceed estimates. There can be no assurance that, even after the
expenditure of substantial funds and efforts, the Company will ever achieve or
maintain a substantial level of sales of its products.
Limited Sales of ALUMAGLASS; Shutdown of Melter; Uncertain Market Acceptance
To date, the Company has had only minimal sales of ALUMAGLASS. The Company has
shut-down the melter used to manufacture ALUMAGLASS and is currently satisfying
limited orders through existing inventory made from raw materials purchased from
a third party which the Company has processed into finished ALUMAGLASS. If
market demand for ALUMAGLASS warrants further ALUMAGLASS production, the Company
would seek to purchase the raw ALUMAGLASS particles and process the material for
resale to its customers. Although the Company is currently in discussions with
one such source, there can be no assurance that such arrangements will be
consummated on terms satisfactory to the Company, or at all, or that there will
ever be significant sales of ALUMAGLASS. There can be no assurance that
ALUMAGLASS will ever obtain market acceptance. In addition, the Company has only
recently commenced production of its other glass and fired ceramic materials,
and there can be no assurance that these products will obtain market acceptance.
Cancellation of Indebtedness; Possible Tax Effects
Due to certain debt forgiveness, the Company had a number of significant net
pretax gains during fiscal 1998. These net pretax gains could result in
significant tax obligations. The Company does not have sufficient working
capital to satisfy any such obligations. See "Notes to Consolidated Financial
Statements - Item 2 - Extraordinary Items." While the Company does have certain
loss carryforwards, the Company cannot be certain at this time whether the loss
carryforwards are usable to offset any of the Company's gains.
New Management; Dependence on Key Personnel
The Company is and will be dependent on its key management personnel, Eckardt C.
Beck, Acting President and Chairman of the Board, and John Murchie, Chief
Financial Officer. There can be no assurance that such individuals will be able
to successfully implement the Company's strategies or that such individuals will
remain with the Company. The loss of one or more of these individuals could have
a material adverse effect on the business and operations of the Company. In
addition, the Company will need to attract and retain other qualified
individuals to satisfy its personnel needs. There can be no assurance that the
Company will be successful in retaining its key management personnel or in
attracting and retaining new employees.
Limited Sales and Marketing Experience
The Company has had limited experience in selling and marketing its products.
Furthermore, the Company has assembled only a small sales and marketing
organization. There can be no assurance that the Company will be able to
recruit, train or retain qualified personnel to sell and market its products or
that it will develop a successful sales and marketing strategy. In addition,
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for certain applications, the Company has relied on distributors for primary
marketing efforts, which has resulted in only limited sales of ALUMAGLASS. In an
effort to achieve market acceptance of its products, the Company may seek to
enter into joint ventures, licensing or other collaborative arrangements to sell
and market its products. There can be no assurance that any sales and marketing
or other efforts undertaken by the Company will be successful.
Competition
The Company's products and services are subject to substantial competition. See
"Competition" for a detailed description of the competition that the Company
faces.
Dependence on Patents and Proprietary Technology; Risk of Infringement of
Third-Party Patents
The Company's success will depend, in part, on its ability to maintain
protection for its products and manufacturing processes under United States and
foreign patent laws, to preserve its trade secrets and to operate without
infringing the proprietary rights of third parties. The Company has two issued
U.S. patents and two U.S. patent applications pending. There can be no assurance
that any patent applications will result in issued patents, that any issued
patents will afford adequate protection to the Company or not be challenged,
invalidated, infringed or circumvented or that any rights thereunder will afford
competitive advantages to the Company. Furthermore, there can be no assurance
that others have not independently developed, or will not independently develop,
similar products and technologies or otherwise duplicate any of the Company's
products and technologies.
Dependence on Environmental Regulation/Regulatory Status of Facilities
Federal, state and local environmental legislation and regulations mandate
stringent waste management and operations practices, which require substantial
capital expenditures and often impose strict liabilities for non-compliance.
Environmental laws and regulations are, and will continue to be, a principal
factor affecting demand for the technology and services being developed or
offered by the Company. Additionally, the Company and its customers operate in a
highly regulated environment and the St. Augustine facility is and any future
facilities may be required to have various Federal, state and/or local
government permits and authorizations, registrations and/or exemptions.
Potential Environmental Liability
The Company's business exposes it to the risk that harmful substances may be
released or escape into the environment from its facilities, processes or
equipment, resulting in potential liability for the resultant exposures,
clean-up or remediation of the release, and/or potential personal injury
associated with the release. Liability for investigation and/or clean-up and
corrective action costs exists under the Comprehensive Environmental Response,
Compensation and Liability Act, the Resource Conversation and Recovery Act, the
New York State Environmental Conservation Law, and the Florida Air and Water
Pollution Control Act. Additionally, the Company is potentially subject to
regulatory liability for the generation, transportation, treatment, storage or
disposal of hazardous waste if it does not act in accordance with the
requirements of Federal or state hazardous waste regulations or facility
specific regulatory determinations, authorizations or exemptions. The Company is
also potentially subject to regulatory liability for releases into the air or
water under the Clean Air Act, the Clean Water Act and analogous state laws and
regulations, and various other applicable Federal or state laws and regulations.
The Company has a potential environmental liability with respect to NYSDEC's
requirement that the Company
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submit a remedial plan for the completion of its petroleum storage tank removal
project at its Dunkirk facility.
Potential Conflicts of Interest Arising from Certain Related Party Transactions
The Company has entered into consulting agreements with Mr. Beck, and with
certain principal stockholders and affiliates of certain directors and principal
stockholders of the Company, pursuant to which, among other things, certain of
such persons received warrants and pursuant to which certain of such persons
will be entitled to receive success fees upon the completion of certain project
development activities. Such agreements may result in conflicts of interest for
the directors and principal stockholders who are, or whose affiliates are,
parties to such consulting agreements. The Company, however, does not believe
that the existence of such agreements will interfere with the ability of the
Company's directors to discharge their fiduciary duties to the Company's
stockholders. See "Certain Relationships and Related Transactions".
Delinquent Periodic and Annual Reports
The Company is not current in its annual and periodic report filings required to
be filed with the Securities and Exchange Commission (the "Commission"). As of
the date of this Report, the Company has not filed any Quarterly Reports on Form
10-QSB required to be filed since the end of fiscal 1998. As a result, investors
do not and may not have access to such information on a timely basis.
Outstanding Warrants and Options
As of March 1, 1999, the Company had outstanding (i) 9,200,462 Redeemable Class
A Warrants to purchase an aggregate of 9,200,462 shares of Common Stock and
Class B Warrants at an exercise price of $2.95 per share and 7,008,058
Redeemable Class B Warrants at an exercise price of $3.93 per share (all of the
Company's outstanding Redeemable Class A Warrants and Redeemable Class B
Warrants are referred to herein as the "Redeemable Warrants"); (ii) options
previously held by D.H. Blair Investment Banking Corp. ("Blair") to purchase up
to 306,700 shares of Common Stock and/or 608,204 Class A Warrants and/or 609,229
Class B Warrants at an exercise price of $6.16 per share of Common Stock, $0.07
per Class A Warrant and $0.07 per Class B Warrant; (iii) options to purchase an
aggregate of 464,877 shares of Common Stock granted under the Company's Stock
Option Plans at a weighted average exercise price of approximately $1.49 per
share; (iv) non-qualified options to purchase 305,000 shares of Common Stock
issued pursuant to the Company's Long-Term Plan (as defined below) at an
exercise price of $0.78 per share (consisting of options to purchase 300,000
shares of Common Stock issued to Mr. Beck and options to purchase 5,000 shares
of Common Stock issued to one other officer of the Company; (v) warrants to
purchase an aggregate of 319,204 shares of Common Stock at a weighted average
exercise price of approximately $4.90 per share issued prior to the IPO (as
defined below); (vi) warrants to purchase an aggregate of 198,863 shares of
Common Stock at a per share exercise price of $0.66 issued in connection with
the 1997 Bridge Loan (as defined below); (vii) warrants to purchase an aggregate
of 385,075 shares of Common Stock at a per share exercise price of $0.67 issued
in connection with the Line of Credit Agreement; and (viii) non-qualified
options to purchase 15,000 shares of Common Stock at an exercise price of $0.78
per share which are not part of any of the Company's option plans. Also, the
Company had outstanding warrants to purchase 61,945 shares of Series A Preferred
Stock at a per share exercise price of $9.82. The Company has reserved an
aggregate of 690,000 shares of Common Stock for issuance under the Stock Option
Plans and 710,000 shares of Common Stock under its Long-Term Plan (as defined
below) as of the date of this Report. Holders of such
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warrants and options are likely to exercise them when, in all likelihood, the
Company could obtain additional capital on terms more favorable than those
provided by such warrants and options. In addition, the exercise of such
warrants and options could have a material adverse effect on the market price
of, and liquidity in the market for, shares of Common Stock. Further, while
these warrants and options are outstanding, the Company's ability to obtain
additional financing on favorable terms may be adversely affected.
Risks of Penny Stock
The Company's securities are subject to Rule 15g-9 under the Exchange Act, which
imposes additional sales practice requirements on broker-dealers that sell such
securities to persons other than established customers and "accredited
investors" (generally, individuals with a net worth in excess of $1,000,000 or
an annual income exceeding $200,000 or $300,000 together with their spouse). For
transactions covered by such rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, such rule may
adversely affect the ability of broker-dealers to sell the Company's securities
and may adversely affect the ability of the holders of the Company's securities
to sell in the secondary market any of such securities.
SEC regulations define a "penny stock" to be any non-NASDAQ equity security that
has a market price (as therein defined) of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require
delivery, prior to any transaction in a penny stock, of a disclosure schedule
prepared by the SEC relating to the penny stock market. Disclosure is also
required to be made about commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements are required to be sent disclosing recent price information
for the penny stock held in the account and information on the limited market in
penny stocks.
Possible Volatility of Market Price of Common Stock
The market price of the Company's securities, like that of many other of
development stage companies and many emerging companies, has been highly
volatile, experiencing wide fluctuations not necessarily related to the
operating performance of such companies. Factors such as the Company's operating
results, announcements by the Company or its competitors concerning
technological innovations and new products or systems may have a significant
impact on the market price of the Company's securities. In addition, the Company
has recently experienced limited trading volume in its Common Stock.
Possible "Year 2000" Problems
Although the Company believes that its computer systems are fully Year 2000
compliant, it is possible that certain computer systems of the Company's
suppliers and contractors may not accept input of, store, manipulate and output
dates prior to the Year 2000 or thereafter without error or interruption. The
Company is requesting assurances from all software vendors from which it has
purchased or from which it may purchase software that such software will
correctly process all date information at all times. Furthermore, the Company is
querying its suppliers and contractors as to their progress in identifying and
addressing problems that their computer systems will face in correct processing
date information as the Year 2000 approaches. However, there can be no assurance
that the Company will identify all date-handling problems of its suppliers and
contractors in advance of their occurrence, or that the Company will be able to
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successfully remedy problems that are discovered. The expense of the Company's
efforts to identify and address such problems, or the expenses or liabilities to
which the Company may become subject as a result of such problems, could have a
material adverse effect on the Company.
Item 2. Description of Properties
The Company owns its 230,000 square foot manufacturing facility in Dunkirk, New
York. Such facility is subject to a first mortgage held by the New York Job
Development Authority securing a promissory note issued to the Chautauqua Region
Industrial Development Corporation, with respect to which approximately $287,648
principal amount was outstanding on June 30, 1998. In addition, such facility is
subject to a second mortgage securing a promissory note issued to the former
owner of the property as part of the purchase price therefor, with respect to
which principal in the amount of approximately $256,457 was outstanding on June
30, 1998.
The Company recently relocated its headquarters to St. Augustine, Florida, and
has entered into a 20 month lease for approximately 6,100 square feet of
executive office space. The lease will expire in December 1999 and rent for such
space is approximately $3,750 per month. The Company terminated its lease on
approximately 4,700 square feet of office space in Orlando, Florida effective
May 15, 1998.
APT currently leases approximately 21,400 square feet of manufacturing and
warehouse space in St. Augustine, Florida. The leases will expire in February
2000 and rent is approximately $10,400 per month. The Company also leases
approximately 700 square feet of space in Winter Park, Florida to be employed as
a sales and marketing office. The lease will expire in February 2000 and the
rent is approximately $1,565 per month.
In the opinion of the management of the Company, all of the properties described
herein are adequately covered by insurance.
Item 3. Legal Proceedings
In June 1998, the Company settled a litigation, Conversion Technologies
International, Inc. v. R.E. Williams and Company, Inc., commenced by the Company
on October 26, 1995 in the Supreme Court of New York, County of Chautauqua,
against a general contractor hired to construct the improved abrasives finishing
area at the Dunkirk facility. Under the terms of the settlement, the Company was
required to pay $75,000, which had been accrued in prior years, and to
relinquish control of certain equipment, such equipment having had a net book
value of $23,231.
In October 1998, the Company received threats of litigation from Stephen Archer,
former Vice-President of Sales and Marketing - Industrial Materials and Gary
Jellum, former Vice President of Administration. Both Mr. Archer and Mr. Jellum
allege that they were constructively terminated by the Company. The Company
believes that the threats of Messrs. Archer and Jellum are without merit and is
prepared to defend itself against any claims made.
On October 22, 1998, MWW/Strategic Communications, Inc., a public relations
firm, filed a demand for arbitration against the Company with the American
Arbitration Association. MWW alleges that the Company owes it professional fees
in the amount of $22,192.86 for services rendered. The matter is scheduled for
an arbitration hearing in April, 1999.
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In November 1998, Buchanan Ingersoll Professional Corporation filed a complaint
in the Orange County Circuit Court of Florida (the "Circuit Court") against the
Company. Buchanan Ingersoll, which until September 1998 acted as legal counsel
to the Company, alleged that the Company owes it legal fees in the amount of
$192,204.01. On March 11, 1999, the Circuit Court entered a final judgement in
favor of Buchanan Ingersoll in the amount of $197,689.28.
The Company is not involved in any other material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's Common Stock had been quoted on the Nasdaq SmallCap Market (the
"SmallCap Market") under the symbol "CTIX" since May 16, 1996, the effective
date of the Company's registration statement relating to its initial public
offering of Common Stock (the "IPO"). On October 23, 1998, the Common Stock was
delisted by Nasdaq and is currently listed on the Pink Sheets(R), a quotation
medium operated by the National Quotation Bureau, LLC (the "Pink Sheets") under
the symbol "CVTL". The following table sets forth, for each of the quarters
indicated, the high and low bid prices per share of Common Stock as quoted on
the SmallCap Market (source, the Nasdaq Stock Market). The prices shown
represent quotations among securities dealers, do not include retail markups,
markdowns or commissions and may not represent actual transactions.
Quarter Ended High Low
- ------------------------------- ---------------------- -----------------------
June 30, 1996 $7.25 $5.00
September 30, 1996 $5.00 $3.375
December 31, 1996 $3.375 $2.25
March 31, 1997 $2.625 $1.375
June 30, 1997 $3.00 $1.00
September 30,1997 $1.75 $1.3125
December 31, 1997 $2.00 $.75
March 31, 1998 $1.1875 $.6875
June 30, 1998 $1.375 $0.625
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As of January 28, 1998, the Company had approximately 559 holders of record of
Common Stock.
No dividends have ever been declared or paid on the Company's Common Stock, and
the Company does not anticipate declaring or paying dividends in the foreseeable
future.
Recent Sales of Unregistered Securities
Except as previously reported, there were no unregistered securities sold by the
Company during the fiscal year ended June 30, 1998.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Since inception through June 30, 1998, the Company sustained cumulative losses
of approximately $35,308,000. Such amount includes (i) a one-time, non-cash
charge to operations of approximately $6,232,000 relating to the write-off of
research and development (in-process) technologies that had not reached
technological feasibility and, in the opinion of management, had no alternative
use, which were purchased in conjunction with the Company's acquisition of
Dunkirk in 1994, (ii) approximately $2,528,000 expensed as process development
costs related to research and development of the Company's CRT glass processing
and ALUMAGLASS(R) product lines, (iii) a non-cash charge to operations of
approximately $5,712,000 relating to the write-off of non-productive fixed
assets during the quarter ended June 30, 1997, (iv) an extraordinary item from
the gain on debt retirement of approximately $6,425,000 during the fiscal year
ended June 30, 1998, (v) a non-cash charge to operations of approximately
$4,913,000 for the write down of property, plant and equipment held for sale
during the quarter ended June 30, 1998, and (vi) other expenses, net of revenue,
of approximately $22,348,000. The Company will continue to incur losses until
such time as revenues are sufficient to fund its continuing operations.
The Company has taken a number of recent steps in an effort to preserve cash,
reduce its costs and increase revenues. In September 1997, the holders of
Dunkirk's $8,000,000 Chautauqua County Industrial Development Agency Solid Waste
Disposal Facility Bonds (the "IDA Bonds") retired the IDA Bonds in exchange for
a cash payment of $1,620,000 and the balance of the related debt service reserve
fund of $194,000. The cash payment was made utilizing proceeds from a private
placement of Series A Preferred Stock which occurred beginning in August 1997.
This forgiveness resulted in a net pretax gain to the Company of approximately
$5,862,000, which is reported as an Extraordinary Item in the Company's
financial statements.
In December 1997, the ESDC, which had previously been assigned approximately
$1,888,000 principal amount of debt plus accrued interest of approximately
$82,000 owed by Dunkirk to Key Bank (in consideration for its payment thereof as
guarantor), granted the Company a debt forgiveness of $500,000. Also, the
balance of the related debt service reserve fund of approximately $459,000 was
applied against the outstanding principal and accrued interest. ESDC also agreed
to defer all interest payments due under the loan through July 1, 1998 and to
defer all principal payments due under the loan through January 1, 1999, with
interest continuing
21
<PAGE>
to accrue on such deferred amounts and payable monthly beginning July 1998
through December 2001. This forgiveness resulted in a net pretax gain to the
Company of approximately $271,000, which is reported as an Extraordinary Item in
the Company's financial statements. The Company is currently negotiating with
the ESDC regarding an additional debt forgiveness in exchange for a payment by
the Company representing the repayment in full of the balance of the debt. There
can be no assurance that such negotiations will be successful.
During fiscal 1998, the Company also negotiated various settlements with certain
of its vendors. These settlements resulted in the vendors forgiving
approximately $292,000 in accounts payable which resulted in a pretax gain to
the Company of the same amount, which is reported as an Extraordinary Item in
the Company's financial statements.
Raw material costs are expected to be reduced through the use of third party
tollers and the application of lower cost alternative substrates and coating
materials. Investments in product development have been curtailed and
investments in sales and marketing will be increased. Manufacturing and
operating overheads have also been reduced through payroll reductions and
savings associated with non-productive equipment and processes that have been
shut-down, such as the Company's Dunkirk facility. The Company has begun to sell
amounts of the decorative particles produced by APT and hopes to increase
revenue from this product line. The Company will also strive to increase sales
of other abrasives and aggregates as it implements new marketing efforts.
Implementation of the Company's business plan, however, is subject to obtaining
the necessary financing.
Because the Company has had limited revenue and has incurred significant losses
which has resulted in a working capital deficiency and a stockholders'
deficiency at June 30, 1998, the Report of Independent Auditors includes an
explanatory paragraph indicating there is substantial doubt as to the Company's
ability to continue as a going concern. See Report of Independent Auditors.
Results of Operations
Fiscal Year Ended June 30, 1998 Compared to Fiscal Year Ended June 30, 1997.
Consolidated revenues for fiscal 1998 were approximately $1,898,000 consisting
primarily of CRT glass recycling fees and related clean cullet sales of
approximately $1,275,000, ALUMAGLASS(R) sales of approximately $321,000 and
decorative particles and performance aggregates sales of approximately $302,000.
For the year ended June 30, 1997 ("fiscal 1997"), the Company had consolidated
revenues of approximately $1,429,000, of which approximately $248,000 was
derived from sales of ALUMAGLASS(R) and $1,181,000 was derived from CRT
recycling fees. This change in revenue during fiscal 1998 primarily reflects the
$302,000 from the decorative particles and performance aggregates business,
which was not operating in fiscal 1997. As a result of the Company's shift in
focus away from the CRT recycling business in favor of decorative particles and
performance aggregates, the Company anticipates that CRT revenue will
significantly decrease in future periods.
Cost of goods sold was approximately $2,703,000 for fiscal 1998 versus
approximately $3,952,000 for the prior fiscal year, representing a decrease of
approximately $1,249,000 despite the increase in revenues of $469,000. This
decrease was caused by a number of factors, including (i) a decrease of
$1,020,000 as a result of discontinuing the melter operations and writing off
the assets associated therewith during the last quarter of fiscal 1997, (ii) a
net
22
<PAGE>
decrease in the charge to operations of $174,000 for the change in the reserve
for disposal costs for the unprocessed waste materials on hand, (iii) a decrease
of $249,000 due to the reduced level of operations in the abrasives finishing
department, (iv) a decrease of $195,000 from the reduced level of operations in
the CRT glass recycling department due to the Dlubak subcontract agreement, and
(v) an increase of $407,000 from the operations of the decorative particles
business which started production in fiscal 1998.
The Company's gross margin improved by $1,718,000 to a loss of $805,000 for
fiscal 1998 from a loss of $2,523,000 for fiscal 1997 as a result of the
$469,000 increase in revenues and the $1,249,000 decrease in cost of goods sold.
Selling, general and administrative expenses decreased by $1,195,000 to
$2,724,000 for fiscal 1998, as compared to $3,919,000 for fiscal 1997. This
decrease was primarily the result of a $1,523,000 decrease in professional fees
and financial printing costs relating to the proposed merger with Octagon, Inc.,
which was terminated at the end of fiscal 1997 and a $316,000 decrease in
salaries and related fringe costs. These decreases were partially offset by a
$664,000 cost recorded for the value of the Series A Preferred Stock issued to
purchasers who took part in the private placement thereof.
A charge against operations of approximately $4,913,000 was recorded in the
fourth quarter of fiscal 1998 to write down the property, plant and equipment at
the Dunkirk plant to its estimated disposal value as a result of the Company's
determination to sell that facility. In the comparable quarter of the prior
fiscal year a charge against operations of approximately $5,712,000 was recorded
to write down fixed assets to their estimated fair market value for processes
which had been shut down and no longer were viable for the foreseeable future.
Interest expense decreased by $725,000 to $552,000 for fiscal 1998 from
$1,277,000 for fiscal 1997. The decrease was primarily attributable to a
$841,000 decrease in interest expense due mainly to the reduction in debt from
the repayment and forgiveness described in the above overview section, offset by
a $98,000 charge from the amortization of discount on notes payable issued in
fiscal 1998.
The Company recorded an extraordinary item for the gain on debt retirement of
$6,425,000 in fiscal 1998. This resulted from a gain of $5,862,000 on the
retirement of Dunkirk's Chautauqua County Industrial Development Agency Bonds, a
gain of $271,000 for the debt forgiveness granted the Company by the ESDC and a
gain of $292,000 for the accounts payable forgiveness granted the Company by
certain of its vendors in negotiated settlements.
Liquidity and Capital Resources
The Company's business is capital intensive. The Company has funded its
operations principally from private debt and equity financings and the proceeds
of the IPO. Presently, the Company has limited revenue, has suffered recurring
losses from operations and has a net capital deficiency. The Company is also in
default on principal and interest payments with respect to substantially all of
its outstanding indebtedness for borrowed money other than indebtedness under
the Line of Credit. The Company has an immediate need for financing. Management
has implemented operational changes and has restructured certain debt; however,
management cannot predict the success of these operational changes. These
conditions, among others, raise substantial doubt about the Company's ability to
continue as a going concern. These issues also create an uncertainty as to the
recoverability of recorded assets and satisfaction of liabilities. At
23
<PAGE>
June 30, 1998, the Company had approximately $2,524,000 in principal amount of
indebtedness (excluding amounts borrowed under the Line of Credit and capital
lease obligations) and net working capital deficiency of approximately
$4,309,000. As of June 30, 1998, the Company had cash and marketable securities
of approximately $168,000.
In August, September and December 1997, the Company raised net proceeds of
$4,523,302 (after deducting the placement agent's commissions and
non-accountable expense allowance and other transaction expenses) from a private
placement of Series A Preferred Stock. An aggregate of 553,000 shares of Series
A Preferred Stock were issued. In April 1998, an additional 66,360 shares of
Series A Preferred Stock were issued to the purchasers of the private placement
as described in Note 7 to the Financial Statements. Each share of Series A
Preferred Stock is currently convertible into twenty shares of Common Stock
(after giving effect to an anti-dilution adjustment resulting from the reset of
the conversion price of the Series A Preferred Stock on December 8, 1998). Of
the net proceeds, $1,620,000 was used to redeem the IDA Bonds and $500,000 plus
accrued interest was used to repay the 1997 Bridge Loan (as defined below), with
the remainder used for general working capital purposes, including accrued
payables.
In July 1997, the ESDC was assigned approximately $1,888,000 outstanding
principal amount of term loans (plus accrued interest) owed by Dunkirk to Key
Bank. In December 1997, the ESDC granted the Company a debt forgiveness of
$500,000. Also, the balance of the related debt service reserve fund of
approximately $459,000 was applied against the outstanding principal and accrued
interest resulting in a principal balance of $1,032,798. ESDC also agreed to
defer all interest payments due under the loan through July 1, 1998 and to defer
all principal payments due under the loan through January 1, 1999, with interest
continuing to accrue on such deferred amounts and payable monthly beginning July
1998 through December 2001. The Company is currently in payment default on
amounts owed to ESDC.
In July and August 1997, the Company borrowed from the Funds an aggregate of
$500,000 (the "1997 Bridge Loan") which was used by the Company for general
working capital purposes. On September 8, 1997, the 1997 Bridge Loan was repaid,
together with accrued interest at the rate of 12% per annum, out of the proceeds
of the Series A Preferred Stock private placement. In connection with the 1997
Bridge Loan, the Company issued to the Funds warrants to purchase 198,863 shares
of Common Stock at an exercise price equal to $0.66 per share (after giving
effect to anti-dilution adjustments resulting from the sale of the Series A
Preferred Stock, the issuance of the additional shares of Series A Preferred
Stock in April 1998 and the reset of the conversion price of the Series A
Preferred Stock on December 8, 1998). See "Certain Relationships and Related
Transactions."
In September 1997, the $8,000,000 principal amount of the IDA Bonds were retired
in exchange for a cash payment of $1,620,000 and the balance of the related debt
service reserve fund of $194,000.
As of June 30, 1998, the Company had approximately $2,524,000 in principal
amount of indebtedness (excluding amounts borrowed under the Line of Credit and
capital lease obligations), consisting of (i) approximately $1,183,000
outstanding principal amount under the term loan with the ESDC, which bears
interest at the prime rate and is payable in monthly installments through
December 2001 (subject to the deferral through July 1, 1998 described above),
(ii) approximately $637,000 aggregate outstanding principal amount under various
mortgage and secured equipment loans and (iii) approximately $704,000 aggregate
outstanding principal amount under subordinated indebtedness from certain of the
Company's CRT glass
24
<PAGE>
customers who provided financial assistance to the Company during its start-up
phase. The Company's indebtedness is secured by liens on its fixed assets. The
Company's indebtedness has been used to finance its facility, equipment and
related capital expenditures. Certain of the agreements related to such
indebtedness contain customary covenants and default provisions.
In May 1998, the Company entered into the Credit Agreement for the Line of
Credit (which, as amended, provides for up to $1,290,000 principal amount of
loans) pursuant to which the Company had borrowed $610,000 as of June 30, 1998
and the balance during the first and second quarters of fiscal 1999. The
borrowings are secured by the receivables and inventory of the Company and
accrue interest at an annual rate of 12%. In connection with the Line of Credit,
as amended, the Company issued to the lenders warrants to purchase an aggregate
of 385,075 shares of Common Stock at an exercise price of $0.67 (after giving
effect to the antidilution adjustment as of December 8, 1998), subject to
vesting as the borrowings occurred. As of January 13, 1999, the Company had
borrowed an additional $90,000 under the Line of Credit and the Credit Agreement
was amended to reflect the increased borrowing, although formal documentation of
the amendment has not been fully executed. On February 16, 1999, the Funds
provided the Aries Interim Financing to the Company in the amount of up to
$150,000 ($135,000 of which has been drawn upon), although formal documentation
of the Aries Interim Financing has not been fully executed. During the period
commencing September 1998 and terminating in February 1999, Eckardt C. Beck, the
Acting President and Chief Executive Officer of the Company, provided loans to
the Company or did not receive accrued compensation, aggregating $190,000. The
loans accrue interest at the rate of 12% per year and are due upon demand but in
no event later than September 1, 1999. See "Certain Relationships and Related
Transactions."
The Company's capital lease payments were approximately $49,000 for the year
ended June 30, 1998 and are estimated to be approximately $27,000 and $16,000
for the fiscal years ending June 30, 1999 and 2000, respectively, under current
commitments. The Company has no other material commitments for capital
expenditures.
The Company receives waste materials for processing into finished goods
inventory, which then can be sold to its customers. The Company has recorded a
reserve for disposal for the probable disposal costs of waste material it has
received which cannot be processed through the Company's current processing
methods, net of the amount of deferred revenue recorded with respect to such
materials. The Company is continually attempting to refine existing processes to
increase yields and/or develop new processes for the waste materials on hand
which have not been able to be processed. The Company records a disposal reserve
with respect to materials it cannot process because it is probable it will incur
these costs on the ultimate disposition of the waste materials. The Company
estimates that the disposal costs for material received by the Company that the
Company cannot process, if and when incurred, will exceed the fees the Company
was paid to accept such materials.
The Company had 2,035 tons of unprocessed waste materials on hand as of June 30,
1998, compared to 6,732 tons on June 30, 1997. The Company's disposal reserve
was $515,000 as of June 30, 1998, compared to $713,000 at June 30, 1997. The
decrease in unprocessed waste materials on hand, and related decrease in reserve
for disposal, resulted primarily from applying certain manual and "off-line"
processing efforts to certain types of unprocessed CRT glass which were
processed and then purchased by a customer of the Company. Such decreases in the
reserve have been credited against operations.
25
<PAGE>
The Company has federal net operating loss carryforwards that amounted to
approximately $20 million at June 30, 1998, which expire between 2006 and 2013.
Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended (the
"Code"), utilization of net operating loss carryforwards is limited if there has
been a change in control (ownership) of the Company. Although a comprehensive
evaluation has not yet been performed, it is likely that due to historical
equity financings, as well as currently contemplated equity financings, the
Company's ability to utilize its net operating loss carryforwards could be
severely limited.
Pending Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). FAS 133 requires companies to recognize all
derivative contracts as either assets or liabilities in the balance sheet and to
measure them at fair value. FAS 133 is effective for periods beginning after
June 15, 1999. Historically, the Company has not entered into derivative
contracts. Accordingly, FAS 133 is not expected to affect the Company's
financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS
130") and No. 131, "Disclosure about Segments of an Enterprise and Related
Information" ("FAS 131"). FAS 130 establishes standards for reporting and
displaying comprehensive income, its components and accumulated balances. FAS
131 establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the public. Both FAS 130 and FAS 131 are effective for periods
beginning after December 15, 1997. Neither FAS 130 nor FAS 131 is expected to
have a material effect on the Company's financial statements.
Year 2000 Compatibility
The Company is working to resolve the potential impact of the Year 2000 on the
ability of the Company's computerized information systems to accurately process
information that may be date-sensitive. Any of the Company's programs or
computer-assisted systems that recognize a date using "00" as the year 1900
rather than the Year 2000 could result in errors or systems failures. It is also
possible that certain computer systems or software products of the Company's
suppliers and contractors may not be year 2000 compatible. The Company is
requesting assurances from all software vendors from which it has purchased or
from which it may purchase software that such software will correctly process
all date information at all times. Furthermore, the Company is querying its
suppliers and contractors as to their progress in identifying and addressing
problems that their computer and other technological systems will face in
correctly processing date information as the Year 2000 approaches. The Company
has not completed its assessment, but currently believes that costs of
addressing this issue will not have a material adverse impact on the Company's
financial position. However, if the Company and third parties upon which it
relies are unable to address this issue in a timely manner, it could result in a
material financial risk to the Company. In order to assure that this does not
occur, the Company plans to devote all resources required to resolve any
significant Year 2000 issues in a timely manner.
26
<PAGE>
Item 7. Financial Statements
See Financial Statements annexed.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
As previously reported on Form 8-K, on June 10, 1998, the Company and Ernst &
Young LLP, the Company's then independent auditors, mutually agreed to terminate
their relationship. In connection with its audits for each of the two years in
the period ended June 30, 1997 and in the subsequent interim periods, there were
no disagreements with Ernst & Young LLP on any matters of accounting principles
or practices, financial statement disclosure, or auditing scope or procedures
which, if not resolved to the satisfaction of Ernst & Young LLP, would have
caused Ernst & Young LLP to make reference to the matter in their report. Ernst
& Young LLP's report on the Company's financial statements for each of the two
years in the period ended June 30, 1997, contained no adverse opinion or
disclaimer of opinion and was not modified or qualified as to uncertainty, audit
scope or accounting principles, except that Ernst & Young LLP's report on the
Company's consolidated financial statements for the fiscal year ended June 30,
1997 included an explanatory paragraph that the Company had generated only
minimal revenue, incurred significant losses and had a working capital
deficiency and stockholders' deficiency, which conditions raised substantial
doubt about the company's ability to continue as a going concern. Such report
also stated that the financial statements did not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
possible inability of the Company to continue as a going concern.
In August 1998, the Company engaged BDO Seidman, LLP, to serve as the Company's
independent auditors. The decision to change accountants was recommended by the
Audit Committee of the Company's Board of Directors and such recommendation was
approved by the Company's Board of Directors.
PART III
Item 9. Directors, Executive Officers; Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.
Eckardt C. Beck, Douglas M. Costle, Stephen D. Fish, Peter H. Gardner, Alexander
P. Haig, and Irwin M. Rosenthal are the members of the Board of Directors of the
Company.
The Officers of the Company are:
Eckardt C. Beck Chairman of the Board, Acting President
and Chief Executive Officer
John G. Murchie Acting Chief Financial Officer and
Controller
27
<PAGE>
The name, business address, present principal occupation of employment and
five (5) year employment history of each of the directors and executive officers
of the Company are set forth below. All such individuals are citizens of the
United States unless otherwise indicated.
Position(s) with the Company; Principal
occupation or Employment; Five (5) Year
Name, Age and Business Address Employment History
- ------------------------------ ------------------
Eckardt C. Beck (56) Mr. Beck has been acting as President
Conversion Technology and Chief Executive Officer of the
International, Inc. Company since October, 1998. Mr. Beck
7 San Bartola Drive has been a director of the Company
St. Augustine, FL 32086 since February 1995 and Chairman of the
Board since February 1997. Mr. Beck
also 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 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 (59) Mr. Costle was appointed to the
Rural Route #2, Box 480 Company's Board of Directors in October
Woodstock, VT 05091 1997. Mr. Costle has been a director of
Niagara Mohawk Power Corporation, a
publicly-held utility company, since
January 1991. Mr. Costle is currently a
director of several privately-held
technology companies and is an
Independent Trustee of John Hancock
Mutual Funds. Retired since 1992, 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 (53) Mr. Fish was appointed to the Company's
Fish Enterprises Board of Directors in October 1997. Mr.
302 West Main Street, Suite 155 Fish has been President of Fish
Avon, CT 06001 Enterprises, a privately-held real
estate development and management
company, since 1970. Mr. Fish also
serves on the Advisory Board of Fleet
28
<PAGE>
Bank of Connecticut.
Peter H. Gardner (32) Mr. Gardner has been a director of the
Media Technology Ventures Company since October 1995. Since
1 First Street, Suite 2 January 1998, Mr. Gardner has been a
Los Altos, CA 94022 principal of Media Technology Ventures,
a privately-held venture capital firm.
From July 1994 through December 1997,
Mr. Gardner was a Vice President of
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
held the position of Project Leader and
Project Scientist at Roy F. Weston,
Inc., an environmental engineering
firm, from June 1990 through August
1993. Mr. Gardner was pursuing a
graduate degree in business
administration between September 1993
and June 1995.
Alexander P. Haig (46) Mr. Haig has been a director of the
Sky Station International Company since May 1996. Since February
1824 "R" Street, N.W. 1996, Mr. Haig has been President and
Washington, D.C. 20009 Chief Operating Officer of Sky Station
International Inc., a privately-held
telecommunications company. Mr. Haig
has served since 1988 as a principal
and legal counsel to Worldwide
Associates, Inc., a privately-held
business adviser to both United States
and foreign countries for marketing and
sales activities. Prior to 1988, Mr.
Haig was an attorney in private
practice.
Irwin M. Rosenthal (70) Mr. Rosenthal was appointed as a
Graham & James LLP director of the Company in May 1996.
885 Third Avenue, 21st Floor Mr. Rosenthal is an attorney and since
New York, N.Y. 10022 1960 has specialized in securities law.
He is currently a partner at Graham &
James LLP. Prior to July 1998, Mr.
Rosenthal was a partner at Rubin Baum
Levin Constant & Friedman. Mr.
Rosenthal serves as Secretary and as a
director of Magar Inc. a private
investment firm ("Magar"), of which he
is a principal stockholder. Mr.
Rosenthal is also a director of
Magna-Lab, a publicly-traded chemical
and medical technology company. He is
also a director of Life Medical
Sciences, Inc., a publicly-traded
medical technology
29
<PAGE>
company and Echocath, Inc., a
publicly-traded medical technology
company.
John G. Murchie (61) Mr. Murchie has been the Acting Chief
Conversion Technology Financial Officer of the Company since
International, Inc. January 1998, and Controller since
7 San Bartola Drive September 1997. From February 1995 to
St. Augustine, FL 32086 September 1997, Mr. Murchie was the
Controller and Chief Administrative
Officer of Dunkirk. From February 1994
to February 1995, Mr. Murchie worked on
a full time basis for Dunkirk as a
consultant and was not otherwise
employed. From November 1985 to
February 1994, Mr. Murchie was employed
by Rich Products Corporation, a
privately-held food products company,
in various financial positions. Mr.
Murchie received a B.S. in Business
Administration from Miami University of
Ohio.
All directors of the Company are elected by the stockholders, or in the case of
a vacancy, by the directors then in office, to hold office until the next annual
meeting of stockholders of the Company and until their successors are elected
and qualified or until their earlier resignation or removal.
Board Committees
The Board of Directors has established four committees - the Audit Committee,
the Compensation Committee, the Fairness Committee and the Nominating Committee.
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 makes recommendations to the Board with respect to
general compensation and benefit levels for employees, 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 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 Nominating Committee at
the Company at 7 San Bartola Drive, St. Augustine, Florida, 32086. The Fairness
Committee makes recommendations to the Board with respect to transactions
involving relating parties, oversees trading and SEC compliance procedures and
addresses corporate governance issues. The current members of these Committees
are:
Audit Committee: Irwin M. Rosenthal and Douglas M. Costle
Compensation Committee: Peter H. Gardner and Douglas M. Costle
Fairness Committee: Alexander P. Haig and Stephen D. Fish
Nominating Committee: Peter H. Gardner and Douglas M. Costle
30
<PAGE>
Limitation of Liability and Indemnification Matters
The Company's Certificate of Incorporation contains provisions to indemnify its
directors and officers to the fullest extent permitted by Delaware law, and also
includes provisions to eliminate the personal liability of the directors and
officers of the Company and its stockholders to the fullest extent permitted by
Delaware law. Under current law, such exculpation would extend to an officer's
or director's breaches of fiduciary duty, except for (i) breaches of such
person's duty of loyalty, (ii) those instances where such person is found not to
have acted in good faith and (iii) those instances where such person received an
improper personal benefit as a result of such breach.
The Company's bylaws provide that the Company may indemnify any person,
including officers and directors, with regard to any action or proceeding to the
fullest extent permitted under Delaware law.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company knows of no late filings pursuant to Section 16(a) of the Exchange
Act.
Item 10. Executive Compensation.
Summary Compensation Table
The following summary compensation table sets forth the aggregate compensation
paid or accrued by the Company for the fiscal years ended June 30, 1998, 1997
and 1996 to Eckardt C. Beck, the Company's Acting President and Chief Executive
Officer and who served as the Company's chief executive officer during a portion
of fiscal 1998, and William L. Amt, who also served as the Company's chief
executive officer during a portion of fiscal 1998 (collectively, the "Named
Executive Officers"). No other executive officer received annual compensation in
excess of $100,000 for fiscal 1998.
<TABLE>
<CAPTION>
Long Term
Compensation
Awards Payouts
--------------------- -------
Other Securities Underlying All
Name and Fiscal Salary Bonus Annual Options/ LTIP Other
Principal Position Year ($) ($) Compensation SARs Payouts Compensation
- ------------------ ------ ------ ----- ------------ --------------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Eckardt C. Beck 1998 -- -- 85,677(1) 300,000(2) --
Acting President 1997 52,000(1) -- 10,121(3) --
& Chief Executive 1996 12,000 -- --
Officer from June
1997 to August
1997
William L. Amt 1998 146,667(4) -- -- 300,000(2) --
Former President 1997 -- -- -- -- --
and Chief 1996 -- -- -- -- --
Executive Officer
</TABLE>
- ----------
(1) Mr. Beck has served as Chairman since February 1997, and as Acting
President and Chief Executive Officer from June 1997 to August 1997 and
from October 1998 through the present. Compensation represents consulting
fees pursuant to his Consulting Agreement with the Company. See "Certain
Relationships and Related Transactions." Mr. Beck currently has accrued
for his benefit $10,000 per month under the Consulting Agreement.
(footnotes continued on next page)
31
<PAGE>
(2) Represents options granted in July and August 1997 pursuant to the
Company's 1996 Long-Term Plan which vest 20% at date of grant and 20% for
each of the next four years, expire on the seventh anniversary of the
dates of grant and have an exercise price of $0.78 per share.
(3) Represents options granted in July and October 1996 pursuant to the
Company's Non-Employee Plan. All options vest one year from date of grant
and have an exercise price of $0.78 per share.
(4) Mr. Amt ceased being an officer of the Company in October 1998.
Option Plans
The Company maintains an Employee Stock Option Plan (the "Employee Plan"), a
Non-Employee Director Stock Option Plan (the "Non-Employee Plan") and a Long
Term Employee Incentive Plan (the "Long-Term Plan"). Under the Employee Plan and
the Non-Employee Plan stock options may be granted at the discretion of the
Board of Directors. Under the Long-Term Plan, stock options, stock awards or
cash awards may be granted at the discretion of the Board of Directors.
The Company has reserved 440,000, 250,000 and 710,000 shares, respectively, of
its Common Stock for issuance upon the exercise of options and awards granted
under the Employee, Non-Employee and Long-Term Plans, respectively. At June 30,
1998, the Company has reserved 1,414,392 shares of Common Stock for the exercise
of all options granted.
Under the Non-Employee Plan, options to purchase an aggregate of 167,918 shares
are outstanding as of March 1, 1999. These options vest in full one year after
the date of grant and expire ten years from the date of grant.
Under the Employee Plan, options to purchase an aggregate of 296,959 shares are
outstanding as of March 1, 1999. These options vest one-third on each of the
first three anniversaries of the date of grant and expire on the seventh
anniversary of the date of grant.
Under the Long-Term Plan, options to purchase an aggregate of 305,000 shares are
outstanding and an additional 90,000 shares have been granted, exercised, and
are outstanding. The options granted under the Long-Term Plan vest 20% at date
of grant and 20% for each of the next four years and expire on the seventh
anniversary of the date of grant.
The Company grants stock options for the Employee Plan and Non-Employee Plan at
exercise prices equal to or greater than the fair market value of the Common
Stock on the date of grant.
Repricing of Options
In January 1998, the Board of Directors of the Company determined that the
purposes of the Non-Employee and the Long Term Plans were not being adequately
achieved with respect to those employees and directors holding options that were
exercisable above current market value and that it was essential to the best
interests of the Company and the Company's shareholders that the Company retain
and motivate such employees and directors. The Board concluded that such
retention was particularly important given the Company's financial situation at
that time and that a cost-effective approach to retention and motivation was
required. The Board further determined that it would be in the best interests of
the Company and the Company's shareholders to provide such optionees the
opportunity to exchange their above market value options for options exercisable
at the current market value. Accordingly, on January 27, 1998, the Company
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<PAGE>
reduced the exercise price of certain options granted under the Non-Employee
Plan for 21,580 shares (11,338 for Mr. Beck, 5,121 for Mr. Haig, and 5,121 for
Mr. Rosenthal) to $0.78 per share from exercise prices ranging from $3.125 to
$5.00 per share. Additionally, the Company reduced the exercise price of all
options granted under Long-Term Plan for 600,000 shares (300,000 for each of
Messrs. Beck and Amt) to $0.78 per share from an exercise price of $1.375 per
share.
Option/SAR Grants in Last Fiscal Year
The following table sets forth the options granted to the Named Executive
Officers during the fiscal 1998.
Stock Option Tables
Number of Percent of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted(1) Fiscal Year(1) Price ($/Sh) Date
- --------------- ------------ ---------------- ---------------- ----------
Eckardt C. Beck 300,000(2) 28.9% $1.375 7/22/04
William L. Amt 300,000(3) 28.9% $1.375 8/1/04
- ----------
(1) The Company granted options to purchase an aggregate of 1,037,500 shares
of Common Stock during fiscal 1998.
(2) Granted on July 22, 1997 pursuant to the Company's Long-Term Plan which
vest 20% at date of grant and 20% for each of the next four years and
expires on the seventh anniversary of the date of grant. On January 27,
1998 the exercise price was reduced to $0.78 per share. Options not vested
at time of resignation are forfeited pursuant to option terms.
(3) Granted on August 1, 1997 pursuant to the Company's Long-Term Plan which
vest 20% at date of grant and 20% for each of the next four years and
expires on the seventh anniversary of the date of grant. On January 27,
1998 the exercise price was reduced to $0.78 per share. Options not vested
at time of resignation are forfeited pursuant to option terms.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The following table sets forth information (on an aggregate basis) concerning
each exercise of stock options during fiscal 1998 by each of the Named Executive
Officers and the final year-end value of unexercised options. The table reflects
options exercisable within 60 days of the date of this Report.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
unexercised "In-the-Money"
Options/SARs at Options/SARs at
Fiscal Year-End Fiscal Year-End (2)
------------------------ -------------------------
Shares
Acquired Value Unexercis- Unexercis-
Name on Exercise(1) Realized(1) Exercisable Able Exercisable Able
- --------------- -------------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Eckardt C. Beck -- -- 131,338 180,000 $24,659 $33,795
William L. Amt -- -- 120,000 180,000 $22,530 $33,795
</TABLE>
(1) As of the date of this Report, none of the Named Executive Officers have
exercised any of their options.
(2) Calculated based on the difference between the exercise price and the
closing price of a share of the Common Stock on the Nasdaq Small Cap
Market on June 30, 1998.
33
<PAGE>
401(k) Plan
The Company established a 401(k) defined contribution plan covering
substantially all employees meeting certain minimum age and service requirements
effective August 1, 1998. The Company's contribution to the plan is determined
by the Board of Directors and is limited to a maximum of 100% of the employee's
contribution and 6% of the Employee's compensation. No contributions were made
to the plan for the fiscal years ended June 30, 1998 and 1997.
Compensation of Directors
In fiscal 1998, 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.
Pursuant to the Non-Employee Plan, the Company issued to non-employee directors
options to purchase an aggregate of 135,000 shares of Common Stock during fiscal
1998. Options for 40,000 shares vested at grant date, 45,000 shares vest one
year from grant date, and 25,000 vest on each of the following two anniversary
grant dates and contain exercise prices of between $0.781 and $1.875 per share.
Non-Employee directors received no other compensation for their services as
directors.
Employment and Consulting Arrangements
The Company entered into a Consulting Agreement with Eckardt C. Beck in March
1995, which was amended in February 1997, August 1997 and July 1998 (as amended,
the "Consulting Agreement") (formal documentation of the July 1998 amendment has
not been fully executed). 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 accrue and/or receive a monthly salary of $10,000
pursuant to the Consulting Agreement until its expiration in August 2000.
In June 1997, the Company entered into a consulting agreement with Harvey
Goldman (the "Goldman Consulting Agreement"), former Vice-Chairman, President
and Chief Executive Officer of the Company, which terminated his prior
employment agreement with the Company and contains mutual releases for any
claims under such prior agreement. Pursuant to the Goldman 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 was entitled to receive a monthly consulting fee of $10,000 pursuant
to the Goldman Consulting Agreement through June 1998. In the event that the
Company fails to pay the consideration due under the Goldman Consulting
Agreement, Mr. Goldman retains all rights that he had under his prior agreement
with respect to termination. See "Certain Relationships and Related
Transactions."
In August 1997, the Company entered into a one-year employment agreement with
William L. Amt which provided for automatic one-year renewal options unless
contrary written notice is given by either party. In October 1998, Mr. Amt
resigned from his position as President and Chief Executive Officer under this
agreement. Under the terms of the employment agreement, which included
confidentiality and non-competition provisions, Mr. Amt received an annual
salary of $160,000, subject to increase at the discretion of the Board. Both the
Company and Mr.
34
<PAGE>
Amt had the right to terminate the employment agreement at any time by providing
written notice to the other party. Mr. Amt was granted non-qualified stock
options to purchase 300,000 shares of Common Stock, the exercise price of which
was repriced from $1.375 to $0.78 per share in January 1998. See Option/SAR
Grants in Last Fiscal Year." 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. See "Certain
Relationships and Related Transactions."
In January 1998, Jack D. Hays, Jr. and Richard H. Hughes ceased to be executive
officers of the Company. In connection with the termination of their employment
with the Company, each of Mr. Hays and Mr. Hughes entered into a Termination
Agreement with the Company. The Termination Agreements (i) terminate the
Employment Agreements between the Company and Mr. Hays and Mr. Hughes (except
with respect to continued indemnification as former officers of the Company and
confidentiality obligations of Mr. Hays and Mr. Hughes), (ii) provide that Mr.
Hays and Mr. Hughes forfeit all stock options held by them whether or not
vested, (iii) provide that each of them will receive a cash payment of $18,000
in full satisfaction of accrued salary and any other amounts otherwise due under
their Employment Agreements, (iv) contain a release by Mr. Hays and Mr. Hughes
with respect to any and all claims against the Company and (v) require Mr. Hays
and Mr. Hughes to refrain from soliciting any employees of the Company. The
Company has also entered into a Manufacturer's Representative Agreement with an
entity formed and owned by such former officers pursuant to which they will
continue to perform marketing services for the Company. Pursuant to such
Manufacturer's Representative Agreement, such entity was to receive compensation
on a commission basis with respect to its sales of the Company's products. The
Company terminated the Manufacturer's Representative Agreement effective August
1, 1998. See "Certain Relationships and Related Transactions."
35
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of March 1, 1999, certain information as to
the stock ownership and voting power of all persons (or groups of persons) known
by the Company to be the beneficial owner of more than five percent (5%) of the
Common Stock, each director of the Company, each of the executive officers
included in the Summary Compensation Table and all directors and executive
officers as a group.
<TABLE>
<CAPTION>
Number of Shares Percentage of Voting
Name of Beneficial Owner(1) Beneficially Owned(2) Power(3)
- --------------------------- --------------------- --------------------
<S> <C> <C>
Eckardt C. Beck(4) 369,171 2.1
Peter H. Gardner(5) 46,338 *
Alexander P. Haig(6) 15,121 *
Douglas M. Costle(7) 15,000 *
Stephen D. Fish(8) 463,000 2.6
Irwin M. Rosenthal(9) 15,121 *
John G. Murchie(10) 36,063 *
All officers and directors as a group (7
persons)(11) 959,814 5.3
Technology Funding Venture Partners V, An
Aggressive Growth Fund, L.P.(12) 1,547,266 8.4
The Aries Fund,
a Cayman Islands Trust(13)
787 7th Avenue
48th Floor
New York, New York 10019 2,175,891 11.7
Aries Domestic Fund, L.P.(14)
787 7th Avenue, 48th Floor
New York, New York 10019 1,268,697 6.9
Porter Partners, L.P.(15)
100 Shoreline, Suite 211B
Mill Valley, California 94941 896,000 5.0
P.A.W. Offshore Fund, Ltd.(16)
90 Mees Pierson
904 East Bay Street
P.O. Box 55-6233
Nassau, Bahamas 1,120,000 6.3
</TABLE>
- ----------
* 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., 7 San Bartola Drive, St.
Augustine, Florida 32086.
(2) The number of shares beneficially owned by each person named in the table
includes shares held by each individual of (i) the Company's Common Stock;
(ii) the Company's Series A Preferred Stock, as converted into Common
Stock; (iii) Series A Preferred Stock subject to warrants that are
presently exercisable, as converted into Common Stock; and (iv) Common
Stock subject to options or warrants that are presently exercisable or
exercisable within 60 days of March 31, 1999.
(footnotes continued on next page)
36
<PAGE>
(3) Applicable percentage of voting power is based on the 17,863,645 shares of
Common Stock outstanding as of March 31, 1999. That number is comprised of
5,603,045 outstanding shares of Common Stock and 12,260,600 shares of
Common Stock issuable upon conversion of 613,030 outstanding shares of
Series A Preferred Stock. Shares of Series A Preferred Stock and Common
Stock subject to options and warrants that are presently exercisable or
exercisable within 60 days are deemed to be beneficially owned by the
person holding such options and warrants 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) Includes 13,833 shares of Common Stock held and 224,000 shares of Common
Stock issuable upon conversion of 11,200 outstanding shares of Series A
Preferred Stock. Also includes currently exercisable options to purchase
131,338 shares of Common Stock. Excludes options to purchase 180,000
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.
(5) Includes currently exercisable options to purchase 46,338 shares of Common
Stock. Excludes options to purchase 10,000 shares of Common Stock which
are not exercisable within 60 days. Mr. Gardner was formerly an Investment
Officer at Technology Funding, Inc. ("TFI"), the Managing General Partner
of Technology Funding Partners III, L.P. ("TFP III") and Technology
Funding Partners V, an Aggressive Growth Fund, L.P. ("TFVP V"). Mr.
Gardner disclaims beneficial ownership of all securities of the Company
owned by TFP III and TFVP V.
(6) Includes currently exercisable options to purchase 15,121 shares of Common
Stock. Excludes options to purchase 10,000 shares of Common Stock which
are not exercisable within 60 days.
(7) Includes currently exercisable options to purchase 15,000 shares of Common
Stock. Excludes options to purchase 10,000 shares of Common Stock which
are not exercisable within 60 days.
(8) Includes 448,000 shares issuable upon conversion of 22,400 shares of
Series A Preferred Stock and currently exercisable options to purchase
15,000 shares of Common Stock. Excludes options to purchase 10,000 shares
of Common Stock which are not exercisable within 60 days.
(9) Includes currently exercisable options to purchase 15,121 shares of Common
Stock. Excludes options to purchase 10,000 shares of Common Stock which
are not exercisable within 60 days.
(10) Includes currently exercisable options to purchase 36,063 shares of Common
Stock. Excludes options to purchase 67,667 shares of Common Stock which
are not exercisable within 60 days.
(11) Calculation does not include securities held by Mr. Goldman or Mr. Pappas
who are no longer directors or officers of the Company. Calculation
excludes options to purchase 297,667 shares of Common Stock which are not
exercisable within 60 days.
(12) Includes (A) securities held by TFVP V consisting of (i) 207,547 shares of
Common Stock, (ii) 176,400 shares of Common Stock issuable upon conversion
of 8,820 shares of Series A Preferred Stock, (iii) shares of Common Stock
issuable upon exercise of 371,822 Class A Warrants (includes the Class B
Warrants underlying such Class A Warrants), and (iv) 51,884 shares of
Common Stock underlying additional warrants, and (B) securities held by
TFP III consisting of (i) 69,180 shares of Common Stock, (ii) 529,200
shares of Common Stock issuable upon conversion of 26,460 shares of Series
A Preferred Stock, (iii) shares of Common Stock issuable upon exercise of
123,940 Class A Warrants (includes the Class B Warrants underlying such
Class A Warrants) and (iv) 17,293 shares of Common Stock underlying
additional warrants.
(13) Paramount Capital Asset Management, Inc. ("PCAM") is the Investment
Manager to The Aries Fund, a Cayman Islands Trust (the "Aries Trust").
Lindsay A. Rosenwald, M.D. is President and sole shareholder of PCAM. PCAM
and Dr. Rosenwald may be considered to beneficially own the securities
owned by the Aries Trust by virtue of their authority to vote and/or
dispose of the securities. Securities held by the Aries Trust consist of
1,478,400 shares of Common Stock issuable upon conversion of 73,920 shares
of Series A Preferred Stock, shares of Common Stock issuable upon exercise
of 148,728 Class A Warrants (includes the Class B Warrants underlying such
Class A Warrants); 400,903 shares of Common Stock underlying
37
<PAGE>
additional warrants, and 147,860 shares of Common Stock underlying Series
A Preferred Stock subject to warrants. In addition, Dr. Rosenwald
beneficially owns 205,134 shares of the Company's Common Stock and
warrants to purchase 44,727 shares of the Company's Common Stock.
(14) PCAM is the General Partner of the Aries Domestic Fund L.P. Dr. Rosenwald
is the President and sole shareholder of PCAM. PCAM and Dr. Rosenwald may
be considered to beneficially own the securities owned by the Aries
Domestic Fund, L.P. by virtue of their authority to vote and/or dispose of
the securities. PCAM and Dr. Rosenwald beneficially own all securities of
the Company held by the Aries Domestic Fund, L.P. Securities held by Aries
Domestic Fund, L.P. consist of 761,600 shares of Common Stock issuable
upon conversion of 38,080 shares of Series A Preferred Stock, shares of
Common Stock issuable upon exercise of 247,882 Class A Warrants (including
the Class B Warrants underlying such Class A Warrants); warrants to
purchase an additional 183,035 shares of Common Stock, and warrants to
purchase Series A Preferred Stock which is convertible into 76,180 shares
of Common Stock. In addition, Dr. Rosenwald beneficially owns 205,134
shares of the Company's Common Stock and warrants to purchase 44,727
shares of the Company's Common Stock.
(15) Includes 896,000 shares of Common Stock underlying 44,800 shares of Series
A Preferred Stock. Jeffrey H. Porter is the Managing General Partner of
Porter Partners, L.P. Mr. Porter may be considered a beneficial owner of
the securities owned by Porter Partners, L.P. by virtue of his authority
to vote and/or dispose of the securities held by Porter Partners, L.P. Mr.
Porter disclaims beneficial ownership of all securities of the Company
held by Porter Partners, L.P.
(16) Includes 1,120,000 shares of Common Stock underlying 56,000 shares of
Series A Preferred Stock. Peter Wright is the Investment Manager for the
P.A.W. Offshore Fund, Ltd. Mr. Wright may be considered the beneficial
owner of the securities owned by the P.A.W. Offshore Fund, Ltd. by virtue
of his authority to vote and/or dispose of the Company's securities held
by P.A.W. Offshore Fund, Ltd. Mr. Wright disclaims beneficial ownership of
all securities of the Company held by P.A.W. Offshore Fund, Ltd
Item 12. Certain Relationships and Related Transactions.
During the period from September 1998 to February 1999, Eckardt C. Beck, the
Chairman of the Board and Acting President and Chief Executive Officer of the
Company, provided loans to the Company or did not receive accrued compensation
aggregating $190,000, which loans are represented by that certain Promissory
Note dated February 23, 1999. The loans accrue interest at the rate of 12% per
year and are due upon demand but in no event later than September 1, 1999. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
For a description of the terms of the Consulting Agreement between the Company
and Mr. Beck, see "Executive Compensation - Employment and Consulting
Arrangements".
The Company entered into the Credit Agreement with the Funds, two significant
stockholders of the Company. See "Description of Business- Certain Recent
Events." The Credit Agreement provides for the Line of Credit of up to
$1,200,000 pursuant to which the Company can draw down up to $300,000 per month,
although draw downs beyond the initial $300,000 are at the discretion of the
Funds. The Line of Credit is secured by the receivables and inventory of the
Company and its subsidiaries. Amounts borrowed under the Line of Credit accrue
interest at an annual rate of 12%. The Line of Credit matures on the earlier of
May 8, 1999 or upon the completion of any financing of at least $1,500,000. The
Credit Agreement contains customary covenants and default provisions. In
addition, upon an Event of Default (as defined in the Credit Agreement), but
only after a 60-day cure period, the Funds will be entitled to appoint a
majority of the Company's Board of Directors. In addition, upon an Event of
Default, but only after a 90-day cure period, the Funds may convert any
outstanding principal amount plus interest, into shares of Common Stock of the
Company at the then fair market value of the Common Stock.
38
<PAGE>
As of December 15, 1998, the Line of Credit was amended to provide for a line of
credit of up to $1,290,000, although formal documentation of the amendment has
not been fully executed. As of January 13, 1999, the Company had drawn down all
amounts under the Line of Credit.
In connection with the Line of Credit, as amended, the Company issued to the
Funds warrants to purchase an aggregate of 385,075 shares of Common Stock at an
exercise price equal to $0.67 per share (after giving effect to antidilution
adjustments resulting from a reset of the conversion price of the Company's
Series A Preferred Stock on December 8, 1998). See "Description of Business-
Certain Recent Events." Of such warrants, warrants to purchase 29,850 shares of
Common Stock vest upon each $100,000 (or ratable portion thereof) being drawn
under the Credit Agreement.
On February 22, 1999, the Company having drawn down an aggregate of $1,290,000
on the Line of Credit, in default on its interest payments due thereunder and in
need of financing, entered into a series of agreements with the Funds which
amended the Line of Credit Agreement and the notes evidencing the amounts drawn
down on the Line of Credit, although formal documentation of the agreements has
not been fully executed. Under such amendments, if the Company fails to raise an
aggregate of $1,500,000 by April 1, 1999, the Funds may accelerate the amounts
due under the Line of Credit Agreement and exercise its repayment right by
requiring the Company to repay such amount by delivering either (i) the amount
of shares of Common Stock equal to the principal and interest due under the Line
of Credit or (ii) 90% of the shares of the common stock of APT. Contingent upon
the Company raising an aggregate of $1,500,000 by April 1, 1999, the Funds
delayed their right to payment of principal and interest under the Line of
Credit until September 1, 1999 or the completion of financings by the Company
raising an aggregate of $2,790,000. In addition, on February 16, 1999, in
exchange for a working capital loan of up to the amount of $150,000, the Company
delivered an unsecured convertible promissory note (the "Convertible Note") in
the amount of $150,000 in favor of the Funds due on September 1, 1999 and
bearing interest at the rate of 12% per annum. Under the Convertible Note, upon
either an event of default or the inability of the Company to raise $1,500,000
by April 1, 1999, the Funds could (i) convert the debt into the amount of shares
of Common Stock equal to the principal and interest due under the Convertible
Note or (ii) exchange the debt for 10% of the shares of common stock of APT. The
Funds also agreed that the right to payment for the Convertible Note and the
amounts drawn down on the Line of Credit would be subordinated to the right of
payment under loans aggregating $190,000 made to the Company by Mr. Beck during
1998 and 1999. See "Description of Business - Certain Recent Events."
In July and August of 1997, the Funds advanced to the Company and the Company
repaid the 1997 Bridge Loan together with accrued interest at the rate of 12%
per annum, and in connection therewith, the Company issued to the Funds warrants
to purchase 198,863 shares of Common Stock at an exercise price equal to $0.66
(after giving effect to antidilution adjustments resulting from the sale of
Series A Preferred Stock, the issuance of the additional shares of Series A
Preferred Stock in April 1998, and the reset of the conversion price of the
Series A Preferred Stock on December 8, 1998). See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
In August 1997, the Company entered into a one-year employment agreement with
William L. Amt which provided for automatic one-year renewal options unless
contrary written notice is given by either party. In October 1998, Mr. Amt
resigned from his position as President and Chief Executive Officer under this
agreement. Under the terms of the employment agreement, which included
confidentiality and non-competition provisions, Mr. Amt received an annual
39
<PAGE>
salary of $160,000, subject to increase at the discretion of the Board. Both the
Company and Mr. Amt had the right to terminate the employment agreement at any
time by providing written notice to the other party. Mr. Amt was granted
non-qualified stock options to purchase 300,000 shares of Common Stock, the
exercise price of which was repriced from $1.375 to $0.78 per share in January
1998. See Option/SAR Grants in Last Fiscal Year." Mr. Amt's options expired in
connection with his resignation from the Company. See "Executive
Compensation-Employment and Consulting Arrangements."
In June 1997, the Company entered into the Goldman Consulting Agreement with
Harvey Goldman, former Vice-Chairman, President and Chief Executive Officer of
the Company, which terminated his prior employment agreement with the Company
and contains mutual releases for claims under such prior agreement. Pursuant to
the Goldman 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 was entitled to receive a monthly
consulting fee of $10,000 per month for nine months terminating with the final
payment due in June 1998. See "Executive Compensation-Employment and Consulting
Arrangements."
In January 1998, Jack D. Hays, Jr. and Richard H. Hughes, formerly executive
officers of the Company, ceased to be employed with the Company. In connection
with the termination of their employment with the Company, each of Mr. Hays and
Mr. Hughes entered into a Termination Agreement with the Company. The
Termination Agreements (i) terminate the Employment Agreements between the
Company and Mr. Hays and Mr. Hughes (except with respect to continued
indemnification as former officers of the Company and confidentiality
obligations of Mr. Hays and Mr. Hughes), (ii) provide that Mr. Hays and Mr.
Hughes forfeit all stock options held by them whether or not vested, (iii)
provide that each of them will receive a cash payment of $18,000 in full
satisfaction of accrued salary and any other amounts otherwise due under their
Employment Agreements, (iv) contain a release by Mr. Hays and Mr. Hughes with
respect to any claims against the Company and (v) require Mr. Hays and Mr.
Hughes to refrain from soliciting any employees of the Company. The Company also
entered into a marketing and sales representative agreement (the "Manufacturer's
Representative Agreement") with Engineered Product Sales Associates, a company
formed and owned by Messrs. Hays and Hughes. Pursuant to such Manufacturer's
Representative Agreement, such entity was to receive commission payments based
on sales at various levels. The Company terminated the Manufacturers'
Representation Agreement effective August 1, 1998. See "Executive Compensation
- -Employment and Consulting Arrangements."
On December 8, 1997, the Company consummated the final closing of a private
placement of the Company's Series A Preferred Stock. The Company sold an
aggregate of 553,000 shares of Series A Preferred Stock in the private
placement. Each share of Series A Preferred Stock is currently convertible into
twenty shares of Common Stock (after giving effect to an anti-dilution
adjustment resulting from the reset of the conversion price of the Series A
Preferred Stock on December 8, 1998). PCAM acted as placement agent for the
private placement and received an aggregate placement fee of $497,700, and an
aggregate expense allowance of $232,700. In addition, the Company granted to
PCAM, and/or its designees, warrants to purchase 61,945 shares of Series A
Preferred Stock at an exercise price equal to $9.82 per share (after giving
effect to an anti-dilution adjustment resulting from the reset of the conversion
price of the Series A Preferred Stock on December 8, 1998). See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
40
<PAGE>
The proceeds of the offering were used to (i) redeem $8 million principal amount
IDA Bonds for approximately $1.6 million; (ii) repay the $500,000 principal
amount 1997 Bridge Loan, including interest; (iii) pay transaction costs
incurred in connection with the offering; and (iv) provide working capital for
the Company's operations.
On July 1, 1997, Messrs. Hays and Hughes, former executive officers of the
Company, were granted incentive stock options to purchase 100,000 and 75,000
shares of Common Stock, respectively, at an exercise price of $1.625 per share.
Such options were canceled in connection with the termination of their
employment with the Company in January 1998.
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 6, 1997, Messrs. Gardner and Katzmann were each granted stock options
to purchase 20,000 shares of Common Stock at an exercise price of $1.875 under
the Stock Option Plan for Non-Employee Directors. 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. Mr. Katzmann ceased to be
a director of the Company in December 1997 and all options granted to Mr.
Katzmann under the Stock Option Plan for Non-Employee Directors have expired.
On August 29, 1997, Mr. Fish purchased 20,000 shares of Series A Preferred Stock
for $200,000, and on September 5, 1997, Mr. Beck purchased 10,000 shares of
Series A Preferred Stock for $100,000 in the Series A Preferred Stock Private
Placement.
On January 27, 1998, Messrs. Costle, Fish and Gardner were each granted stock
options to purchase 25,000 shares of Common Stock at an exercise price of $0.78
(the closing price of the Common Stock on the Nasdaq SmallCap Market on such
date) under the Stock Option Plan for Non-Employee Directors. Forty percent
(40%) of such options vested upon issuance and twenty percent (20%) vest on the
first, second and third anniversary of the date of issuance. Also on January 27,
1998, Messrs. Rosenthal and Haig were each granted stock options to purchase
20,000 shares of Common Stock at an exercise price of $0.78 under the Stock
Option Plan for Non-Employee Directors. Twenty-five percent (25%) of such
options vested upon issuance and twenty-five percent (25%) vest on the first,
second and third anniversary of the date of issuance. In addition, Scott A.
Katzmann, a former director of the Company, was granted an option to purchase
15,000 shares of Common Stock with an exercise price of $0.78 outside of the
Company's stock option plans.
Also on January 27, 1998, Messrs. Murchie and Jellum were each granted stock
options to purchase 100,000 shares of Common Stock at an exercise price of
$0.78. Thirty-three percent (33%) of such options vest on the first, second and
third anniversary of the date of issuance. Mr. Jellum's options expired in
connection with the termination of his employment with the Company in October
1998.
Also on January 27, 1998, the Board repriced options to purchase 300,000 shares
of Common Stock held by each of Mr. Beck and Mr. Amt from $1.375 to $0.78 per
share (the last reported sale price of the Common Stock as of such date) under
its 1996 Long-Term Employee Incentive
41
<PAGE>
Plan, and options to purchase an aggregate of 21,580 shares of Common Stock
outstanding under the Stock Option Plan for Non-Employee Directors held by Mr.
Beck, Mr. Haig and Mr. Rosenthal from exercise prices ranging from $3.125 to
$5.00 to an exercise price of $0.78 per share.
The Company, TFP III and TFVP V entered into a Series A Preferred Stock Purchase
Agreement in May 1995 with respect to a prior series of preferred stock. 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 cease to hold approximately 18,270 shares of Common
Stock in the aggregate. At March 1, 1999, TFP III and TFVP V collectively hold
1,547,266 shares of Common Stock (which includes Series A Preferred Stock and
warrants to purchase shares of Common Stock).
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 (10,725) 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 have been
increased as a result of the issuance of the Series A Preferred Stock.
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
42
<PAGE>
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, 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 Blair, 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.
Irwin M. Rosenthal, a director of the Company, is a partner of Graham & James
LLP, special counsel to the Company. The Company is indebted to Graham & James
LLP for legal fees in excess of $190,000. See also "Executive Compensation -
Compensation of Directors" and "Security Ownership of Certain Beneficial Owners
and Management."
43
<PAGE>
Item 13. Exhibits, List and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description of Exhibit
- ------ ----------------------
2.1* Agreement and Plan of Reorganization dated August 16, 1994, among
the Company, CTI Acquisition Corporation, Dunkirk and certain
stockholders of Dunkirk listed on the signature pages thereto
3.1* Amended and Restated Certificate of Incorporation of the Company
3.2** Certificate of Designation of Series A Convertible Preferred Stock
3.3* By-laws of the Company
3.4 Certificate of Amendment to the Restated Certificate of
Incorporation of the Company
4.3* Term Note No. 2 dated as of January 27, 1995, between Key Bank of
New York and Dunkirk
4.4* Security Agreement dated as of January 27, 1995, between Key Bank of
New York and Dunkirk
4.5* Debt Service Reserve Agreement dated as of January 27, 1995, between
Key Bank of New York and Dunkirk
10.1* Conversion Technologies International, Inc. 1994 Employee Stock
Option Plan, As Amended
10.2* Conversion Technologies International, Inc. 1994 Stock Option Plan
for Non-Employee Directors, As Amended
10.3** Conversion Technologies International, Inc. 1996 Long-Term Employee
Incentive Plan, As Amended
10.4** Consulting Agreement dated March 1, 1995 between the Company and
Eckardt C. Beck, As Amended
10.5** Employment Agreement dated as of August 1, 1997 between the Company
and William L. Amt.
10.6** Employment Agreement dated as of July 2, 1997 between the Company
and Jack D. Hays, Jr.
10.7** Employment Agreement dated as of July 2, 1997 between the Company
and Richard H. Hughes.
44
<PAGE>
10.8** Consulting Agreement dated as of June 4, 1997, between the Company
and Harvey Goldman.
10.10** Termination of Lease Agreement dated as of September 4, 1997 between
County of Chautauqua Industrial Development Agency and Dunkirk
10.11** Bill of Sale dated as of September 4, 1997 between County Chautauqua
Industrial Development Agency and Dunkirk
10.12** Termination of Security Agreement dated as of September 4, 1997
between County of Chautauqua Industrial Development Agency and
Dunkirk
10.13** Release of Company Guaranty dated as of September 4, 1997 between
United States Trust Company of New York and Dunkirk
10.14** Release of Corporate Guaranty dated as of September 4, 1997 between
United States Trust Company of New York and the Company
10.15** Lease Agreement dated July 15, 1997 between Koger Equity, Inc. and
the Company
10.16** Termination Agreement dated as of June 30, 1997 between the Company,
CTI Acqsub-II, Inc. and Octagon, Inc.
10.18* Project Development Assistance Agreement dated July 13, 1995, among
the Company, Technology Funding Partners III, L.P. and Technology
Funding Venture Partners V, An Aggressive Growth Fund, L.P.
10.19** Technology Purchase Agreement dated as of June 30, 1997 between
Advanced Particle Technologies, Inc. and Vangkoe Industries, Inc.
10.20** Distributor Agreement dated as of June 30, 1997 between Advanced
Particle Technologies, Inc. and Vangkoe Industries, Inc.
10.21* Consulting Agreement dated as of May 5, 1995, among the Company,
Technology Funding Partners III, L.P. and Technology Funding Venture
Partners V, An Aggressive Growth Fund, L.P.
10.22* Registration Rights Agreement dated as of May 5, 1995, among the
Company, Technology Funding Partners III, L.P. and Technology
Funding Venture Partners V, An Aggressive Growth Fund, L.P.
10.25** Warrant for the Purchase of Shares of Series A Convertible Preferred
Stock issued to Paramount Capital, Inc. by the Company
10.26* Series A Preferred Stock Purchase Agreement dated as of May 5, 1995,
among the Company, Technology Funding Partners 111, L.P. and
Technology Funding Venture Partners V, An Aggressive Growth Fund,
L.P.
10.27** Form of Placement Agency Agreement between the Company and Placement
Agent.
45
<PAGE>
10.28** Form of Subscription Agreement between the Company and various
subscribers of Series A Preferred Stock.
10.29** Form of Placement Agent Warrant.
10.30** Form of Financial Advisory Services Agreement between the Company
and Placement Agent.
10.31** Form of Warrant issued in connection with Senior Secured Line of
Credit Agreement.
10.32** Letter from Empire State Development Corporation ("ESDC") to Dunkirk
dated July 22, 1997 confirming its guarantee of the Key Bank Note
10.33** Letter from Key Bank to ESDC dated July 30, 1997 confirming that it
will not exercise any remedies under the Key Bank Note and will
execute documents to assign the Key Bank Note to ESDC
10.34*** Senior Secured Line of Credit Agreement dated as of May 8, 1998 by
and among Aries Domestic Fund, L.P., The Aries Fund, Dunkirk, APT
and the Company
10.35 Security Agreement dated as of May 8, 1998 among the Company,
Dunkirk, APT and Paramount Capital Asset Management, Inc.
10.36 Subsidiary Guarantee dated as of May 8, 1998 by Dunkirk and APT in
favor of The Aries Fund and Aries Domestic Fund, L.P.
10.37 Promissory Note dated as of February 23, 1999 issued by the Company
in favor of Eckhardt C. Beck
10.38 Termination Agreement dated as of January 1, 1998 by and between the
Company and Jack D. Hays, Jr.
10.39 Termination Agreement dated as of January 1, 1998 by and between the
Company and Richard H. Hughes
10.40 Consulting Agreement dated December 22, 1998 by and between the
Company and 4C Technologies, Inc.
10.41 Amendment dated as of May 8, 1998 to the Technology Purchase
Agreement dated as of June 30, 1997 by and between APT and VANGKOE
10.42 Termination Agreement dated as of May 8, 1998 by and between APT and
VANGKOE
10.43 Materials Bill of Sale Agreement dated as of May 8, 1998 by and
between the Company and VANGKOE
10.44 Ceramaglass Trademark & Intellectual Property Agreement dated as of
May 8, 1998 by and between the Company and VANGKOE
46
<PAGE>
10.45 Ceramaquartz Trademark & Intellectual Property Agreement dated As of
May 8, 1998 by and between the Company and VANGKOE
10.46 Letter Agreement of the Company dated March 11, 1998 with Dlubak
10.47 Lease dated April 1, 1998 by and between 312 Industrial Park and the
Company
10.48 Lease dated April 1, 1998 by and between Willard Park Inc. and the
Company
10.49 Manufacturer Representative Agreement dated as of January 1, 1998 by
and between the Company and Engineered Products Sales Associates
10.50 Manufacturer Representative Termination Agreement dated as of
January 1, 1998 by and between the Company and Engineered Products
Sales Associates
11 Statement of Computation of Net Loss Per Share
21** Subsidiaries of the Company
27 Financial Data Schedule for the year ended June 30, 1998
* Incorporated by reference to the exhibits to the Company's
Registration Statement on form SB-2, Registration No. 333-00756.
** Incorporated by reference to the exhibits to the Company's Annual
Report on form 10-KSB for fiscal 1997.
*** Incorporated by reference to the exhibits to the Company's Annual
Report on form 10-QSB for the quarterly period ended March 31, 1998.
All other Exhibits filed herewith.
(b) Reports on Form 8-K
The Company filed Current Reports on Form 8-K on June 1, 1998 and June 10, 1998
relating to the Company's outsourcing agreement with Dlubak and the change in
the Company's independent auditor, respectively.
47
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: March __, 1999 Conversion Technologies International, Inc.
By: /s/ Eckardt C. Beck
--------------------------------------------
Eckardt C. Beck
Acting President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Eckardt C. Beck Acting President, Chief Executive March __, 1999
- --------------------------- Officer and Director (principal
Eckardt C. Beck executive officer)
/s/ John G. Murchie Acting Chief Financial Officer and March __, 1999
- --------------------------- Controller (principal accounting
John G. Murchie officer)
/s/ Eckardt C. Beck Chairman of the Board March __, 1999
- ---------------------------
Eckardt C. Beck
/s/ Stephen D. Fish Director March __, 1999
- ---------------------------
Stephen D. Fish
/s/ Peter H. Gardner Director March __, 1999
- ---------------------------
Peter H. Gardner
/s/ Alexander P. Haig Director March __, 1999
- ---------------------------
Alexander P. Haig
/s/ Douglas M. Costle Director March __, 1999
- ---------------------------
Douglas M. Costle
/s/ Irwin M. Rosenthal, Esq. Director March __, 1999
- ---------------------------
Irwin M. Rosenthal, Esq.
48
<PAGE>
Conversion Technologies International, Inc.
and Subsidiaries
INDEX TO FINANCIAL STATEMENTS
Reports of Independent Auditors .............................................F-2
Consolidated Balance Sheets of Conversion Technologies
International, Inc. and Subsidiaries as of June 30, 1998
and June 30, 1997 ....................................................F-4
Consolidated Statements of Operations of Conversion Technologies
International, Inc, and Subsidiaries for the years ended
June 30, 1998 and June 30, 1997 ......................................F-5
Consolidated Statements of Stockholders' Equity (Deficiency) of
Conversion Technologies International, Inc. and Subsidiaries
for the years ended June 30, 1998 and June 30, 1997 ..................F-6
Consolidated Statements of Cash Flows of Conversion Technologies
International, Inc. and Subsidiaries for the years ended
June 30, 1998 and June 30, 1997 ......................................F-7
Notes to Consolidated Financial Statements ..................................F-9
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Conversion Technologies International, Inc.
We have audited the accompanying consolidated balance sheet of Conversion
Technologies International, Inc. and Subsidiaries (Company) as of June 30, 1998,
and the related consolidated statements of operations, stockholders' equity
(deficiency) and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Conversion
Technologies International, Inc. and Subsidiaries as of June 30, 1998, and the
consolidated results of their operations and cash flows for the year then ended
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1, the
Company has generated only minimal revenue, has incurred significant losses, has
a working capital deficit, stockholders' deficiency, and is in default in
payment of substantially all its debt. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the possible inability of the
Company to continue as a going concern.
October 23, 1998, except for BDO Seidman, LLP
Notes 1 and 3 which are dated
March 24, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Conversion Technologies International, Inc.
We have audited the accompanying consolidated balance sheet of Conversion
Technologies International, Inc. and Subsidiaries (Company) at June 30, 1997,
and the related consolidated statements of operations, stockholders' equity
(deficiency) and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Conversion
Technologies International, Inc. and Subsidiaries at June 30, 1997, and the
consolidated results of their operations and cash flows for the year then ended
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1, the
Company has generated only minimal revenue, has incurred significant losses, has
a working capital deficiency and has a stockholders' deficiency. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
possible inability of the Company to continue as a going concern.
Metro Park, New Jersey ERNST & YOUNG LLP
September 18, 1997
F-3
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1998 1997
----------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 168,483 $ 325,092
Accounts receivable, less allowance for doubtful accounts of $18,000 258,990 146,225
Inventories 557,292 521,060
Prepaid expenses and other current assets 94,596 188,525
----------------------------
Total current assets 1,079,361 1,180,902
Property, plant and equipment:
Land -- 75,000
Building and improvements -- 1,578,293
Machinery and equipment 702,614 6,713,599
Construction in progress -- 29,500
----------------------------
702,614 8,396,392
Less accumulated depreciation (148,057) (1,456,610)
----------------------------
554,557 6,939,782
Property, plant and equipment held for sale at estimated disposal value 1,000,000
Other assets, less accumulated amortization of $97,811 and $135,786 132,783 446,929
Restricted assets
Project fund -- 158
Debt service reserve funds -- 869,153
----------------------------
$ 2,766,701 $ 9,436,924
============================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Notes payable $ 502,000 $ --
Accounts payable 1,193,624 1,711,212
Deferred revenue -- 491,944
Reserve for disposal 515,000 713,100
Accrued expenses 394,163 858,447
Investment tax credit payable 235,000 235,000
Current portion of capital lease obligations 23,965 35,495
Current portion of long-term debt 2,524,255 530,258
----------------------------
Total current liabilities 5,388,007 4,575,456
Capital lease obligations, less current portion 15,235 39,414
Long-term debt, less current portion -- 10,784,343
Stockholders' deficiency:
Series A Convertible Preferred Stock, $.001 par value,
authorized 880,000 shares, issued and outstanding
613,280 shares at June 30, 1998 614 --
Common Stock, $.00025 par value, authorized 50,000,000
and 25,000,000 shares, issued and outstanding 5,600,545
and 5,539,745 shares 1,400 1,385
Additional paid-in capital 32,876,274 24,186,932
Unearned stock compensation (207,000) (116,369)
Accumulated deficit (35,307,829) (30,034,237)
----------------------------
Total Stockholders' deficiency (2,636,541) (5,962,289)
----------------------------
$ 2,766,701 $ 9,436,924
============================
</TABLE>
See accompanying notes.
F-4
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended June 30,
1998 1997
------------ ------------
<S> <C> <C>
Revenue
Product sales $ 1,535,159 $ 945,871
Recycling fees 362,821 483,137
----------------------------
Total revenue 1,897,980 1,429,008
Cost of goods sold 2,703,441 3,952,374
----------------------------
Gross loss on sales (805,461) (2,523,366)
Selling, general and administrative expenses 2,723,462 3,918,726
Write down of property, plant and
equipment held for sale 4,913,422 --
Write-off of plant and equipment -- 5,711,567
----------------------------
Loss from operations (8,442,345) (12,153,659)
Interest expense (552,300) (1,277,310)
Interest income 82,316 226,505
Other income 246,051 349,295
----------------------------
Loss before extraordinary item (8,666,278) (12,855,169)
Extraordinary item - gain on debt retirement 6,425,004 --
----------------------------
Net loss (2,241,274) (12,855,169)
Preferred stock dividends (3,032,318) --
----------------------------
Net loss applicable to Common Stock $ (5,273,592) $(12,855,169)
============================
Basic Loss Per Common Share:
Loss before extraordinary item $ (2.44) $ (2.69)
Extraordinary item 1.34 --
----------------------------
Net Loss applicable to Common Stock $ (1.10) $ (2.69)
----------------------------
Weighted average number of common shares outstanding 4,804,427 4,773,311
============================
</TABLE>
See accompanying notes.
F-5
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER EQUITY (DEFICIENCY)
YEARS ENDED JUNE 30, 1998 AND JUNE 30, 1997
<TABLE>
<CAPTION>
Series A Preferred Stock Common Stock
------------------------------------------- -------------------------------------------
Additional Additional
Numbers Paid-In Number Paid-In
of Share Amount Capital of Shares Amount Capital
------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1996 -- $ -- $ -- 5,449,745 $ 1,362 $ 23,905,705
Issuance of common stock -- -- -- 90,000 23 --
Stock compensation -- -- -- -- -- 281,227
Net loss -- -- -- -- -- --
------------------------------------------- -------------------------------------------
Balance at June 30, 1997 -- -- -- 5,539,745 1,385 24,186,932
Issuance of series A
preferred stock 619,360 620 5,186,283 -- -- --
Series A preferred stock
converted into common
stock (6,080) (6) (60,794) 60,800 15 60,785
Stock compensation -- -- -- -- -- --
Common stock warrants
granted to lenders -- -- -- -- -- 205,600
Common stock options
granted to employees and
directors -- -- -- -- -- 265,150
Preferred stock dividends -- -- 3,032,318 -- -- --
Net Loss -- -- -- -- -- --
------------------------------------------- -------------------------------------------
Balance at June 30, 1998 613,280 $ 614 $ 8,157,807 5,600,545 $ 1,400 $ 24,718,467
=========================================== ===========================================
<CAPTION>
Total
Stockholders'
Unearned Stock Accumulated Equity
Compensation Deficit (Deficiency)
-----------------------------------------------
<S> <C> <C> <C>
Balance at July 1, 1996 $ -- $(17,179,068) $ 6,727,999
Issuance of common stock -- -- 23
Stock compensation (116,369) -- 164,858
Net loss -- (12,855,169) (12,855,169)
-----------------------------------------------
Balance at June 30, 1997 (116,369) (30,034,237) (5,962,289)
Issuance of series A
preferred stock -- -- 5,186,903
Series A preferred stock
converted into common
stock -- -- --
Stock compensation 116,369 -- 116,369
Common stock warrants
granted to lenders -- -- 205,600
Common stock options
granted to employees and
directors (207,000) -- 58,150
Preferred stock dividends -- (3,032,318) --
Net Loss -- (2,241,274) (2,241,274)
-----------------------------------------------
Balance at June 30, 1998 $ (207,000) $(35,307,829) $ (2,636,541)
===============================================
</TABLE>
See accompanying notes
F-6
<PAGE>
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------
Operating activities 1998 1997
------------ ------------
<S> <C> <C>
Net loss $ (2,241,274) $(12,855,169)
Adjustments to reconcile loss to net cash
used in operating activities:
Depreciation expense 817,928 1,036,416
Amortization expense 39,543 54,514
Amortization of discount on notes payable 97,600 --
Loss on disposal of equipment 22,857 --
Extraordinary item (6,425,004)
Write-down of property, plant and equipment 4,913,422 5,711,567
Write-off of inventories -- 96,752
Stock compensation expense 174,519 164,858
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (112,765) 196,989
(Increase) in inventories (36,232) (280,076)
Decrease in prepaid expenses and other current assets 93,929 17,459
(Increase) decrease in other assets (57,016) 35,204
Decrease in deferred revenue (491,944) (65,963)
(Decrease) increase in accounts payable, reserve for
disposal and other accrued expenses (877,193) 723,173
------------ ------------
Net cash used in operating activities (4,081,630) (5,164,276)
Investing activities
Sale of marketable securities -- 2,009,632
Capital expenditures (372,572) (1,051,159)
Proceeds from disposals of equipment 3,590 --
------------ ------------
Net cash (used in) provided by investing activities (368,982) 958,473
Financing activities
Increase in deferred finance costs -- (3,500)
Issuance of notes payable 1,110,000 --
Payment of notes payable (500,000) --
Issuance of long-term debt -- 8,282
Decrease in restricted assets 675,285 472,005
Principal payments on long-term debt (2,142,476) (412,681)
Principal payments under capital lease obligations (35,709) (72,698)
Issuance of series A preferred stock, net of offering costs 5,186,903 --
Issuance of common stock -- 23
------------ ------------
Net cash provided by (used in) financing activities 4,294,003 (8,569)
------------ ------------
Decrease in cash and cash equivalents (156,609) (4,214,372)
Cash and cash equivalents at beginning of period 325,092 4,539,464
------------ ------------
Cash and cash equivalents at end of period $ 168,483 $ 325,092
============ ============
</TABLE>
See accompanying notes.
F-7
<PAGE>
Conversion Technologies International, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended June 30,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Supplemental disclosure of cash flow information
Interest paid $ 528,875 $1,320,882
========== ==========
Supplemental disclosure of non cash transactions
Issuance of warrants in connection with bridge notes 76,000 --
Issuance of warrants in connection with line of credit 129,600 --
Preferred stock converted into common stock 60,800 --
Discount on stock options granted to employees and directors 205,150 --
Compensation charged for modification in exercise price of
director stock options 60,000 --
Discount on series A preferred stock issued 3,032,318 --
</TABLE>
See accompanying notes.
F-8
<PAGE>
Conversion Technologies International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1998
1. Organization
Conversion Technologies International, Inc. (the "Company") is engaged in the
business of manufacturing and processing various substrates and advanced
materials. These substrates and materials include (i) industrial abrasives which
can be used for surface cleaning and surface preparation applications such as in
cleaning steel structures, railcars, aircraft parts, and equipment in loose
grain blasting operations; (ii) decorative particles that visually enhance
structural materials such as plasters, tiles, grouts, wall systems and roofing
and flooring; and (iii) performance aggregates which can be used as structural
and textural enhancers, fillers and additives and to strengthen and add
consistency to materials such as cements, plasters, grouts, roofing and flooring
and glass and ceramic materials. The Company was also engaged in the business of
recycling cathode ray tube ("CRT") glass produced in the manufacture of
televisions for resale to such manufacturers and others. Although a significant
amount of the Company's revenues to date have been derived from its CRT
recycling operations, the Company is focusing its efforts on its substrates and
advanced materials products. The Company's revenue streams are a combination of
waste conversion fees and manufactured product sales.
In November 1996, the Company entered into an Agreement and Plan of
Reorganization with Octagon, Inc. ("Octagon") pursuant to which a wholly-owned
subsidiary of the Company would be merged with and into Octagon (the "Merger"),
whereby, Octagon would become a wholly-owned subsidiary of the Company. On June
30, 1997, the Company and Octagon mutually terminated the Merger. Pursuant to
the terms of a Termination Agreement, the Company agreed to forgive remaining
bridge loans, including interest, in the approximate amount of $630,000 it made
to Octagon in fiscal 1997 in payment for certain services provided by Octagon to
the Company prior to the termination of the Merger and Octagon agreed to provide
certain services to the Company. This amount is included in Selling, General and
Administrative expenses in the Consolidated Statement of Operations.
The accompanying consolidated financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the liquidation
of liabilities in the ordinary course of business. The Company has had limited
revenue and has incurred significant losses which has resulted in a working
capital deficiency and a stockholders' deficiency. The Company does not
currently possess sufficient funds to conduct its business and satisfy its
liabilities. The Company has significant past due payables and is in default in
payment of principal and interest on substantially all of its indebtedness for
borrowed money other than the Line of Credit. In order to allow the Company to
continue operating in the short term, the Acting President and Chief Executive
Officer of the Company, has advanced to the Company, or has not received accrued
compensation of, an aggregate of $190,000, and the Company has borrowed
additional funds on a short term basis from the issuers of the Line of Credit.
The Company is currently seeking additional financing through a private
placement of its equity securities. There can be no
F-9
<PAGE>
Conversion Technologies International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
1. Organization (continued)
assurance that the Company will be able to obtain necessary financing. If the
Company is not able to obtain immediate financing, the Company may be forced to
further limit or even cease operations. In view of the foregoing, there is
substantial doubt about the Company's ability to continue as a going concern.
The accompanying consolidated financial statements do not include any
adjustments relating to the realization of assets and liquidation of liabilities
that might be necessary should the Company be unable to continue as a going
concern.
In fiscal 1999, three officers of the Company resigned from the new management
team, which had been engaged in late fiscal 1997 and fiscal 1998. The Company's
remaining management team has initiated a plan to close-out the operations at
Dunkirk and sell the Dunkirk facility, renegotiate and pay-off creditors,
continue the reduction of manufacturing and operating overheads, put together a
new management team, and, if the above is successful, raise new capital from
alternate sources. Although management believes if the foregoing course of
action is achieved, it would allow the Company to continue as a going concern
for the next year, there are no assurances that management will be successful in
implementing these plans and eliminating the substantial doubt as to its ability
to continue as a going concern.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and include the
accounts of Conversion Technologies International, Inc. and its wholly-owned
subsidiaries, Dunkirk International Glass and Ceramics Corporation ("Dunkirk")
and Advanced Particle Technologies, Inc. Intercompany accounts and transactions
have been eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
which effect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Revenue Recognition
The company derives most of its revenue from fees charged to accept waste
materials and from the sale of its products. With respect to revenue from fees
charged to accept waste materials, the Company initially records the fees it
receives for accepting waste materials for processing as deferred revenue. After
the materials have been processed into finished goods inventory or sold after
preliminary processing, the deferred revenue is recognized as fee revenue based
upon the
F-10
<PAGE>
Conversion Technologies International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Revenue Recognition (continued)
amount of finished goods inventory produced (by tonnage), valued at the fee
charged for accepting the waste material. With respect to revenue from product
sales, including products created from processed waste materials, revenue is
recognized only upon shipment of products to customers.
For the year ended June 30, 1998, 69.0% of the Company's revenue was derived
from three major customers. Revenue generated from each of those customers
amounted to $893,747, $219,958 and $196,431, which represents 47.1%, 11.6% and
10.3% of total revenue, respectively. For the year ended June 30, 1997, 61.2% of
the Company's revenue was derived from two major customers. Revenue generated
from each of these customers amounted to $621,830 and $252,686, which represents
43.5% and 17.7% of total revenue, respectively.
Reserve for Disposal
Dunkirk, a wholly-owned subsidiary of the Company, began accepting waste
materials (primarily CRT glass) in early 1994. Upon accepting the waste
materials, Dunkirk established a reserve for the probable disposal and cleanup
costs for the unprocessed waste materials on hand in the event the conversion
processes being developed were not successful. To date, the Company has disposed
of 1,137 tons of the waste materials, which it had not been able to process, all
of which was disposed of during the year ended June 30, 1998. The amount of
unprocessed waste materials on hand was 2,035 tons at June 30, 1998 and 6,732
tons at June 30, 1997. From July 1, 1996 to June 30, 1997, the Company decreased
the reserve by approximately $24,000, from $737,000 to $713,000. From July 1,
1997 to June 30, 1998, the Company reduced the reserve by approximately $198,000
from $713,000 to $515,000. The decreases in the reserve, which resulted from
reductions in the quantities of unprocessed waste materials on hand, have been
credited against operations. The Company intends to adjust the reserve for
disposal if and when it can further reduce the quantities of unprocessed waste
materials on hand.
Inventories
Inventories are valued at the lower of cost or market, with cost determined by
the first-in, first-out (FIFO) method.
F-11
<PAGE>
Conversion Technologies International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Inventories (continued)
Inventories consisted of the following:
June 30,
1998 1997
-------- --------
Raw Materials $216,639 $ 61,949
Work-in-process 147,291 111,961
Finished goods 193,362 347,150
-------- --------
$557,292 $521,060
======== ========
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation and amortization
are computed on the straight-line method over the estimated useful lives of the
assets. Amortization on assets under capital leases is provided on a
straight-line basis over the lesser of the useful lives of the related assets or
the terms of the leases. The estimated useful lives of the assets are as
follows:
Buildings and Improvements 5 to 31 1/2 years
Machinery and Equipment 2 to 10 years
During the first and second quarters of fiscal 1999, the Company ceased
operations at the Dunkirk plant and decided to dispose of all the property,
plant and equipment at that facility and is actively searching for a buyer. In
the fourth quarter of 1998, pursuant to FAS 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of", the Company
has adjusted those assets to their estimated net realizable value. This resulted
in a write down of land and building and improvements of approximately $716,000
to $750,000 and machinery and equipment of approximately $4,197,000 to $250,000
resulting in a combined estimated disposal value of $1,000,000, which has been
classified as held for sale on the accompanying consolidated balance sheet at
June 30, 1998.
F-12
<PAGE>
Conversion Technologies International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Property, Plant and Equipment (continued)
During fiscal 1997, the Company experienced reduced levels of revenue and
increased costs. Also in fiscal 1997, the Company shut down its melter and
certain related equipment which it does not intend to use in the foreseeable
future, and accordingly, the Company has adjusted these asset values to their
estimated fair value which was determined to be zero as it is estimated that the
cost to disassemble, transport and reassemble the melter and peripheral
equipment would approximate any remaining fair value of those assets. As a
result, the Company has taken a charge in the fourth quarter of 1997 pursuant to
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" in the amount of $5,711,567.
Cash Equivalents
The Company considers all highly-liquid investments with an original maturity of
three months or less to be cash equivalents.
Other Assets
Other assets include deferred financing costs, trademarks and security deposits
for rental property. Deferred financing costs relate to various loan agreements
which have been capitalized and are being amortized over the term of the loans
(See Note 3). Trademarks are carried at cost and amortized on a straight-line
basis over the estimated useful life of the trademarks.
Accrued Expenses
Accrued expenses consisted of the following:
June 30,
1998 1997
-------- --------
Accrued interest $182,352 $170,088
Accrued payroll taxes and employee benefits 72,420 118,144
Accrued audit and tax fees 66,000 100,000
Accrued salaries and wages 44,482 72,295
Accrued litigation and legal expenses -- 219,621
Accrued severance payment -- 90,000
Accrued technology purchase -- 60,000
Accrued other 28,909 28,299
-------- --------
$394,163 $858,447
======== ========
Income Taxes
Deferred income tax assets and liabilities are recorded for differences between
the financial statement and tax bases of assets and liabilities that will result
in taxable or deductible amounts
F-13
<PAGE>
Conversion Technologies International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Income Taxes (continued)
in the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.
Investment Tax Credit
The Company received a gross cash refund of $566,547 related to a New York State
investment tax credit in June 1997. However, the Company has recorded a $235,000
reserve against this amount as the Company may be required to refund such amount
pursuant to a recapture provision. The net amount of $331,547 is included in
"Other Income" during the fiscal year ended June 30, 1997.
Extraordinary Items
In September 1997, the holders of Dunkirk's $8,000,000 Chautauqua County
Industrial Development Agency Solid Waste Disposal Facility Bonds (the "IDA
Bonds") retired the IDA Bonds in exchange for a cash payment of $1,620,000 and
the balance of the related debt service reserve fund of $194,000. The cash
payment was made utilizing proceeds from the private placement discussed in Note
7 below. The Company also wrote off approximately $324,000 of deferred financing
costs relating to such debt. This forgiveness resulted in a net pretax gain to
the Company of approximately $5,862,000, which is reported as an Extraordinary
Item.
In December 1997, the Empire State Development Corporation / JDA (the "ESDC"),
which had previously assumed approximately $1,888,000 of debt plus accrued
interest of approximately $82,000 owed by Dunkirk to Key Bank of New York ("Key
Bank"), granted the Company a debt forgiveness of $500,000. Also, the balance of
the related debt service reserve fund of approximately $459,000 was applied
against the outstanding principal and accrued interest. ESDC has also agreed to
defer all interest payments due under the loan through July 1, 1998 and to defer
all principal payments due under the loan through January 1, 1999 with interest
continuing to accrue on such deferred amounts payable monthly beginning July
1998 through December 2001. This forgiveness resulted in a net pretax gain to
the Company of approximately $221,000 (($0.05 per share), which is reported as
an Extraordinary Item.
During fiscal 1998, the Company also negotiated various settlements with certain
of its vendors. These settlements resulted in the vendors forgiving
approximately $292,000 in accounts payable which resulted in a pretax gain to
the Company of the same amount that is reported as an Extraordinary Item.
To the extent that Dunkirk is deemed to be insolvent immediately prior to any of
these debt forgivenesses by an amount which equals or exceeds the amount of debt
forgiveness, the Company will not recognize taxable income from such
forgiveness; however, certain of
F-14
<PAGE>
Conversion Technologies International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Extraordinary Item (continued)
Dunkirk's tax attributes (such as net operating loss carryforwards ("NOLs"))
would be subject to reduction and would not be available to offset future income
from operations, if any. For this purpose, the amount of insolvency is defined
to be the excess of Dunkirk's liabilities over the fair value of its assets. An
independent appraisal of the fair value of Dunkirk's assets has not been
completed at this time to determine Dunkirk's solvency; however, the Company
believes that Dunkirk was insolvent at the time of forgiveness, and accordingly
has not recorded a tax provision on the Extraordinary Item. If Dunkirk is deemed
to be solvent immediately prior to the time of the forgiveness, the Company will
recognize taxable income for the debt forgiveness in its tax year ending June
30, 1998. The amount of such income may be offset by NOLs, subject to possible
limitations as discussed in Note 8. Even if sufficient NOLs were available to
offset such taxable income after such limitations, the Company may be subject to
alternative minimum tax.
Net Loss Per Common Share
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earnings per share. Statement 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where necessary, restated to conform to the
requirements of Statement 128.
Basic net loss per common share is based on the net loss attributable to common
stockholders for the year, divided by the weighted average number of common
shares outstanding during the year (excluding 740,559 common shares that were
deposited into escrow in connection with the Company's initial public offering).
Potential common shares have not been included since their effect would be
antidilutive. Common shares that could be potentially dilutive include 1,519,252
stock options, 29,376,661 warrants and 12,323,900 shares underlying the Series A
Preferred Stock, after giving effect to the reset of the conversion price of the
Series A Preferred Stock (see Note 7).
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions
and pertinent information available to management as of June 30, 1998. The
respective carrying value of certain on balance sheet financial instruments
approximated their fair values. These financial instruments include cash and
cash equivalents, accounts receivable, accounts payable and accrued expenses.
The fair value of the Company's long-term debt is estimated based upon the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. The carrying
value approximates the fair market value of the debt.
F-15
<PAGE>
Conversion Technologies International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). FAS 133 requires companies to recognize all
derivative contracts as either assets or liabilities in the balance sheet and to
measure them at fair value. FAS 133 is effective for periods beginning after
June 15, 1999. Historically, the Company has not entered into derivative
contracts. Accordingly, FAS 133 is not expected to affect the Company's
financial statements.
In June 1997, the Financial Account Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS
130") and No. 131, "Disclosure about Segments of an Enterprise and Related
Information" ("FAS 131"). FAS 130 establishes standards for reporting and
displaying comprehensive income, its components and accumulated balances. FAS
131 establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the public. Both FAS 130 and FAS 131 are effective for periods
beginning after December 15, 1997. Neither FAS 130 nor FAS 131 are expected to
have a material effect on the Company's financial statements.
Reclassifications
Certain reclassifications have been made to the prior year financial statements
to conform to the current year presentation.
F-16
<PAGE>
Conversion Technologies International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Long-term debt consists of the following obligations as of June 30, 1998 and
1997:
<TABLE>
<CAPTION>
June 30,
1998 1997
---- ----
<S> <C> <C>
Dunkirk-Chautauqua Region Industrial Development Corporation (CRIDA) mortgage
note collateralized by a mortgage on real property, payable interest only
through December 1, 1998 and beginning January 1, 1999 in monthly
installments of $4,880 including interest at a variable rate (6% at June 30,
1998) through October 1, 2004. Repayment is guaranteed by the Company $ 287,648 $ 304,432
Dunkirk-Term loan with the New York State Job Development Authority (JDA)
payable interest only through December 1, 1998 and beginning January 1, 1999
in monthly installments of $29,308 including principal and interest at the
prime rate (8.50% at June 30, 1998) through December 27, 2001. Collateral
for this loan is a first purchase money lien on the Company's machinery and
equipment, and repayment is guaranteed by the Company and by the former
Dunkirk president 1,183,110 1,887,871
Dunkirk- Subordinated mortgage note collateralized by a mortgage on real
property, payable in monthly installments of $4,956 including interest at
10% through January 21, 2004 256,457 288,516
Dunkirk-Chautauqua County Industrial Development Agency (CCIDA) subordinated
note payable in monthly payments of $1,485 including interest at 7% through
June 1, 1999. The note contains various restrictive covenants, is guaranteed
by the former Dunkirk president and is collateralized by a subordinated
security interest in certain machinery and equipment 17,163 33,170
</TABLE>
F-17
<PAGE>
Conversion Technologies International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
3. Debt (continued)
<TABLE>
<S> <C> <C>
Dunkirk-Southern Tier Enterprise Development Organization (STEDO) subordinated
note payable in monthly payments of $1,169 including interest at 8% through
July 1, 2002. The note contains various restrictive covenants, is guaranteed
by the former Dunkirk president and is collateralized by a subordinated
security interest in certain equipment 38,218 48,727
Dunkirk-New York Job Development Authority (Al Tech) subordinated note payable
interest only through December 1, 1998 and beginning January 1, 1999 in
monthly payments of $4,296 including interest at 5% through September 1,
1999. The note contains various restrictive covenants, is guaranteed by the
Company and by the former Dunkirk president and is collateralized by a
subordinated security interest in certain equipment 37,870 48,096
Dunkirk-Chautauqua County Industrial Development Agency solid waste disposal
facility bonds payable in quarterly payments of interest only through
September 1, 1998 at a rate of 11.5%. In September 1997, the holders of
these bonds retired them in exchange for a cash payment of $1,620,000 and
the balance of the related debt service reserve fund of $194,000. (see Note
2) 0 8,000,000
</TABLE>
F-18
<PAGE>
Conversion Technologies International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
3. Debt (continued)
<TABLE>
<S> <C> <C>
Dunkirk-Subordinated unsecured debt from various electronic companies; 0I-NEG TV
Products, Inc. (Techneglas), Thomson Consumer Electronics, Sanyo
Manufacturing Corp., Toshiba Display Devices and Hitachi Electronic Devices
(USA), begin with quarterly payments of interest only at prime plus 2%
(10.50% at June 30, 1998) through a range of dates ending January 1, 1999
Beginning between March 31, 1998 and April 1, 1999 and going through a range
of dates with the final subordinate debt issue ending January 1, 2004
quarterly installments of principal plus interest at prime plus 2% are
payable. The first five quarterly interest payments for a portion of the
debt has been converted by the Company into subordinated notes ($43,789
converted at June 30, 1998) payable in quarterly payments of interest only
at 8% for nineteen quarters and the principal amount plus interest being due
between April 1, 1999 through April 1, 2000 703,789 703,789
---------- -----------
Total Debt 2,524,255 11,314,601
Less Current Maturities 2,524,255 530,258
---------- -----------
$ -0- $10,784,343
========== ===========
</TABLE>
The Company has agreed to indemnify and hold harmless the former Dunkirk
president with respect to guarantees made by him for obligations of Dunkirk. In
addition, the Company has agreed to use its reasonable efforts to cause the
release of such guarantees. At June 30, 1998, the Company was in violation of
certain loan covenants, related to the above debt, and as a result all of the
above debt has been classified as a current liability at June 30, 1998.
4. Notes Payable
In July and August of 1997 the Company borrowed and repaid from two significant
stockholders of the Company a total of $500,000 for working capital purposes,
and in connection therewith, issued warrants to purchase 198,863 shares of
Common Stock at an exercise price equal to $0.66 (after giving effects to
antidilution adjustments resulting from the sale of Series A Preferred Stock,
the issuance of the additional shares of Series A Preferred Stock and the reset
of the conversion price of the Series A Preferred Stock described in Note 7).
These Common Stock warrants were valued at $76,000 in accordance with the
provisions of FAS 123. This amount was recorded as debt discount and was
amortized in fiscal 1998.
F-19
<PAGE>
Conversion Technologies International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
4. Notes Payable (continuted)
On May 8, 1998, the Company entered into a Senior Secured Line of Credit
Agreement (the "Credit Agreement") with two significant stockholders of the
Company. The Credit Agreement provides for a line of credit (the "Line of
Credit") of up to $1,200,000 pursuant to which the Company can draw down up to
$300,000 per month, although draw downs beyond the initial $300,000 draw will be
at the discretion of the lenders. At June 30, 1998, the Company had borrowed
$610,000 under the Credit Agreement. The Line of Credit is secured by the
receivables and inventory of the Company and its subsidiaries. Amounts borrowed
under the Line of Credit accrue interest at an annual rate of 12%. The Line of
Credit matures on the earlier of May 8, 1999 or the completion of any financing
of at least $1,500,000. Subsequent to year end the Company has fully drawn down
the remaining amounts available under the Line of Credit.
The Credit Agreement contains customary covenants and default provisions. In
addition, upon an Event of Default (as defined in the Credit Agreement), but
only after a 60-day cure period, the lenders will be entitled to appoint a
majority of the Board of Directors. In addition, upon an Event of Default, but
only after a 90-day cure period, the lenders may convert any outstanding
principal amount plus interest, into shares of Common Stock of the Company at
the then fair market value of the Common Stock.
In addition, the Company issued to the lenders warrants to purchase an aggregate
of 385,075 shares of Common Stock at an exercise price equal to $0.67 (the
closing price of the Common Stock on the date of issuance after adjustment for
the reset of the conversion price of the Series A Preferred Stock described in
Note 7.), subject to vesting. Of such warrants, warrants to purchase 29,850
shares of Common Stock vest with respect to each $100,000 (or ratable portion
thereof) drawn under the Credit Agreement. These Common Stock warrants were
valued at $129,600 in accordance with the provisions of FAS 123 and this amount
was recorded as debt discount. This has resulted in an effective interest rate
of approximately 29% on the Line of Credit. The Line of Credit includes an
unamortized debt discount of $108,000 at June 30, 1998.
5. Restricted Assets
Dunkirk had a debt service reserve fund equivalent to 10% of the solid waste
disposal facility bonds plus interest which was required to be deposited in
escrow ($419,963 at June 30, 1997).
In September 1997, the balance of the debt service reserve fund of approximately
$424,000 was used to retire the bonds (see Note 2), including $230,000 of
accrued interest on the bonds.
Dunkirk also had a debt service reserve fund of $449,190 at June 30, 1997,
including interest, deposited in escrow as required by the ESDC. In December
1997, the balance of the debt service reserve fund of approximately $459,000 was
applied against the outstanding principal and accrued interest due on the
related debt. (see Note 2)
F-20
<PAGE>
Conversion Technologies International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
6. Commitments and Contingencies
Lease Agreements
The Company has entered into capital leases for machinery and equipment that may
be purchased on expiration of the leases on various dates through 2000. The net
asset value of property under capitalized leases, included in property, plant
and equipment, is as follows:
June 30,
1998 1997
---- ----
Machinery and equipment $353,545 $353,686
Less accumulated amortization 321,039 289,382
-------- --------
$ 32,506 $ 64,304
======== ========
Lease amortization of $31,714 and $72,637 for the years ended June 30, 1998 and
1997, respectively, is included in cost of goods sold.
Future minimum lease payments required under operating leases together with the
present value of the net minimum lease payments for capitalized leases as of
June 30, 1998 are as follows:
Capitalized Operating
Leases Leases
------ ------
June 30,
1999 $26,899 $203,537
2000 15,572 125,349
2001 -- 4,011
2002 -- 1,337
------- --------
Total net minimum lease payments 42,471 $334,234
========
Less amount representing interest 3,271
-------
Present value of net minimum lease payments $39,200
=======
Total rent expense of the Company for the periods ended June 30, 1998 and 1997
was $238,372 and $73,674, respectively.
Consulting Agreement
The Company entered into a Consulting Agreement with the Acting President to
assist the Company in strategic planning, business development, investor
relations, fund raising and such other activities as shall be reasonably
requested by the Board. Fees will accrue under the Agreement at $10,000 per
month until its expiration in August 2000.
F-21
<PAGE>
Conversion Technologies International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
7. Capital Stock
In connection with the Company's May 16, 1996 initial public offering, 740,559
shares of the Company's Common Stock and options to purchase 71,923 shares of
Common Stock (the "Escrow Securities") were deposited into escrow by the holders
thereof. The Escrow Securities will only be released from escrow when the
Company attains certain earnings levels or the market price of the Company's
Common Stock achieves certain levels. These Escrow Securities are subject to
cancellation if such conditions are not achieved. In the event that the Escrow
Securities are released from escrow to the stockholders of the Company who are
officers, directors, employees or consultants of the Company, compensation
expense will be recorded for financial reporting purposes. This non-cash charge
to earnings will be equal to the fair value of such securities on the date of
their release.
In August, September and December of 1997, the Company sold 553,000 shares of
Series A Preferred Stock, with a par value of $.001 per share and a stated value
of $10 per share, under a placement agency agreement for the private placement
of the Series A Preferred Stock. The net proceeds to the Company were $4,523,302
after deducting the placement agent commissions and expenses and other
transaction expenses. Each share of Series A Preferred Stock is convertible into
twenty shares of common stock at a conversion price of $0.50 per share after
giving effect to anti-dilution adjustments resulting from the reset of the
conversion price of the Series A Preferred Stock on December 8, 1998. Commencing
in December 1998, the holders of the Series A Preferred Stock are entitled to
receive dividends payable in cash, or at the option of the Company, in
additional shares of Series A Preferred Stock at the rate of 10% per annum. The
affirmative vote of the holders of at least two-thirds of the Series A Preferred
Stock is required for the issuance of senior securities, the incurrence of
indebtedness, the repurchase of securities and certain other restrictions. The
placement agent received a cash commission of 9% and a non-accountable expense
allowance of 4% of the gross proceeds. The placement agent also received
warrants, which expire in June, 2008, to purchase 61,945 shares of the Company's
Series A Preferred Stock at an exercise price of $9.82 per share (after giving
effect to antidilution adjustments resulting from the issuance of the additional
shares of Series A Preferred Stock on April 10,1998).
Since the Series A Preferred Stock is convertible at a discount, a Series A
Preferred Stock dividend of $2,605,503 ($.54 per Common share) has been recorded
for year ended June 30, 1998 for the difference between the discounted
conversion price of the Series A Preferred Stock and the fair market value of
the Company's Common Stock at the time of issuance. The Series A Preferred Stock
also contains a reset provision under which the conversion price in effect
immediately prior to the date that is 12 months after the final closing date of
the issuance and sale of the Series A Preferred Stock (the "Reset Date") shall
be adjusted and reset effective as of the Reset Date if the average closing bid
price of the Common Stock for the twenty (20) consecutive trading days
immediately preceding the Reset Date is less than 135% of the then applicable
conversion price (a "Reset Event"). Upon the occurrence of a Reset Event, the
conversion price shall be reduced to be equal to the greater of (A) the 12-month
trading price divided by 1.35, or (B) 50% of the then applicable
F-22
<PAGE>
Conversion Technologies International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
7. Capital Stock (continued)
conversion price. As a result of this reset feature, a Series A Preferred Stock
dividend of $426,816 ($.09 per Common share) has been recorded for the year
ended June 30, 1998 for the difference between the discounted conversion price
as reset and the fair market value of the Company's Common Stock at the time of
issuance. This reset feature resulted in the conversion price of the Series A
Preferred Stock being adjusted to $0.50 per share of Common Stock on December 8,
1998.
Pursuant to the terms of the private placement agreement, the Company was
required to register the shares of Common Stock underlying the Series A
Preferred Stock within 90 days of the final closing of the private placement.
Those shares of Common Stock were not registered within 90 days of the final
closing, and accordingly, the Company issued an additional 66,360 shares of
Series A Preferred Stock (convertible into 1,327,200 shares of Common Stock) to
the purchasers of the private placement on April 10, 1998. These shares were
valued at $663,600 (the fair value of the Series A Preferred Stock) and were
recorded in selling, general and administrative expenses in fiscal 1998. As of
June 30, 1998, the holders of the Series A Preferred Stock had converted 6,080
shares of Series A Preferred Stock into 60,800 shares of Common Stock.
At June 30, 1998, the Company had the following Common Stock purchase warrants
outstanding after giving effect to antidilution provisions of the warrant
agreements and adjusted as a result of the reset of the conversion price of the
Series A Preferred Stock described above:
<TABLE>
<CAPTION>
Number of
Underlying Shares Exercise Price Expiration Date
----------------- -------------- ---------------
<S> <C> <C> <C>
Class A Warrants 9,200,462 $2.95 May 16 & June 7, 2001
Class B Warrants 7,008,058 $3.93 May 16 & June 7, 2001
Lenders' Warrants (see
Note 4) 198,863 $0.66 July 21, 2002
Lenders' Warrants (see
Note 4) 385,075 $0.67 May 8, 2003
Others 319,204 $4.40-$5.28 May 5, 2000-May 5, 2005
-----------
17,111,662
===========
</TABLE>
At June 30, 1998, 16,908,405 of the warrants were exercisable. Upon exercise of
the Class A Warrants, the purchaser receives one share of Common Stock and one
new Class B Warrant.
In addition to the warrants listed above and in connection with the initial
public offering, the Company sold for a nominal fee on May 16, 1996 to the
Underwriter the option to purchase up to 306,700 shares of Common Stock at an
exercise price of $6.16 and/or 608,204 Class A Warrants at an exercise price of
$.07 and/or 609,229 Class B Warrants at an exercise price of $.07, all of which
expire on May 16, 2001. After purchase the Class A Warrants will be exercisable
at a price of $2.95 per share of Common Stock and the Class B Warrants will be
F-23
<PAGE>
Conversion Technologies International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
7. Capital Stock (continued)
exercisable at a price of $3.93 per share of Common Stock, subject to adjustment
to protect against dilution.
The Company maintains an Employee Stock Option Plan (the "Employee Plan") and a
Non-Employee Director Stock Option Plan (the "Non-Employee Plan"). Stock options
may be granted at the discretion of the Board of Directors. The Company has
reserved 440,000 and 250,000 shares of its Common Stock for issuance upon the
exercise of options granted under the Employee and Non-Employee Plans,
respectively. The Non-Employee Plan options are generally exercisable in full
one year after the date of grant and expire ten years from the date of grant.
The Employee Plan options primarily vest one-third on each of the first three
anniversaries of the date of grant and expire on the seventh anniversary of the
date of grant. The Company grants stock options at exercise prices equal to or
greater than the fair market value of the Company's Common Stock on the date of
grant. On January 27, 1998, the Company reduced the exercise price of certain
options granted under the Non-Employee Plan for 21,580 shares to $0.78 per share
from exercise prices ranging from $3.125 to $5.00 per share.
The following table summarizes the activity in options under the Employee and
Non-Employee Plans:
Weighted Average
Number of Shares Exercise Price
---------------- --------------
Employee Plan Options
Outstanding at July 1, 1996 69,623 4.40
Granted 148,000 4.40
Canceled (48,543) 4.40
--------
Outstanding at June 30, 1997 169,080 4.40
Granted at market value 272,500 .78
Granted below market value 20,000 1.38
Canceled (41,946) 4.40
--------
Outstanding at June 30, 1998 419,634 1.91
========
Non-Employee Plan Options
Outstanding at July 1, 1996 7,483 4.40
Granted 50,847 3.16
--------
Outstanding at June 30, 1997 58,330 3.32
Granted at market value 135,000 .94
Canceled (25,412) 3.41
--------
Outstanding at June 30, 1998 167,918 1.08
========
F-24
<PAGE>
Conversion Technologies International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
7. Capital Stock (continued)
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
at June 30, 1998 at June 30, 1998
--------------------------- -----------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Number Exercise Contractual Number Exercise
Range of Shares Price Life (Years) of Shares Price
- ----- --------- ----- ------------ --------- -----
<S> <C> <C> <C> <C> <C>
$0.781 409,080 $0.781 7.5 61,580 $0.781
$1.375-$1.875 40,000 $1.625 7.6 20,000 $1.375
$3.125-$5.00 138,472 $4.308 4.9 116,543 $4.291
------- -------
TOTAL 587,552 $1.670 6.9 198,123 $2.906
======= =======
</TABLE>
Of the total options outstanding under the plans, 198,123 and 75,557 were
exercisable at June 30, 1998 and 1997, respectively.
Effective as of August 26, 1996 ("Effective Date"), the Company approved and
adopted the 1996 Long-Term Employee Incentive Plan (the "Plan"). Under the Plan,
payment of awards may be in cash or the Common Stock of the Company or a
combination of both, at the option of the Company. The maximum number of shares
of the Company's Common Stock available for awards under the Plan is 800,000,
subject to adjustments as provided in the Plan. The Plan will terminate without
further action of the board of directors on the tenth anniversary of the
Effective Date. In October 1996, the Company issued a total of 90,000 shares (at
par value and, accordingly, compensation expense was recognized) to two former
officers of the Company under the Plan which shares vested on January 1, 1998.
Effective in July 1997, the Company issued a total of 600,000 options at an
exercise price of $1.375 to two officers of the Company which vest 20% at date
of grant and 20% for each of the next four years. On January 27, 1998, the
Company reduced the exercise price of these options to $0.78 and granted a total
of 10,000 options at an exercise price of $0.78 to two other officers of the
Company which vest one-third on each of the first three anniversaries of the
date of grant. All options granted under the Plan expire on the seventh
anniversary of the dates of grant.
On January 27, 1998, the Company granted non-qualified options to purchase
15,000 shares of its Common Stock at an exercise price of $0.78 per share to a
former director which were vested at the date of grant and expire on the tenth
anniversary of the date of grant. These options are not part of the Employee
Plan, Non-Employee Plan or the 1996 Long-Term Employee Incentive Plan.
The Company recorded $265,150 in compensation costs during fiscal 1998 in
connection with the issuance of non-employee plan options, employee plan options
issued below market and the
F-25
<PAGE>
Conversion Technologies International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
7. Capital Stock (continued)
modification of option terms, $207,000 of this amount is included in unearned
stock compensation at June 30, 1998.
At June 30, 1998, the Company has reserved 1,414,392 shares of Common Stock for
the exercise of all options granted.
The Company's Board of Directors authorized an increase of the authorized number
of common shares to 50 million shares, which was approved by the Company's
stockholders at the Company's Annual Meeting held on March 31, 1998.
The Company applies APB Opinion 25, "Accounting for Stock Issued to Employees",
and related interpretations in accounting for options issued to employees.
Accordingly, no compensation cost has been recognized for options granted to
employees at exercise prices, which equal or exceed the market price of the
Company's Common Stock at the date of grant. Options granted at exercise prices
below market prices are recognized as compensation cost measured as the
difference between market price and exercise price at the date of grant.
Statement of Financial Accounting Standards No. 123 (FAS 123), "Accounting for
Stock-Based Compensation", requires the Company to provide pro forma information
regarding net income and earnings per share as if compensation cost for the
Company's employee stock options had been determined in accordance with the fair
market value based on the method prescribed in FAS 123. The Company estimates
the fair value of each stock option at the date of grant by using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: no dividend yield, an expected life of 7.0 years for fiscal 1998
and 7.9 years for fiscal 1997, expected volatility of 55% for fiscal 1998 and
78% for fiscal 1997, and a risk-free interest rate of 6%.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee and non-employee director stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
and non-employee director options.
For purposes of pro forma disclosures, the estimated fair value of the options
granted to employees in 1998 and 1997 is amortized to expense over the options'
vesting period. The weighted-average fair value of options granted during fiscal
years 1998 and 1997 were $0.85 and $2.79, respectively. The Company's pro forma
information follows:
F-26
<PAGE>
Conversion Technologies International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
7. Capital Stock (continued)
1998 1997
---- ----
Pro Forma net loss $ (5,640,041) $ (13,127,518)
Pro Forma loss per common share $ (1.17) $ (2.75)
8. Income Taxes
There was no income tax expense/benefit for the Company for the years ended June
30, 1998 and 1997.
Following is a reconciliation of the expected income tax benefit to the amount
based on the U.S. statutory rate of 34% for the years ended June 30, 1998 and
1997:
For the year ended June 30,
1998 1997
---- ----
Income tax benefit based on U.S. statutory rate $ (890,712) $(4,370,758)
Current year addition to the valuation allowance 890,712 4,370,758
----------- -----------
Provision for income taxes $ -- $ --
=========== ===========
The significant components of the Company's deferred tax assets and liabilities
are as follows:
June 30,
1998 1997
---- ----
Deferred tax assets:
Deferred revenue $ -- $ 196,778
Reserve for disposal 206,000 285,240
Start-up costs 87,661 57,334
Fixed assets 2,400,544 1,422,000
Allowance for doubtful accounts 7,200 --
Accruals 166,620 --
Stock options and warrants 57,500 --
Tax loss carryforward 8,312,424 8,228,700
------------ ------------
Total deferred tax assets 11,237,949 10,190,052
Valuation allowances (11,237,949) (10,190,052)
------------ ------------
Net deferred tax assets $ -- $ --
============ ============
F-27
<PAGE>
Conversion Technologies International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
8. Income Taxes (continued)
The Company's valuation allowance increased by approximately $1,000,000 for the
year ended June 30,1998 which represents the effect of changes to the temporary
differences and net operating losses. The Company has recorded a valuation
allowance to state its deferred tax assets at estimated net realizable value due
to the uncertainty related to realization of these assets through future taxable
income.
At June 30, 1998, the Company has approximately $20 million of net operating
loss carryforwards, which expire between 2006 and 2013. The Tax Reform Act of
1986 enacted a complex set of rules (Section 382) limiting the potential
utilization of net operating loss carryforwards in periods following a corporate
"ownership change". In general, an ownership change is deemed to occur if the
percentage of stock of a loss corporation owned (actually, constructively and,
in some cases, deemed) by one or more "5% stockholders" has increased by more
than 50 percentage points over the lowest percentage of such stock owned during
a three year testing period. Although a comprehensive evaluation has not yet
been performed, it is likely that due to prior shifts in ownership (the Dunkirk
merger and the completion of the IPO) and current shifts in ownership (the
Preferred Stock Offering), the Company's ability to utilize its net operating
loss carryforwards could be severely limited.
9. Employee Benefit Plan
The Company established a 401(K) defined contribution plan covering
substantially all employees meeting certain minimum age and service requirements
effective August 1, 1998. The Company's contribution to the plan is determined
by the Board of Directors and is limited to a maximum of 100% of the employee's
contribution and 6% of the Employee's compensation. No contributions were made
to the plan for the fiscal years ended June 30, 1998 and 1997.
F-28
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------ ----------------------
2.1* Agreement and Plan of Reorganization dated August 16, 1994, among
the Company, CTI Acquisition Corporation, Dunkirk International
Glass and Ceramics Corporation ("Dunkirk") and certain stockholders
of Dunkirk listed on the signature pages thereto
3.1* Amended and Restated Certificate of Incorporation of the Company
3.2** Certificate of Designation of Series A Convertible Preferred Stock
3.3 * By-laws of the Company
3.4 Certificate of Amendment to the Restated Certificate of
Incorporation of the Company
4.3 * Term Note No. 2 dated as of January 27, 1995, between Key Bank of
New York and Dunkirk
4.4* Security Agreement dated as of January 27, 1995, between Key Bank of
New York and Dunkirk
4.5* Debt Service Reserve Agreement dated as of January 27, 1995, between
Key Bank of New York and Dunkirk
10.1* Conversion Technologies International, Inc. 1994 Employee Stock
Option Plan, As Amended
10.2* Conversion Technologies International, Inc. 1994 Stock Option Plan
for Non-Employee Directors, As Amended
10.3** Conversion Technologies International, Inc. 1996 Long-Term Employee
Incentive Plan, As Amended
10.4** Consulting Agreement dated March 1, 1995 between the Company and
Eckardt C. Beck, As Amended
10.5** Employment Agreement dated as of August 1, 1997 between the Company
and William L. Amt.
10.6** Employment Agreement dated as of July 2, 1997 between the Company
and Jack D. Hays, Jr.
10.7** Employment Agreement dated as of July 2, 1997 between the Company
and Richard H. Hughes.
10.8** Consulting Agreement dated as of June 4, 1997, between the Company
and Harvey Goldman.
10.10** Termination of Lease Agreement dated as of September 4, 1997 between
County of Chautauqua Industrial Development Agency and Dunkirk
10.11** Bill of Sale dated as of September 4, 1997 between County Chautauqua
Industrial Development Agency and Dunkirk
10.12** Termination of Security Agreement dated as of September 4, 1997
between County of Chautauqua Industrial Development Agency and
Dunkirk
<PAGE>
10.13** Release of Company Guaranty dated as of September 4, 1997 between
United States Trust Company of New York and Dunkirk
10.14** Release of Corporate Guaranty dated as of September 4, 1997 between
United States Trust Company of New York and the Company
10.15** Lease Agreement dated July 15, 1997 between Koger Equity, Inc. and
the Company
10.16** Termination Agreement dated as of June 30, 1997 between the Company
CTI, Acqsub-II, Inc. and Octagon, Inc.
10.18* Project Development Assistance Agreement dated July 13, 1995, among
the Company, Technology Funding Partners III, L.P. and Technology
Funding Venture Partners V, An Aggressive Growth Fund, L.P.
10.19** Technology Purchase Agreement dated as of June 30, 1997 between
Advanced Particle Technologies, Inc. and Vangkoe Industries, Inc.
10.20** Distributor Agreement dated as of June 30, 1997 between Advanced
Particle Technologies, Inc. and Vangkoe Industries, Inc.
10.21* Consulting Agreement dated as of May 5, 1995, among the Company,
Technology Funding Partners III, L.P. and Technology Funding Venture
Partners V, An Aggressive Growth Fund, L.P.
10.22* Registration Rights Agreement dated as of May 5, 1995, among the
Company, Technology Funding Partners III, L.P. and Technology
Funding Venture Partners V, An Aggressive Growth Fund, L.P.
10.25** Warrant for the Purchase of Shares of Series A Convertible Preferred
Stock issued to Paramount Capital, Inc. by the Company
10.26* Series A Preferred Stock Purchase Agreement dated as of May 5, 1995,
among the Company, Technology Funding Partners 111, L.P. and
Technology Funding Venture Partners V, An Aggressive Growth Fund,
L.P.
10.27** Form of Placement Agency Agreement between the Company and Placement
Agent.
10.28** Form of Subscription Agreement between the Company and various
subscribers of Series A Preferred Stock.
10.29** Form of Placement Agent Warrant.
10.30** Form of Financial Advisory Services Agreement between the Company
and Placement Agent.
10.31** Form of Warrant issued in connection with Senior Secured Line of
Credit Agreement.
10.32** Letter from Empire State Development Corporation ("ESDC") to Dunkirk
dated July 22, 1997 confirming its guarantee of the Key Bank Note
<PAGE>
10.33** Letter from Key Bank to ESDC dated July 30, 1997 confirming that it
will not exercise any remedies under the Key Bank Note and will
execute documents to assign the Key Bank Note to ESDC
10.34*** Senior Secured Line of Credit Agreement dated as of May 8, 1998 by
and among Aries Domestic Fund, L.P., The Aries Fund, Dunkirk, APT
and the Company
10.35 Security Agreement dated as of May 8, 1998 among the Company,
Dunkirk, APT and Paramount Capital Asset Management, Inc.
10.36 Subsidiary Guarantee dated as of May 8, 1998 by Dunkirk and APT in
favor of The Aries Fund and Aries Domestic Fund, L.P.
10.37 Promissory Note dated as of February 23, 1999 issued by the Company
in favor of Eckhardt C. Beck
10.38 Termination Agreement dated as of January 1, 1998 by and between the
Company and Jack D. Hays, Jr.
10.39 Termination Agreement dated as of January 1, 1998 by and between the
Company and Richard H. Hughes
10.40 Consulting Agreement dated December 22, 1998 by and between the
Company and 4C Technologies, Inc.
10.41 Amendment dated as of May 8, 1998 to the Technology Purchase
Agreement dated as of June 30, 1997 by and between APT and VANGKOE
10.42 Termination Agreement dated as of May 8, 1998 by and between APT and
VANGKOE
10.43 Materials Bill of Sale Agreement dated as of May 8, 1998 by and
between the Company and VANGKOE
10.44 Ceramaglass Trademark & Intellectual Property Agreement dated as of
May 8, 1998 by and between the Company and VANGKOE
10.45 Ceramaquartz Trademark & Intellectual Property Agreement dated As of
May 8, 1998 by and between the Company and VANGKOE
10.46 Letter Agreement of the Company dated March 11, 1998 with Dlubak
10.47 Lease dated April 1, 1998 by and between 312 Industrial Park and the
Company
10.48 Lease dated April 1, 1998 by and between Willard Park Inc. and the
Company
10.49 Manufacturer Representative Agreement dated as of January 1, 1998 by
and between the Company and Engineered Products Sales Associates
10.50 Manufacturer Representative Termination Agreement dated as of
January 1, 1998 by and between the Company and Engineered Products
Sales Associates
<PAGE>
11 Statement of Computation of Net Loss Per Share
21** Subsidiaries of the Company
27 Financial Data Schedule for the year ended June 30, 1998
* Incorporated by reference to the exhibits to the Company's Registration
Statement on form SB-2, Registration No. 333-00756.
** Incorporated by reference to the exhibits to the Company's Annual Report on
form 10-KSB, fiscal 1997.
*** Incorporated by reference to the exhibits to the Company's Annual Report on
form 10-QSB for the quarterly period ended March 31, 1998.
All other Exhibits filed herewith.
State of Delaware PAGE 1
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "CONVERSION TECHNOLOGIES INTERNATIONAL, INC.", FILED IN THIS OFFICE ON THE
SECOND DAY OF APRIL, A.D. 1998, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
[SEAL]
AUTHENTICATION: 9008800
DATE: 04-02-98
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
Pursuant to Section 242 of the Delaware General Corporation Law, the
undersigned Conversion Technologies International, Inc. (the "Corporation")
executes this Certificate of Amendment to its Restated Certificate of
Incorporation.
I. The first paragraph of ARTICLE FOURTH of the Corporation's Restated
Certificate of Incorporation is amended to provide in its entirety:
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 65,000,000 shares, consisting
of (a) 50,000,000 shares of common stock, $.00025 par value (the "Common
Stock") and (b) 15,000,000 shares of preferred stock, $.001 par value (the
"Preferred Stock"). Of the 15,000,000 authorized shares of Preferred
Stock, (i) 2,958,000 shares were designated as Series A Preferred Stock,
having the terms set forth herein, all of which shares were converted into
Common Stock upon consummation of the Corporation's initial public
offering of Common Stock, (ii) 880,000 shares have been designated as a
new Series A Convertible Preferred Stock pursuant to a Certificate of
Designation, having the terms set forth therein, and (iii) 11,162,000
shares remain authorized but undesignated shares of Preferred Stock,
subject to designation and issuance as hereinafter provided.
II. The foregoing amendment was duly adopted by the stockholders of the
Corporation in accordance with Section 242 of the Delaware General Corporation
Law.
IN WITNESS WHEREOF, this Certificate of Amendment has been executed as of
the 1st day of April, 1998.
CONVERSION TECHNOLOGIES
INTERNATIONAL, INC.
By: /s/ William L. Amt
------------------------------
William L. Amt, President and
Chief Executive Officer
ATTEST:
By: /s/ William Gary Jellum
------------------------------
William Gary Jellum, Secretary
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of May 8, 1998, among CONVERSION
TECHNOLOGIES INTERNATIONAL, INC., a Delaware Corporation (the "Company"),
DUNKIRK INTERNATIONAL GLASS AND CERAMICS CORPORATION, a Delaware Corporation
("Dunkirk"), ADVANCED PARTICLE TECHNOLOGIES, INC., a Delaware Corporation
("APT", together with Dunkirk, the "Subsidiaries") (collectively, with the
Company, "Debtors"), and PARAMOUNT CAPITAL ASSET MANAGEMENT, INC., (the "Secured
Party"), solely as agent for the holders (the "Holders") of the Company's Senior
Secured Notes (the "Notes") and not in its individual capacity.
WHEREAS, The Holders have each extended credit or will extend credit
to the Company represented by separate Notes in an aggregate principal amount of
up to One Million Two Hundred Thousand Dollars ($1,200,000).
WHEREAS, The Holders have entered into a Senior Secured Line of
Credit Agreement (the "Line of Credit") pursuant to which, among other things,
the Secured Party has been appointed to act as agent under this Agreement for
the benefit of all Holders to secure the obligations of the Debtors to the
Holders under their respective Notes.
WHEREAS, In consideration of the extension of credit to the Company
under the Notes, the Debtors wishes to grant a security interest in certain
collateral to the Secured Party for the benefit of all Holders.
NOW, THEREFORE, the parties hereto, intending legally to be bound,
do hereby agree as follows (terms used and not defined herein shall have the
meanings as defined in the Delaware Uniform Commercial Code (the "Delaware
UCC"), the New York General Obligations Law (the "New York UCC") and the Florida
Uniform Commercial Code (the "Florida UCC")):
1. Grant of a Security Interest. Debtors hereby grant to the Secured
Party for the benefit of all Holders a security interest in the Collateral (as
defined in Section 2).
2. Collateral. The collateral covered by this Agreement consists of
all property of the following types, wherever located and whether now owned or
hereafter owned or acquired by the Debtors, whether or not affixed to realty, in
all Proceeds and Products thereof in any form, in all parts, accessories,
attachments, special tools, additions, replacements, substitutions and
accessions thereto or therefor, and in all increases or profits received
therefrom, including, without limitation, all of the shares of stock of Dunkirk
and APT, all property described in any schedule from time to time delivered by
the Debtors to the Secured Party: Inventory and Receivables of the Company and
the Subsidiaries now owned and hereafter owned or acquired (all of the
foregoing, including such proceeds, being collectively referred to as the
"Collateral").
<PAGE>
3. The Debtors' Obligations Secured Hereby. The Debtors' obligations
(the "Obligations") to the Secured Party secured hereby for the benefit of the
Holders are the payment of the principal sum and interest evidenced by the
Notes, and performance and discharge of each and every obligation of the Company
and the Subsidiaries, as the case may be, under this Agreement, the Line of
Credit, the Warrants (as defined in the Line of Credit), the Subsidiary
Guarantee and the Notes.
4. Debtors Representations and Warranties. Debtors represent and
warrant and, so long as this Security Agreement is in effect, shall be deemed
continuously to represent and warrant, that:
(a) Debtors are the sole legal and beneficial owner of the
Collateral free and clear of any liens, security interests, claims, options,
adverse interests, or other encumbrances, except for the security interests
created by this Agreement.
(b) Debtors have all necessary corporate power and authority
and have taken all corporate action necessary to execute, deliver and perform
this Agreement and the Notes and to encumber and grant a security interest in
the Collateral.
(c) There is no effective financing statement or other
instrument similar in effect covering all or any part of the Collateral on file
in any recording office except as (i) may have been filed in favor of the
Secured Party or (ii) as set forth on Schedule I hereto.
(d) This Agreement creates a valid security interest of the
Secured Party in the Collateral securing payment of the Obligations. Upon the
filing of the financing statements and the other instruments similar in effect
under Section 5(b) or the taking of any other action necessary to perfect, the
Secured Party will have valid and perfected first priority liens on and security
interests in the Collateral.
(e) No consent, authorization, approval or other action by,
and no notice to or filing with, any governmental authority, regulatory body,
lessor, franchise or other person or entity is required for the grant by Debtors
of the security interest granted hereby or for the execution, delivery or
performance of this Agreement by Debtors or for the perfection or exercise by
the Secured Party of its rights and remedies hereunder, except filings of
financing documents or as otherwise set forth on Schedule I hereto.
(f) Debtors do not transact any part of their businesses under
any trade names, division names, assumed names or other names, except for the
names set forth in the preamble or on Schedule I hereto; Debtors' business
addresses and chief executive offices are as set forth on Schedule I hereto; and
Debtors' records concerning the Collateral are kept at such address.
(g) Each Account, General Intangible and Chattel Paper
constituting Collateral is genuine and enforceable in accordance with its terms
against the party obligated to pay it (the "Account Debtor"), and no Account
Debtor has any defense, setoff, claim or
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<PAGE>
counterclaim against Debtors which can be asserted against the Secured Party,
whether in any proceeding to enforce the Collateral or otherwise.
(h) Debtors will promptly deliver to the Secured Party a
schedule of all Accounts, General Intangibles and Chattel Paper, and will
provide updated schedules thereof from time to time as the Secured Party may
reasonably request, but not more frequently than monthly. The amounts
represented on such schedules by Debtors to the Secured Party as owing by each
Account Debtor or by all Account Debtors are and will be the correct amounts
actually and unconditionally owing by such Account Debtor or Account Debtors
individually and in the aggregate, except for normal cash discounts where
applicable.
(i) Each Instrument and each Document constituting Collateral
is genuine and in all respects what it purports to be.
(j) Any Collateral which is a Fixture is affixed to real
property at Debtor's addresses specified on Schedule II hereto.
5. Debtors' Covenants. Debtors agree and covenant for themselves,
their successors and assigns that:
(a) The Collateral will be used solely for business purposes
of Debtors and will remain in the possession or under the control of Debtors
(sale or replacement in the ordinary course excepted) and will not be used for
any unlawful purpose. The Collateral will not be misused, abused, wasted or
allowed to deteriorate (ordinary wear and tear excepted). Debtors will keep the
Collateral, as appropriate and applicable, in good condition and repair
(ordinary wear and tear excepted), and will clean, shelter, and otherwise deal
with the Collateral in all such ways as are considered good practice by owners
of like property.
(b) Debtors have executed and will promptly file with the
appropriate governmental authorities, or deliver to the Secured Party for
filing, UCC-1 Financing Statements with respect to the Collateral. Debtors
shall, at no cost to the Secured Party, promptly execute, acknowledge and
deliver all such other documents as the Secured Party reasonably deems necessary
to (i) create, perfect and continue the security interest in the Collateral
contemplated hereby, (ii) preserve and protect the rights and remedies
contemplated hereby. Debtors will pay all costs of title searches and filing of
financing statements, assignments and other documents in all public offices
reasonably requested by the Secured Party, and will not, without the prior
written consent of the Secured Party, file or authorize or permit to be filed in
any public office any financing statement naming Debtors as debtors and not
naming the Secured Party, as agent for the Holders, as secured party, except
with respect to other secured indebtedness permitted by the terms of the Notes.
(c) Debtors will defend the Collateral against the claims and
demands of all other parties, including, without limitation, defenses, setoffs,
claims and counterclaims asserted by any Account Debtor against Debtors or the
Secured Party, except, as to Inventory, purchasers and lessees in the ordinary
course of Debtors' businesses; will keep the Collateral free
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<PAGE>
from all security interests or other encumbrances, except the Security Interest;
and will not sell, transfer, lease, assign, deliver or otherwise dispose of any
Collateral or any interest therein without the prior written consent of the
Secured Party, except that Debtors may sell or lease Inventory in the ordinary
course of Debtors' businesses and sell, lease or replace equipment in the
ordinary course of business.
(d) Debtors will, at the Secured Party's request, mark any and
all books and records to indicate the Security Interest.
(e) Debtors will deliver to the Secured Party, upon demand,
all Documents and all Chattel Paper (duly endorsed to Secured Party)
constituting, representing or relating to the Collateral or any part thereof,
and any schedules, invoices, shipping documents, delivery receipts, purchase
orders, contacts or other documents representing or relating to the Collateral
or any part thereof.
(f) Debtors will notify the Secured Party promptly in writing
of any change in Debtors' business addresses or chief executive offices, any
change in the address at which records concerning the Collateral are kept and
any change in Debtor's name, identity or corporate or other structure.
(g) Debtors will prevent the Collateral or any part thereof
from being or becoming an accession to other goods not covered by this Security
Agreement.
(h) Debtors shall pay all out-of-pocket expenses, including
reasonable attorneys' fees and costs, incurred by the Secured Party after or in
reasonable anticipation of the occurrence of an Event of Default in the
preservation, realization, enforcement or exercise of any of the Secured Party's
rights under this Agreement.
(i) Any and all Collateral described or referred to in the
granting clauses hereof which is hereafter acquired shall, and without any
further conveyance, assignment or act on the part of Debtors or the Secured
Party, become and be subject to the security interests herein granted as fully
and completely as though specifically described herein, but nothing in this
Section 5(i) shall be deemed to modify or change the obligations of Debtors
under Section 5(b) hereof.
(j) Upon request of the Secured Party, forthwith execute and
deliver or cause to be executed and delivered to the Secured Party, in due form
for filing or recording (and pay the cost of filing or recording the same in all
public offices deemed necessary by the Secured Party), such assignments,
security agreements, pledge agreements, consents, waivers, financing statements,
stock or bond powers, and other documents, and do such other acts and things,
all as the Secured Party may from time to time request, to establish and
maintain to the satisfaction of the Secured Party valid perfected liens in all
Collateral (free of all other liens, claims, and rights of third parties
whatsoever, except for Liens, claims, and rights permitted by this Security
Agreement or as set forth on the Schedules hereto).
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<PAGE>
6. Certain Provisions Concerning Collateral.
(a) After the occurrence of an Event of Default (as defined
below), the Secured Party may notify all or any Account Debtors of the security
interest created hereby and may also direct such Account Debtors to make all
payments on Collateral to the Secured Party. All payments on and from Collateral
received by the Secured Party directly or from Debtors shall be applied to the
Obligations in accordance with Section 9. The Secured Party may demand of
Debtors in writing, before or after notification to Account Debtors and without
waiving in any manner the security interest created hereby, that any payments on
and from the Collateral received by Debtors: (i) shall be held by Debtors in
trust for the Secured Party in the same medium in which received; (ii) shall not
be commingled with any assets of Debtors; and (iii) shall be delivered to
Secured Party in the form received, properly endorsed to permit collection, not
later than the next business day following the day of their receipt; and Debtors
shall comply with such demand. Debtors shall also promptly notify the Secured
Party of the return to or repossession by Debtors of Goods underlying any
Collateral, other than returns or repossession in the ordinary course of
Debtors' businesses, and shall hold the same in trust for the Secured Party and
shall dispose of the same as Secured Party directs.
(b) If any Collateral consists of investment securities,
Debtors have delivered and will continue to deliver such securities to the
Secured Party to be held as Collateral and, after an Event of Default,
authorizes the Secured Party to transfer the same or any part thereof into its
own name or that of its nominee so that the Secured Party or its nominee may
appear of record as the sole owner thereof. Upon demand, Debtors shall deliver
promptly to the Secured Party copies of all notices, statements or other
communications received by them or their nominees as owner of such securities.
(c) Until the occurrence of an Event of Default, Debtors
reserve the right to receive all income from or interest on the Collateral. Upon
the occurrence of an Event of Default, Debtors will not demand or receive any
income from or interest on such Collateral and, if Debtors receive any such
income or interest without any demand by it, the same shall be held by Debtors
in trust for the Secured Party in the same medium in which received, shall not
be commingled with any assets of Debtors and shall be delivered to the Secured
Party in the form received, properly endorsed to permit collection, not later
than the next business day following the day of its receipt. The Secured Party
may apply the net cash receipts from such income or interest to payment of the
Obligations, provided that the Secured Party shall account for and pay over to
Debtors any such income or interest remaining after payment in full of the
Obligations.
(d) Whether or not an Event of Default has occurred, Debtors
authorize the Secured Party to (i) receive any increase in or profits on the
Collateral (other than Inventory, in the case where no Event of Default has
occurred) (including, without limitation, any stock issued as a result of any
stock split or dividend, any capital distributions and the like), and to hold
the same as part of the Collateral, (ii) receive any payment or distribution on
the Collateral upon redemption by, or dissolution and liquidation of, the issuer
thereof, (iii) surrender such Collateral or any part thereof in exchange
therefor, and (iv) hold the net cash receipts from any such payment or
distribution described in clause (ii) hereof as part of the Collateral. If
Debtors
5
<PAGE>
receive any such increase, profits, payments or distributions, Debtors will
receive and deliver same promptly to the Secured Party on the same terms and
conditions set forth in Section 6(b) hereof respecting income or interest, to be
held by the Secured Party as part of the Collateral.
7. Events of Default. The occurrence of any "Events of Default"
under the Line of Credit shall constitute an "Event of Default" under this
Security Agreement.
8. Remedies on Default. (a) Upon the occurrence of an Event of
Default the Secured Party may, by notice to Debtors (or automatically in the
case of an Event of Default pursuant to Section 5 of the Note not requiring
notice), declare the aggregate unpaid principal balance of all the Notes,
together with all unpaid accrued interest thereon, to be immediately due and
payable and thereupon all such amounts shall be and become immediately due and
payable to the Secured Party for the benefit of the Holders. Upon such
acceleration, the Secured Party, for the benefit of the Holders, shall have all
rights, privileges, powers and remedies provided a secured party under the
Delaware UCC, the New York UCC and the Florida UCC and any other applicable law.
Upon the existence or occurrence of an Event of Default, the Secured Party may
require Debtors to assemble the Collateral and make it available to the Secured
Party at a place or places designated by the Secured Party, and the Secured
Party may use and operate the Collateral.
(b) Without in any way requiring notice to be given in the
following time and manner, Debtors agree that any notice by the Secured Party of
sale, disposition or other intended action hereunder or in connection herewith,
whether required by the Delaware UCC, the New York UCC, the Florida UCC or
otherwise, shall constitute reasonable notice to Debtors if such notice is
mailed by regular or certified mail postage prepaid, at least seven (7) business
days prior to such action, to Debtors' addresses specified in Schedule I hereto
or to any other addresses which Debtors have specified in writing to the Secured
Party as the address to which notices hereunder shall be given to Debtors.
(c) After an Event of Default, the Secured Party may demand,
collect and sue on any of the Accounts, Chattel Paper, Instruments and General
Intangibles (in either Debtor's or the Secured Party's name at the latter's
option); may enforce, compromise, settle or discharge such Collateral without
discharging the Obligations or any part thereof; and may indorse Debtors' name
on any and all checks, commercial paper, and any other Instruments pertaining to
or constituting Collateral.
9. Payments After an Event of Default. All payments received and
amounts realized by the Secured Party pursuant to Section 8, including all such
payments and amounts received after the entire unpaid principal and interest
amount of the Notes has been declared due and payable, as well as all payments
or amounts then held or thereafter received by the Secured Party as part of the
Collateral while an Event of Default shall be continuing, shall be promptly
applied and distributed by the Secured Party in the following order of priority:
(a) first, to the payment of all costs and expenses, including
reasonable legal expenses and attorneys' fees, incurred or made hereunder by the
Secured Party, and/or by
6
<PAGE>
any other Holder or Holders, including any such costs and expenses of
foreclosure or suit, if any, and of any sale or the exercise of any other remedy
under Section 8, and of all taxes, assessments or liens superior to the lien
granted under this Security Agreement, except any taxes, assessments or other
superior lien subject to which any said sale under Section 8 hereof may have
been made; and
(b) second, to the payment to each Holder of the amount then
owing or unpaid on such Holder's Note, and in case the payments received and
amounts realized by the Secured Party shall be insufficient to pay in full the
whole amount so due, owing or unpaid upon all the Notes, then ratably, in the
proportion that the unpaid principal amount of each Note bears to the aggregate
unpaid principal amount of all Notes, and in the proportion that the amount of
interest accrued under each Note bears to the aggregate amount of interest
accrued under all the Notes, with application on each Note to be made first to
the unpaid interest thereon, and second, to the unpaid principal thereof, such
application to be made upon presentation of the Notes and the notation thereon
of the payment, if partially paid, or the surrender and cancellation thereof, if
fully paid; and
(c) third, to the payment of the balance or surplus, if any,
to Debtors, its successors and assigns, or to whomever may be lawfully entitled
to receive the same.
10. Power of Attorney. Debtors hereby appoint the Secured Party the
attorney-in-fact of Debtors to prepare, sign and file or record, for Debtors in
Debtors' name, any financing statement and to take any other action reasonably
deemed by the Secured Party necessary or desirable to perfect and continue the
perfection of the security interest of the Secured Party hereunder, and to
perform any obligations of Debtors hereunder, at Debtors' expense, but without
obligation to do so. Such power of attorney is coupled with an interest and is
irrevocable so long as this Agreement is in effect.
11. Secured Party's Right to Cure; Reimbursement. In the event
Debtors should fail to do any act as herein provided, the Secured Party may, but
without obligation to do so, with notice to Debtors, and without releasing
Debtors from any obligation hereof, make or do the same in such manner and to
such extent as the Secured Party may deem necessary to protect the Collateral,
including, without limitation, the defense of any action purporting to affect
the Collateral or the rights or powers of the Secured Party hereunder, at
Debtors' expense. Debtors shall reimburse the Secured Party for expenses
reasonably incurred under this Section 11.
12. Miscellaneous. (a) This Agreement, together with the covenants
and warranties contained in it, shall inure to the benefit of the Secured Party,
the Holders and their respective successors, assigns, heirs and personal
representatives, and shall be binding upon Debtors, its successors and assigns.
(b) Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered against receipt to the party
to whom it is to be given (i) if to Debtors, at their
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<PAGE>
addresses set forth in Schedule I hereto to the attention of its President or
(ii) if to the Secured Party, at its address set forth in the preamble of this
Agreement, to the attention of its Chairman. Any notice or other communication
given by certified mail shall be deemed given at the time of certification
thereof, except for a notice changing a party's address which shall be deemed
given at the time of receipt thereof. Any notice given by other means permitted
by this Section 11(b) shall be deemed given at the time of receipt thereof.
(c) This Agreement shall terminate on the satisfaction in full
of all of the Obligations and, on such termination, the Secured Party shall
release to Debtors the security interest granted in the Collateral hereunder;
provided, that if, after receipt of any payment of all or any part of the
Obligations, the Secured Party is for any reason compelled to surrender such
payment to any person or entity, because such payment is determined to be void
or voidable as a preference, impermissible setoff, or a diversion of trust
funds, or for any other reason, this Agreement shall continue in full force
notwithstanding any contrary action which may have been taken by the Secured
Party in reliance upon such payment, and any such contrary action so taken shall
be without prejudice to the Secured Party's rights under this Agreement and
shall be deemed to have been conditioned upon such payment having become final
and irrevocable.
(d) If any provision of this Agreement is invalid, illegal, or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
(e) The headings in this Agreement are solely for convenience
of reference and shall be given no effect in the construction or interpretation
of this Agreement.
(f) This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(g) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
(h) No course of dealing and no delay or omission on the part
of the Secured Party in exercising any right or remedy shall operate as a waiver
thereof or otherwise prejudice the Secured Party's rights, powers or remedies.
No right, power or remedy conferred by this Agreement upon the Secured Party
shall be exclusive of any other right, power or remedy referred to herein or now
or hereafter available at law, in equity, by statute or otherwise, and all such
remedies may be exercised singly or concurrently.
(i) This Agreement sets forth the entire understanding of the
parties with respect to the subject matter hereof, supersedes all existing
agreements among them concerning such subject matter, and may be modified only
by a written instrument duly executed by each party.
8
<PAGE>
(j) Debtors irrevocably consent to the jurisdiction of the
courts of the State of New York and of any federal court located in such State
in connection with any action or proceeding arising out of or relating to this
Agreement, any document or instrument delivered pursuant to, in connection with
or simultaneously with this Agreement, or a breach of this Agreement or any such
document or instrument. In any such action or proceeding, Debtors waive personal
service of any summons, complaint or other process and agrees that service
thereof may be made in accordance with Section 12(b). Within 30 days after such
service, or such other time as may be mutually agreed upon in writing by the
attorneys for the parties to such action or proceeding, Debtors shall appear or
answer such summons, complaint, or other process.
(k) This Agreement may be amended, or any of its provisions
waived only by a written instrument executed by the Company and the Secured
Party.
9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Security Agreement on
the date set forth above.
PARAMOUNT CAPITAL ASSET ADVANCED PARTICLE
MANAGEMENT, INC. TECHNOLOGIES, INC.
By: /s/ Lindsay A. Rosenwald By: /s/ William Amt
----------------------------- -----------------------
Name: Lindsay A. Rosenwald, M.D. Name: William Amt
Title: President Title: President
CONVERSION TECHNOLOGIES DUNKIRK INTERNATIONAL GLASS
INTERNATIONAL, INC. AND CERAMICS CORPORATION
By: /s/ William Hurt By: /s/ William Amt
----------------------------- -----------------------
Name: William Hurt Name: William Amt
Title: President Title: President
10
<PAGE>
Schedule I
Fixture Collateral Affixed to Financing Statements - Section 4(c)
None
Trade Names, Division Names, Etc - Section 4(f)
Business Addresses - Section 4 (f)
Conversion Technologies International, Inc. Advanced Particle Technologies, Inc.
3452 Lake Lynda Drive, Suite 280 7 San Bartola Drive
Orlando, Florida 32817 St. Augustine, Florida 32086
Dunkirk International Glass & Ceramics Corporation
181 Stegelske Avenue
Dunkirk, NY
14048
Chief Executive Offices - Section 4(f)
Conversion Technologies International, Inc.
3452 Lake Lynda Drive, suite 280
Orlando, Florida 32817
Schedule I
<PAGE>
Schedule II
Fixture Collateral Affixed to Real Property - Section 4(j)
NONE
Schedule II
SUBSIDIARY GUARANTEE
SUBSIDIARY GUARANTEE ("Guarantee"), dated as of May 8, 1998 by
DUNKIRK INTERNATIONAL GLASS AND CERAMICS CORPORATION and ADVANCED PARTICLE
TECHNOLOGIES, INC. (each a Guarantor, together "Guarantors"), in favor of and
for the benefit of THE ARIES FUND, A CAYMAN ISLAND TRUST, and ARIES DOMESTIC
FUND, L.P. (each a "Guaranteed Party," together, the "Funds").
The Funds and Conversion Technologies International, Inc. ("CTI"),
have entered into a Senior Secured Line of Credit Agreement of even date
herewith (the "Credit Agreement") pursuant to which the Funds have provided a
line of credit (the "Line of Credit") to CTI.
Guarantors are subsidiaries of CTI and, thus, the Line of Credit
obligations of CTI under the Credit Agreement are being incurred for and will
inure to the benefit of Guarantors.
Guarantors desire to irrevocably and unconditionally guarantee the
obligations now existing or hereafter arising of CTI, including without
limitation its obligations under the Credit Agreement, the Notes, the Warrants
and the Security Agreement (collectively, the "Guaranteed Obligations").
The Funds have required that this Guarantee be executed and
delivered by Guarantors at or prior to the provision of funding under the Credit
Agreement.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged,
Guarantors hereby agree as follows:
1. Definitions. Capitalized terms not otherwise defined in this
Guarantee are used herein with the same meanings therefor set forth in the
Credit Agreement.
2. Guarantee. Guarantors hereby irrevocably and unconditionally
guarantee the full and punctual payment of all Guaranteed Obligations when any
of the same shall become due and payable, whether at stated maturity, by
required payment, declaration, acceleration, demand or otherwise (including
amounts which would become due but for the operation of the automatic stay under
Section 362(a) of the Bankruptcy Code, 11 U.S.C. (362(a)) and agree to pay any
and all reasonable costs and expenses (including reasonable fees and
disbursements of counsel) incurred by the Funds in enforcing any rights under
this Guarantee together with any accrued but unpaid interest on the Guaranteed
Obligations (including, without limitation, interest which, but for the filing
of a petition of bankruptcy with respect to CTI or any subsidiary, would have
accrued on such Guaranteed Obligations).
3. No Release. Guarantors agree that the Guaranteed Obligations may
be extended or renewed, in whole or in part, without notice or further assent
from it, and that Guarantors will remain bound by this Guarantee notwithstanding
any extension, renewal or other alteration of any Guaranteed Obligation.
<PAGE>
4. Obligations Absolute. Guarantors waive presentation of, demand
of, notice of dishonor and protest of any Guaranteed Obligation and also waives
notice of protest for nonpayment. The obligations of Guarantors under this
Guarantee shall be absolute, unconditional and irrevocable irrespective of:
(a) change in manner, place or terms of payment (including the
currency thereof) of, and/or change or extension of the time of payment of,
renewal or alteration of, any of the Guaranteed Obligations or any liability
incurred directly or indirectly in respect thereof, and the guarantee herein
made shall apply to the Guaranteed Obligations as so changed, extended, renewed
or altered;
(b) sale, exchange, release, surrender, realization upon or other
alteration in any manner and in any order of any property by whomsoever at any
time pledged or mortgaged to secure, or howsoever securing, the Guaranteed
Obligations or any liabilities (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof;
(c) settlement or compromise of any of the Guaranteed Obligations,
any security therefor or any liability (including any of those hereunder)
incurred directly or indirectly in respect thereof or hereof, and subordination
of the payment of all or any part thereof to the payment of any liability
(whether due or not) of CTI or any subsidiary;
(d) application of any sums by whomsoever paid or howsoever realized
to any liability or liabilities of CTI or any subsidiary, including by any other
guarantor of any Guaranteed Obligations to the Funds regardless of what
liability or liabilities of CTI or any subsidiary remain unpaid;
(e) actions or failure to act in any manner referred to in this
Guarantee which may deprive Guarantors of their rights to subrogation against
CTI or any subsidiary to recover full indemnity for any payments made pursuant
to this Guarantee;
(f) failure of either of the Funds to assert any claim or demand or
to enforce any right or remedy against CTI or any subsidiary, any successor
thereto or any other guarantor of the Credit Agreement, or the Notes, the
Warrants or the Security Agreement or any other agreement or otherwise; or
(g) rescission, waiver, extension, renewal, amendment or
modification of any of the terms or provisions of the Credit Agreement, the
Notes, the Warrants or the Security Agreement, or any instrument or agreement
executed pursuant thereto.
(h) any other circumstance which might otherwise constitute a
defense available to, or a legal or equitable discharge of, CTI or any
subsidiary or the Guarantor.
5. Guarantee of Payment. This Guarantee constitutes a guarantee of
payment when due, and Guarantors specifically agree that it shall not be
necessary or required that the Funds exercise any right, assert any claim or
demand or enforce any remedy whatsoever against
<PAGE>
CTI (or any other person) before or as a condition to the obligations of
Guarantors hereunder.
6. Unenforceabiity of Obligations. The obligations of Guarantors
under this Guarantee shall not be subject to any reduction, limitation,
impairment, or termination for any reason (other than by payment in full of the
Guaranteed Obligations) and shall not be subject to any defense or set-off,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of any of the Guaranteed Obligations, discharge
of CTI and any subsidiary from any of the Guaranteed Obligations in a bankruptcy
or similar proceeding or otherwise (except by payment in full of the Guaranteed
Obligations). Guarantors further agree that this Guarantee shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any
part thereof, of principal of, interest on or any other amount with respect to
any Guaranteed Obligation is rescinded or must otherwise be restored by either
of the Funds or any other person or entity upon the bankruptcy or reorganization
of CTI or any subsidiary, any other Person or otherwise.
7. Acceleration. Upon the occurrence of any Event of Default and if
such default shall occur at a time when the Guaranteed Obligations may not be
then due and payable, Guarantors shall pay to the Funds the full amount which
would be payable under the Credit Agreement, the Notes and the Security
Agreement by CTI or Guarantors if all such obligations were then due and
payable.
8. Reinstatement. If claim is ever made upon either of the Funds for
repayment or recovery of any amount or amounts received in payment or on account
of any of the Guaranteed Obligations and either of the Funds repays all or part
of said amount by reason of (a) any judgment, decree or order of any court not
administrative body having jurisdiction over such Guaranteed Party or any of its
property, or (b) any settlement or compromise of any such claim effected by such
Guaranteed Party with any such claimant (including CTI or any subsidiary), then
and in such event Guarantors agree that any such judgment, decree, order,
settlement or compromise shall be binding upon it, notwithstanding any
revocation hereof or the cancellation of the Credit Agreement, the Notes, the
Warrants or the Security Agreement or other instrument evidencing any liability
of CTI or any subsidiary, and Guarantors shall be and remain liable to such
Guaranteed Party hereunder for the amount so repaid or recovered to the same
extent as if such amount had never originally been received by any such
Guaranteed Party.
9. Waiver. Guarantors hereby waive absolutely and irrevocably,
promptness, diligence, notice of acceptance and any other notice with respect to
any of the Guaranteed Obligations and any requirement that the Funds protect,
secure, perfect or insure any security interest or Lien, or any property subject
thereto, or exhaust any right or take any action against CTI or any other person
or entity pursuant to or in respect of this Guarantee.
10. Set-Off. In addition to any rights now or hereafter granted
under applicable law (including, without limitation, Section 151 of the New York
Debtor and Creditor Law) and not by way of limitation of any such rights, upon
the occurrence of any Event of Default, each of the Funds is hereby authorized
at any time or from time to time, without notice to Guarantors, any such notice
being expressly waived, to the extent permitted by applicable law,
<PAGE>
to set off and to appropriate and apply any and all deposits (general or
special) and any other indebtedness at any time held or owing by the Funds to or
for the credit or the account of Guarantors, against and on account of the
obligations and liabilities of Guarantors to the Funds under this Guarantee,
irrespective of whether or not the Funds shall have made any demand hereunder
and although said obligations, liabilities, deposits or claims, or any of them,
shall be contingent or unmatured.
11. Net Payments. (a) All payments made by the Guarantors hereunder
will be made without setoff, counterclaim or other defense. All payments
hereunder (including, without limitation, payments on account of principal and
interest and fees) shall be made by the Guarantors free and clear of and without
deduction or withholding for or on account of any present or future tax, duty,
levy, impost, assessment or other charge of whatever nature now or hereafter
imposed by any jurisdiction or by any political subdivision or taxing authority
thereof or therein. If the Guarantors are required by law to make any deduction
or withholding of any taxes from any payment due hereunder, then the amount
payable will be increased to such amount which, after deduction from such
increased amount of all such taxes required to be withheld or deducted
therefrom, will not be less than the amount due and payable hereunder had no
such deduction or withholding been required.
(b) If the Guarantors make any payment hereunder in respect of which
they are required by law to make any deduction or withholding of any taxes, they
shall pay the full amount to be deducted or withheld to the relevant taxation or
other authority within the time allowed for such payment under applicable law
and shall deliver to the Funds, within 30 days after they have made such payment
to the applicable authority, a receipt issued by such authority evidencing the
payment to such authority of all amounts so required to be deducted or withheld
from such payment.
(c) Without prejudice to the provisions of subsection (a) of this
paragraph 11, if either Guaranteed Party is required by law to make any payment
on account of taxes on or in relation to any sum received or receivable
hereunder by such Guaranteed Party, or any liability for taxes in respect of any
such payment is imposed, levied or assessed against the Funds, the Guarantors
will promptly indemnify such person against such tax payment or liability,
together with any interest, penalties and expenses (including counsel fees and
expenses) payable or incurred in connection therewith, including any tax on the
Funds arising by virtue of payments under this subsection (c) of this paragraph
11, computed in a manner consistent with subsection (a) of this paragraph 11. A
certificate as to the amount of such payment by such Guaranteed Party, absent
manifest error, shall be final, conclusive and binding upon all parties hereto
for all purposes. Such Guaranteed Party agrees to use reasonable efforts to
inform the Guarantors of any such taxes affecting it that are imposed by any
jurisdiction after it becomes aware of any such taxes being imposed.
12. Amendment and Waiver. No amendment, modification, termination or
waiver of any provision of this Guarantee, or consent to any departure by
Guarantors herefrom, shall in any event be effective without the written
concurrence of the Funds or as otherwise provided in the Credit Agreement. No
waiver of any single breach or default under this Guarantee
<PAGE>
shall be deemed a waiver of any other breach or default. All notices, requests,
demands or other communications to or upon Guarantors or the Funds shall be in
writing and shall be deemed to have been duly given or made, as provided in the
Credit Agreement.
13. Successors and Assigns. This Guarantee shall be binding upon
Guarantors and their successors and assigns and shall inure to the benefit of
the respective successors and assigns of the Funds and, in the event of any
transfer or assignment of rights by the Funds, the rights and privileges herein
conferred upon the Funds shall automatically extend to and be vested in such
transferee or assignee, all subject to the terms and conditions hereof.
14. Governing Law. This Guarantee shall be deemed to be made under,
shall be governed by law, and shall be construed and enforced in accordance
with, the laws of the State of New York without regard to the principles of
conflict of laws.
15. Jurisdiction and Service. All judicial proceedings brought
against Guarantors with respect to this Guarantee may be brought in any state or
federal court of competent jurisdiction in the State of New York, and by
execution and delivery of this Guarantee. Guarantors accepts for itself and in
connection with its properties, generally and unconditionally, the nonexclusive
jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Guarantee. Nothing herein
shall affect the right of any Agent to bring proceedings against Guarantors in
the courts of any other Jurisdiction.
IN WITNESS WHEREOF, the undersigned Guarantors have caused this Guarantee
to be duly executed as of the day and year first above written.
ADVANCED PARTICLE TECHNOLOGIES, INC.
By: /s/ William Amt
--------------------------------
Name: William Amt
Title: President
DUNKIRK INTERNATIONAL GLASS AND
CERAMICS CORPORATION
By: /s/ William Amt
--------------------------------
Name: William Amt
Title: President
PROMISSORY NOTE
$190,000.00 As of February 23, 1999
FOR VALUE RECEIVED, CONVERSION TECHNOLOGIES INTERNATIONAL, INC., a
Delaware corporation ("Maker"), promises to pay to Eckhardt C. Beck and any of
his successors and assigns (all of whom shall hereinafter be referred to
collectively as "Holder") the principal sum of One Hundred and Ninety Thousand
Dollars ($190,000) in lawful money of the United States of America together with
interest upon the unpaid principal at the fixed rate of twelve percent (12%) per
year (the "Interest Rate"). Interest will be computed on the basis of actual
days elapsed and a year of 365 days.
The outstanding principal balance and all accrued and unpaid
interest thereon shall be due and payable upon demand but in no event later than
September 1, 1999, at such address as Holder may notify Maker from time to time.
Each payment received under this Note shall, at the option of
Holder, be applied first to reasonable costs and expenses incurred by Holder,
thereafter to default interest, then to interest due, and thereafter to
principal.
This Note may be prepaid at any time and from time to time, in whole
or in part, without penalty.
Upon default in payment of any principal or interest when due
hereunder, interest on principal and interest balances outstanding under this
Note shall accrue at the rate of three percent (3%) per year above the Interest
Rate until such time as all delinquent payments are paid in full.
To the extent permitted by law, Maker and any endorsers hereby
waive:
(a) presentment, demand, protest, notice of protest, notice of
dishonor, notice of nonpayment, and all other notices;
(b) the right, if any, to the benefit of or to direct the
application of any security hypothecated to Holder until all
indebtedness of Maker to Holder shall have been paid; and
(c) the right to require Holder to proceed against Maker, any
guarantor, any endorser, or any collateral which secures this note,
or to pursue any other remedy in its power.
<PAGE>
This Note has been made and delivered in the State of New York and
shall be construed and enforced in accordance with the laws of the State of New
York. In any action brought under or in connection with this Note, Maker,
including its successors or assigns, hereby consents to the jurisdiction of any
competent state or federal court within the State of New York and consents to
service of process by any means authorized by law.
Maker agrees to pay for all reasonable fees and expenses, including
reasonable attorneys' fees and related costs, incurred by Holder in enforcing
its rights under this Note, whether or not legal proceedings are commenced.
This Note may be endorsed or assigned in whole or in part by Holder
without the consent of Maker.
Holder shall not by any act of omission or commission be deemed to
have waived any rights or remedies hereunder unless such waiver is in writing
and signed by the Holder and then only to the extent specifically set forth
therein; any such waiver shall not be construed as a bar to or waiver of such
right or remedy on the occurrence of a subsequent event.
CONVERSION TECHNOLOGIES INTERNATIONAL,
INC.
By:
-----------------------------
Name: John Murchie
Title: Controller
2
TERMINATION AGREEMENT
This TERMINATION AGREEMENT (this "Agreement"), executed and delivered as
of this 1st day of January, 1998 by and between CONVERSION TECHNOLOGIES
INTERNATIONAL, INC., a Delaware corporation ("Company"), and JACK D. HAYS, JR.,
an individual ("Employee").
WHEREAS, Company and Employee entered into that certain Employment
Agreement dated as of July 2, 1997 (the "Employment Agreement") pursuant to
which Employee has rendered certain services to Company in his capacity as a
Vice-President - Sales and Marketing; and
WHEREAS, the parties accordingly now desire to terminate the Employment
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, and for other good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound hereby, the parties agree
to as follows:
1. Termination of Employment Agreement. Upon the Effective Time (defined
below), the Employment Agreement shall hereby be terminated without further
action by any of the parties hereto and without further rights and obligations
on the part of Company and Employee with respect thereto except as expressly
described hereafter, and the Employment Agreement shall be void and of no
further force or effect, except as expressly described hereafter; in particular,
(i) Section 7(c)(3)(D) of the Employment Agreement which describes the Company's
obligation to maintain all insurance and other provisions for indemnification,
defense or hold-harmless with respect to Employee in effect at the time of
Notice of Termination (as defined therein), and (ii) Section 8 of the Employment
Agreement outlining the confidentiality obligations of Employee shall survive in
accordance with the exact respective terms of such provisions.
2. Employee's Stock Options
The parties hereto acknowledge that Employee was granted certain stock
options (the "Options") pursuant to a certain incentive stock option agreement
(the "Stock Option Agreement"), including 20% of such Options which vested upon
execution of the Employment Agreement. The parties hereto acknowledge in light
of good and valuable consideration provided by Company to Employee hereunder and
otherwise, (i) all of the Options shall be surrendered and not exercised by
Employee upon execution hereof and Employee will not exercise or assign such
Options pending such surrender; and (ii) to the extent such Options were vested,
whether exercised or not, Employee hereby forfeits all such Options by accepting
the terms hereof and as the result of his resignation.
<PAGE>
3. Employee's Other Compensation. On the date hereof, Employee shall be
paid by the Company an amount equal to $18,000.00, less customary tax and
insurance withholding amounts, including federal taxes, social security and
unemployment taxes/insurance. Company and Employee hereby agree that such amount
represents all remaining sums due and payable with respect to his annual salary
through the Effective Time (as defined below) and inclusive of all amounts owing
as accrued vacation pay and reasonable and customary business expenses accrued
or incurred prior to the Effective Time and for which Employee has submitted an
expense report which has been approved by the Company.
4. Resignation. Upon the Effective Time, Employee hereby resigns from all
offices he holds with the Company.
5. No further monies owed; taxes. Employee acknowledges and agrees that
other than the benefits provided under COBRA, no further securities, benefits or
other monies are owed to Employee by Company or arising out of his employment
with the Company.
6. Release. Upon execution of this Agreement and except for the Options
described in Section 2 hereof, Employee hereby remises, releases, quitclaims,
satisfies, and forever discharges the Company, together with its officers,
directors, employees, agents and other representatives (the "Released Parties")
of and from all, and all manner of action and actions, cause and causes of
action, suites, debts, dues, sums of money, accounts, covenants, contracts,
controversies, agreements, promises, variances, trespasses, damages, judgments,
executions, claims and demands whatsoever, in law or in equity, arising out of,
or related to Employee's employment with the Company or separation therefrom, or
the Stock Option Agreement, whether known or unknown, in law or in equity,
including, but not limited to Title VII of the Civil Rights Act of 1964, as
amended, the Age Discrimination in Employment Act of 1967, as amended ("ADEA"),
the Older Workers Benefits Protection Act, the Employee Retirement Income
Security Act ("ERISA"), the Florida Civil Rights Act of 1992, as amended, or
under any other federal, state or local anti-discrimination law, statute or
ordinance, or any claim under the Fair Labor Standards Act, including but not
limited to claims for overtime, liquidated damages, penalties, interest, costs
and attorneys' fees; provided, however, that Employee does not release Company
any claims, liabilities and obligations arising under this Agreement.
7. Non-solicitation. For a period of one year commencing on the Effective
Time, Employee shall not, directly or indirectly, solicit, or assist any other
person or entity to solicit, any employee of the Company to terminate his or her
employment with the Company, or, at any time within such period, directly or
indirectly, hire, or assist any other person or entity to hire as an employee,
consultant, independent contractor, or in any other capacity, the services of
any such employee, for as period of one (1) year following the termination of
any such person's employment, consulting, independent contractor, or similar
business relationship with the Company.
8. Non-Disparagement. Employee and the Company agree that they each shall
refrain from making any written or oral statement or taking any action which he
or it knows or reasonably should know to be an untrue, disparaging, or negative
comment concerning the other.
2
<PAGE>
9. Agreement not to Institute Action. Employee agrees not to, directly or
indirectly, institute an administrative proceeding or lawsuit against the
Company upon any basis outlined in Section 6 hereof, or upon any existing stock
option agreement, and represents and warrants that, to the best of his
knowledge, no other person or entity has initiated or is authorized to initiate
such administrative proceedings or lawsuit on his behalf.
10. Effective Time. The "Effective Time" for purposes of this Agreement
shall mean December 31, 1997.
11. Sufficient time to review. Employee acknowledges and agrees that he
has had sufficient time to review this Agreement, that be has the right to
consult with legal counsel and other professional persons unrelated to the
Company regarding this Agreement, and that he has received all information he
requires from the Company in order to make a knowing and voluntary release and
waiver of all claims against the Company.
12. Right of Rescission. Employee acknowledges and agrees that be has had
twenty-one (21) days from the date of his initial receipt of this Agreement to
review same with his attorney, and that by this Agreement, he is receiving
consideration in addition to that which he is already entitled. Employee further
acknowledges and agrees that he has seven (7) days from the date of his
signature below to rescind this Agreement by providing notice to the Company in
writing. If Employee does rescind this Agreement within the seven (7) day period
set forth herein, then this Agreement shall be null and void.
13. Miscellaneous.
(a) This Termination Agreement shall be governed by and construed in
accordance with the laws of the State of Florida, without giving effect to
principles of conflict of laws.
(b) This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same document.
(c) If any provision of this Agreement is invalidated by a Court of
competent jurisdiction, then all of the remaining provisions of this Agreement
shall remain in full force and effect, provided that both parties may still
effectively realize the complete benefit of the promises and considerations
conferred hereby.
(d) This Agreement constitutes the entire agreement between the
parties hereto with respect to the matters set forth herein and supersedes in
its entirety any and all agreements or communications, whether written or oral,
previously made in connection with the matters herein. Any agreement to amend or
modify the terms and conditions or this Agreement must be in writing and
executed by the parties hereto,
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Agreement, as of the date first written
above.
CONVERSION TECHNOLOGIES INTERNATIONAL, INC:
By /s/ William Amt
-----------------
Name: William Amt
--------------
Title: President
-------------
WITNESS:
/s/ [ILLEGIBLE]
- --------------------
Gary Jellem
- --------------------
Print Name
EMPLOYEE
/s/ Jack D. Hays, Jr.
--------------------
JACK D. HAYS, JR.
4
TERMINATION AGREEMENT
This TERMINATION AGREEMENT (this "Agreement"), executed and delivered as
of this 1st day of January, 1998 by and between CONVERSION TECHNOLOGIES
INTERNATIONAL, INC., a Delaware corporation ("Company"), and RICHARD H. HUGHES,
an individual ("Employee").
WHEREAS, Company and Employee entered into that certain Employment
Agreement dated as of July 2, 1997 (the "Employment Agreement") pursuant to
which Employee has rendered certain services to Company in his capacity as a
Vice-President - Sales and Marketing; and
WHEREAS, the parties accordingly now desire to terminate the Employment
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, and for other good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound hereby, the parties agree
to as follows:
1. Termination of Employment Agreement. Upon the Effective Time (defined
below), the Employment Agreement shall hereby be terminated without further
action by any of the parties hereto and without further rights and obligations
on the part of Company and Employee with respect thereto except as expressly
described hereafter, and the Employment Agreement shall be void and of no
further force or effect, except as expressly described hereafter; in particular,
(i) Section 7(c)(3)(D) of the Employment Agreement which describes the Company's
obligation to maintain all insurance and other provisions for indemnification,
defense or hold-harmless with respect to Employee in effect at the time of
Notice of Termination (as defined therein), and (ii) Section 8 of the Employment
Agreement outlining the confidentiality obligations of Employee shall survive in
accordance with the exact respective terms of such provisions.
2. Employee's Stock Options.
The parties hereto acknowledge that Employee was granted certain stock
options (the "Options") pursuant to a certain incentive stock option agreement
(the "Stock Option Agreement"), including 20% of such Options which vested upon
execution of the Employment Agreement. The parties hereto acknowledge in light
of good and valuable consideration provided by Company to Employee hereunder and
otherwise, (i) all of the Options shall be surrendered and not exercised by
Employee upon execution hereof and Employee will not exercise or assign such
Options pending such surrender; and (ii) to the extent such Options were vested,
whether exercised or not, Employee hereby forfeits all such Options by accepting
the terms hereof and as the result of his resignation.
<PAGE>
3. Employee's Other Compensation. On the date hereof, Employee shall be
paid by the Company an amount equal to $18,000.00, less customary tax and
insurance withholding amounts, including federal taxes, social security and
unemployment taxes/insurance. Company and Employee hereby agree that such amount
represents all remaining sums due and payable with respect to his annual salary
through the Effective Time (as defined below) and inclusive of all amounts owing
as accrued vacation pay and reasonable and customary business expenses accrued
or incurred prior to the Effective Time and for which Employee has submitted an
expense report which has been approved by the Company.
4. Resignation. Upon the Effective Time, Employee hereby resigns from all
offices he holds with the Company.
5. No further monies owed; taxes. Employee acknowledges and agrees that
other than the benefits provided under COBRA, no further securities, benefits or
other monies are owed to Employee by Company or arising out of his employment
with the Company.
6. Release. Upon execution of this Agreement and except for the Options
described in Section 2 hereof, Employee hereby remises, releases, quitclaims,
satisfies, and forever discharges the Company, together with its officers,
directors, employees, agents and other representatives (the "Released Parties")
of and from all, and all manner of action and actions, cause and causes of
action, suites, debts, dues, sums of money, accounts, covenants, contracts,
controversies, agreements, promises, variances, trespasses, damages, judgments,
executions, claims and demands whatsoever, in law or in equity, arising out of,
or related to Employee's employment with the Company or separation therefrom, or
the Stock Option Agreement, whether known or unknown, in law or in equity,
including, but not limited to Title VII of the Civil Rights Act of 1964, as
amended, the Age Discrimination in Employment Act of 1967, as amended ("ADEA"),
the Older Workers Benefits Protection Act, the Employee Retirement Income
Security Act ("ERISA"), the Florida Civil Rights Act of 1992, as amended, or
under any other federal, state or local anti-discrimination law, statute or
ordinance, or any claim under the Fair Labor Standards Act, including but not
limited to claims for overtime, liquidated damages, penalties, interest, costs
and attorneys' fees; provided, however, that Employee does not release Company
any claims, liabilities and obligations arising under this Agreement.
7. Non-solicitation. For a period of one year commencing on the Effective
Time, Employee shall not, directly or indirectly, solicit, or assist any other
person or entity to solicit, any employee of the Company to terminate his or her
employment with the Company, or, at any time within such period, directly or
indirectly, hire, or assist any other person or entity to hire as an employee,
consultant, independent contractor, or in any other capacity, the services of
any such employee, for as period of one (1) year following the termination of
any such person's employment, consulting, independent contractor, or similar
business relationship with the Company.
8. Non-disparagement. Employee and the Company agree that they each shall
refrain from making any written or oral statement or taking any action which he
or it knows or reasonably should know to be an untrue, disparaging, or negative
comment concerning the other.
2
<PAGE>
9. Agreement not to Institute Action. Employee agrees not to, directly or
indirectly, institute an administrative proceeding or lawsuit against the
Company upon any basis outlined in Section 6 hereof, or upon any existing stock
option agreement, and represents and warrants that, to the best of his
knowledge, no other person or entity has initiated or is authorized to initiate
such administrative proceedings or lawsuit on his behalf.
10.Effective Time. The "Effective Time" for purposes of this Agreement
shall mean December 31, 1997.
11. Sufficient time to review. Employee acknowledges and agrees that he
has had sufficient time to review this Agreement, that he has the right to
consult with legal counsel and other professional persons unrelated to the
Company regarding this Agreement, and that he has received all information he
requires from the Company in order to make a knowing and voluntary release and
waiver of all claims against the Company.
12. Right of Rescission. Employee acknowledges and agrees that he has had
twenty-one (21) days from the date of his initial receipt of this Agreement to
review same with his attorney, and that by this Agreement, he is receiving
consideration in addition to that which he is already entitled. Employee further
acknowledges and agrees that he has seven (7) days from the date of his
signature below to rescind this Agreement by providing notice to the Company in
writing. If Employee does rescind this Agreement within the seven (7) day period
set forth herein, then this Agreement shall be null and void.
13. Miscellaneous.
(a) This Termination Agreement shall be governed by and construed in
accordance with the laws of the State of Florida, without giving effect to
principles of conflict of laws.
(b) This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same document.
(c) If any provision of this Agreement is invalidated by a Court of
competent jurisdiction, then all of the remaining provisions of this Agreement
shall remain in full force and effect, provided that both parties may still
effectively realize the complete benefit of the promises and considerations
conferred hereby.
(d) This Agreement constitutes the entire agreement between the
parties hereto with respect to the matters set forth herein and supersedes in
its entirety any and all agreements or communications, whether written or oral,
previously made in connection with the matters herein. Any agreement to amend or
modify the terms and conditions of this Agreement must be in writing and
executed by the parties hereto.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Agreement, as of the date first written
above.
CONVERSION TECHNOLOGIES INTERNATIONAL, INC:
By /s/ William Amt
-----------------
Name: President
--------------
Title: William Amt
-------------
WITNESS:
/s/ John G. Murchie
- --------------------
John G. Murchie
- --------------------
Print Name
EMPLOYEE
/s/ Richard H. Hughes
-----------------------
RICHARD H. HUGHES
4
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is made this 22nd day of December,
1998, by and between, CONVERSION TECHNOLOGIES INTERNATIONAL, INC., a Delaware
corporation, with its principal place of business at 2180 Park Avenue North,
Suite 110, Winter Park, Florida 32789 (the "Company") and 4C TECHNOLOGIES, INC.,
a California corporation, with its principal place of business at 333 Ravenswood
Avenue, Menlo Park, California 94025 (the "Consultant").
W I T N E S S E T H:
WHEREAS, the Company desires to utilize the skills, experience and knowledge of
Consultant on a consulting basis: and
WHEREAS, Consultant is willing to make his services available subject to the
terms and conditions provided herein.
NOW, THEREFORE, for good and sufficient consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
1. Retention as Consultant. Company hereby retains Consultant, and
Consultant hereby agrees to render consulting services to Company, upon the
terms and conditions set forth herein.
2. Duties. Consultant covenants and agrees that it will, as an independent
contractor, provide general business consulting services as requested in writing
by the Company from time to time during the term of this Agreement and as agreed
to in writing by the Consultant, pertaining to the evaluation and marketing of
new plaster products as discussed in the letter dated July 17, 1998 from the
Company (attached hereto as Exhibit A).
3. Independent Contractor Status. The parties recognize that Consultant is
an independent contractor and not an employee, agent, partner, joint venturer,
covenantor, or representative of Company and that Company will not incur any
liability as the result of Consultant's actions. Consultant shall at all times
represent and disclose that it is an independent contractor of Company and shall
not represent to any third party that Consultant is an employee, agent,
covenantor, or representative of Company. Company shall not withhold any funds
from Consultant for tax or other governmental purposes, and Consultant shall be
responsible for the payment of same. Consultant shall not be entitled to receive
any employment benefits offered to employees of Company including workers
compensation insurance coverage. Company shall not exercise control over
Consultant.
4. Compensation. The Company shall pay to Consultant, as compensation for
the services to be rendered as requested by the Company in writing, the fee (the
"Compensation") of $120 per hour, pro-rated for time less than one hour in ten
minute increments, plus expenses which have been pre-approved by the Company in
writing. All such Compensation and expenses shall be payable monthly in arrears.
The Consultant shall not provide services pursuant to the terms of this
Agreement until and unless the Consultant has received a written request
<PAGE>
from the Company which describes the services requested from the Consultant.
Notwithstanding the foregoing, the Company shall, prior to payment of the
Compensation and expenses related thereto, receive a written statement from the
Consultant containing a description of the services performed and the amount of
time spent performing such services.
5. Term. This Agreement shall commence on the date first written above and
shall continue for a period of one (1) year unless otherwise terminated as
provided herein.
6. Termination. The Company may terminate this Agreement (i) if Consultant
becomes insolvent, makes an assignment for the benefit of creditors or files a
petition for reorganization; (ii) if a petition in bankruptcy is filed by or
against Consultant; or (iii) if Consultant is in breach of this Agreement or is
otherwise in default to the Company under this or any other agreement which
default is not cured within any applicable cure period. The Company agrees to
give Advisor thirty (30) days' notice in which to cure any default hereunder.
The Company and/or the Consultant may terminate this Agreement for any other
reason upon [60] days' prior written notice to the other party.
7. Covenant of Non-Disclosure. Consultant shall not, at any time during or
for a period of three (3) years after the term of this Agreement, in any manner,
either directly or indirectly, divulge, disclose, or communicate to any person,
firm, corporation or other entity, or use for its own benefit or for the benefit
of any person, firm, corporation or other entity, and not for the benefit of
Company, any information acquired from Company, or its subsidiaries, without the
express prior written consent of an authorized executive officer of the Company.
In addition, Consultant shall ensure that Consultant's employees, officers,
directors, agents and representatives shall agree to be bound by the terms and
conditions contained therein.
The Company shall not, at any time during or for a period of three (3)
years after the term of this Agreement, in any manner, either directly or
indirectly, divulge, disclose, or communicate to any person, firm, corporation
or other entity, or use for its own benefit or for the benefit of any person,
firm, corporation or other entity, and not for the benefit of the Company, any
information acquired from Consultant, or its subsidiaries, regarding
Consultant's confidential or proprietary information without the express prior
written consent of an authorized executive officer of the Consultant. In
addition, the Company shall ensure that Company's employees, officers,
directors, agents and representatives shall agree to be bound by the terms and
conditions contained therein.
8. Rights to Work/Intellectual Property. The parties acknowledge that any
work performed by Consultant under this Agreement for Company is being created
at the insistence of Company and shall be deemed "work made for hire" under the
United States copyright law. Company shall have the right to use the whole work,
any part of parts thereof, or none of the work, as it sees fit. Company may
alter the work, add to it, or combine it with any other work or works, at its
sole discretion. Title to all material and documentation, including, but not
limited to systems specifications, furnished by Company to Consultant or
delivered by Company into Consultant's possession shall remain with the Company.
Consultant shall immediately return all such material or documentation within
seven (7) days of any request by Company or upon the termination or conclusion
of this Agreement, whichever shall occur first.
2
<PAGE>
Whenever an invention or discovery is made by Consultant, either solely or in
collaboration with others, in connection with the scope of services provided by
Consultant under this Agreement, the Consultant shall promptly give Company
written notice and shall furnish Company with complete information including,
(1) a complete written disclosure of each such invention and (2) information
concerning the date and identity of any public use, sale or publication of such
invention made by or known to Consultant or of any contemplated publication by
Consultant. As used herein, the term (1) "invention" or "discovery" includes any
art, machine, manufacture, design or composition of matter or any new and useful
improvement thereof where it is or may be patentable under the patent laws of
the United States or of any foreign country; and (2) "made," when used in
relation to any invention or discovery, means the conception of the first actual
or constructive reduction to practice of such invention.
Excluding the Consulting Technology (as defined below), Consultant hereby
grants, assigns and conveys to Company all right, title and interest in and to
all inventions, works of authorship and other proprietary data and all other
materials (as well as the copyrights, patents, trade secrets and similar rights
attendant thereto) conceived, reduced to practice, authored, developed or
delivered by Consultant or its employees, agents, consultants, contractors and
representatives either solely or jointly with others, during and in connection
with the performance of the scope of services under this Agreement. Consultant
agrees that it will not seek, and that it will require its employees, agents,
consultants, contractors and representatives not to seek patent, copyright,
trademark, registered design or other protection for any rights in any such
inventions, works or authorship, proprietary data or other materials. Consultant
shall have no right to disclose or use any such inventions, works of authorship,
proprietary data or other materials for any purpose whatsoever and shall not
communicate to any third party the nature of or details relating to such
inventions, works of authorship, proprietary data or other materials. Consultant
agrees that it shall do and that it will require its employees, agents,
consultants, contractors and representatives to do, at Company's expense, all
things and execute all documents as Company may reasonably require to vest in
Company or its nominees the rights referred to herein and to secure for Company
or its nominees all patent, trademark, or copyright protection. Consultant's
obligations under this Agreement shall survive expiration or termination of this
Agreement and any amendments thereto. Furthermore, Consultant irrevocably waives
its moral rights in any work created, developed or delivered hereunder.
Consultant agrees it will not disclose to any third party, without the prior
written consent of Company, any invention, discovery, copyright, patent, trade
secret or similar rights attended hereto, made under or relating to this
Agreement or any proprietary or confidential information acquired from Company
under this Agreement, including trade secrets, business plans and confidential
or other information which may be proprietary to Company. Consultant warrants
and represents that it has or will have the right, through written agreements
with its employees, to secure for Company the rights called for in this Section.
Further, in the event Consultant uses any subcontractor, consultant or other
third party to perform any of the services contracted for under this Agreement,
Consultant agrees to enter into and provide to Company such written agreements
with such third party, and to take such other steps as are or may be required to
secure for Company the rights called for in this Section. Consultant further
agrees to provide the names and addresses of all agents, contractors,
consultants, representatives or other third parties who perform work on behalf
of Consultant under this Agreement.
3
<PAGE>
Notwithstanding the foregoing, the Company does not have intellectual property
rights to any of the technology (the "Consultant Technology") owned by the
Consultant or SRI International ("SRI"). Any transfer of such Consultant
Technology from the Consultant to the Company shall be negotiated by the parties
pursuant to an agreement. Additionally, this Agreement shall not modify the
rights of SRI, if any, under any written agreement between SRI and the Company
which is dated and executed prior to the date hereof, including that certain
Material Transfer Agreement, dated 1998, between the Company and SRI.
9. Legal Relief. In the event Consultant breaches, or threatens to breach
any of the covenants expressed herein, the damages to Company will be great and
irreparable and difficult to quantify; therefore, Company may apply to a court
of competent jurisdiction for injunctive or other equitable relief to restrain
such breach or threat of breach, without disentitling Company from any other
relief in either law or equity. In the event that any or all of the covenants
expressed herein shall be determined by a court of competent jurisdiction to be
invalid or unenforceable, by reason of its geographic or temporal restrictions
being too great, or by reason that the range of activities covered are too
great, or for any other reason, these covenants shall be interpreted to extend
over the maximum geographic area, period of time, range of activities or other
restrictions to which they may be enforceable.
In the event the Company breaches, or threatens to breach any of the covenants
expressed herein, the damages to the Consultant will be great and irreparable
and difficult to quantify; therefore, Consultant may apply to a court of
competent jurisdiction for injunctive or other equitable relief to restrain such
breach or threat of breach, without disentitling Consultant from any other
relief in either law or equity. In the event that any or all of the covenants
expressed therein shall be determined by a court of competent jurisdiction to be
invalid or unenforceable, by reason of its geographic or temporal restrictions
being too great, or by reason that the range of activities covered are too
great, or for any other reason, theses covenants shall be interpreted to extend
over the maximum geographic area, period of time, range of activities or other
restrictions to which they may be enforceable.
10. Adherence to Laws. Consultant agrees that in carrying out its duties
and responsibilities under this Agreement, it will neither undertake nor cause,
nor permit to be undertaken, any activity which either (i) is illegal under any
laws, decrees, rules or regulations in effect in the United States; or (ii)
would have the effect of causing Company to be in violation of any laws,
decrees, rules or regulations in effect in the United States.
Company agrees that in carrying out its duties and responsibilities under this
Agreement, it will neither undertake nor cause, nor permit to be undertaken, any
activity which either (i) is illegal under any laws, decrees, rules or
regulations in effect in the United States; or (ii) would have the effect of
causing Consultant to be in violation of any laws, decrees, rules or regulations
in effect in the United States.
11. Miscellaneous.
11.1 Assignment or Amendment. This Agreement is not assignable by
either Consultant or Company, without the prior written consent of the
non-assigning party. No alteration, modification, amendment or other change of
this Agreement shall be binding on the
4
<PAGE>
parties unless in writing approved and executed by Consultant and an authorized
executive officer of Company.
11.2 Notices. Any notice hereunder shall be in writing and shall be
personally delivered or transmitted by postage prepaid registered or certified
mail, return receipt requested, or by a nationally recognized overnight courier
service, addressed to the party receiving such notice at its address set forth
on the first page hereof or such other address as a party may by notice specify
to the other party. Notices shall be deemed effective on the date of delivery if
personally delivered or on the fifth day after mailing if delivered by mail.
11.3 Choice of Law; Jurisdiction. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York, as such
laws are applied to contracts entered into and performed solely in New York. Any
legal proceeding instituted with respect to the matters contemplated herein
shall be brought in New York, New York, and the parties hereby submit to
jurisdiction of the state and federal courts therein and agree that venue
properly lies therein. The parties further agree that any notices or process
required to be served for purposes of any such proceeding may be served on each
party by certified or registered mail.
11.4 Invalidity. The terms of this Agreement shall be severable so
that if any term, clause, or provision hereof shall be deemed invalid or
unenforceable for any reason, such invalidity or unenforceability shall not
affect the remaining terms, clauses and provisions hereof, the parties intending
that if any such term, clause or provision were held to be invalid prior to the
execution hereof, they would have executed an agreement containing all the
remaining terms, clauses and provisions of this Agreement.
11.5 Waiver of Breach. The waiver by either party hereto of any
breach of the terms and conditions hereof will not be considered a modification
of any provision, nor shall such a waiver act to bar the enforcement of any
subsequent breach.
11.6 Company Property. All Company property in the possession or
control of Consultant including, but not limited to specifications,
documentation, source code, magnetic media, and building entry keys and cards,
as well as all material developed or derived by Consultant in performing its
duties under this Agreement will be returned by Consultant to Company on demand,
or at the termination of this Agreement whichever shall come first.
11.7 Entire Agreement. This Agreement shall constitute the entire
agreement between the parties hereto and replaces and supersedes all prior
agreements, written and oral, relating to the subject matter hereof, between the
parties to this Agreement.
[The remainder of this page is intentionally left blank.]
5
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date
first written above.
CONVERSION TECHNOLOGIES
INTERNATIONAL, INC.
By:
-------------------------------------
Eckardt C. Beck
President and Chief Executive Officer
4C TECHNOLOGIES, INC.
By:
-------------------------------------
Paul Hart
President
6
AMENDMENT
This AMENDMENT executed and delivered as of May 8, 1998 by and between ADVANCED
PARTICLE TECHNOLOGIES, INC., A Delaware corporation ("APT"), and VANGKOE
INDUSTRIES INC., a Florida corporation ("VANGKOE");
WITNESSETH:
WHEREAS, APT And VANGKOE entered into A Technology Purchase Agreement
("TPA") dated as of June 30, 1997 and
WHEREAS, the parties accordingly now desire to amend said TPA in
accordance with Section 6.5 of said Agreement and
WHEREAS, APT and VANGKOE agree to amend the terms of the TPA with respect
to the matters set forth below and be legally bound with all such changes
Amend as follows:
1. Delete in its entirety Section 3 "Royalty Payment" and replace it with the
following:
"3. Royalty Payment
If APT or its affiliates shall sell coated particles utilizing the coating
technology purchased by APT pursuant to this Technology Purchase
Agreement, as the same may be modified, enhanced or improved by APT, to
any customer for use in any market, APT or its affiliates shall pay to
VANGKOE a royalty equal to $0.025 per pound of coated material sold during
the period May 8, 1998 through and including May 7, 2003 and $0.015 per
pound of coated material sold during the five-year period May 8, 2003
through and including May 7, 2008 for materials sold exclusively in the
swimming pool industry, and a royalty equal to $0.02 per pound of coated
material sold during the period May 8, 1998 through and including May 7,
2003 and $0.01 per pound of coated material sold during the five-year
period May 8, 2003 through and including May 7, 2008 for all other
markets. Such payment will be made on a semi-annual basis on or prior to
March 31st and September 30th of each year and shall be accompanied by
reasonably detailed documentation supporting the calculation of such
royalty. Such royalty shall be due regardless of whether the coating
technology was applied at APT's current St. Augustine, Florida facility or
at another new or existing facility of APT or any of its affiliates,
suppliers or customers. If VANGKOE shall disagree with the calculation of
any semi-annual royalty payment, VANGKOE shall provide written notice
thereof to APT within 10 days following its receipt of the calculation add
payment. VANGKOE and APT shall then work together in good faith to resolve
the dispute within the following 30-day period. If the parties are unable
to resolve the dispute within such 30-day period, the dispute will be
resolved by arbitration in accordance with Section 6.2 below."
2. Under Section 4 "Certain Additional Agreements" -- subsection (a) --
Delete "as well as the benefits to be realized by VANGKOE under the
Distribution Agreement".
3. Under Section 4 "Certain Agreements" -- subsection (a)(ii) -- Delete "and
termination of Distributor Agreement".
<PAGE>
Page Two of AMENDMENT
4. Under Section 4 "Certain Agreements" -- subsection (a)(B)(ii) -- Delete
"or the Distributor Agreement".
5. Under Section 5 "Representations and Warranties" -- subsection (a) --
Replace "and the Distributor Agreement have" to "has".
4. Under Section 6.1 "Notices" -- subsection (i) change address from" 82
Bethany Road, Hazlet, New Jersey 07730 Telephone: (908) 888-3828
Telecopier: (908) 888-3930" to "2180 Park Ave. North, Suite 110, Winter
Park, Florida 32790 Telephone: (407) 207-5900 Telecopier: (407) 207-5955".
5. (a) This Amendment shall be governed by and construed in and all of which
together shall constitute one and the same document.
(b) If any provision of this Amendment it invalidated by a Court of
competent jurisdiction, then all of the remaining provisions of this
Amendment shall remain in full force and effect.
(c) This Amendment constitutes the entire Agreement between the parties
hereto with respect to the matters set forth herein and supersedes in its
entirety any and all agreements or communications, whether written or
oral, previously made in connection with the matters herein. Any agreement
to amend or modify the terms and conditions of this Amendment must be in
writing and executed by both parties hereto.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THEIR DULY AUTHORIZED
OFFICERS TO EXECUTE AND DELIVER THIS AMENDMENT TO THE TECHNOLOGY PURCHASE
AGREEMENT AS OF THE DATE FIRST WRITTEN ABOVE.
ADVANCED PARTICLE TECHNOLOGIES, INC.
By: /s/ William Amt
---------------------------
Name: William Amt
-------------------------
Title: President
------------------------
VANGKOE INDUSTRIES, INC.
By: /s/ Jeff Koebrick
---------------------------
Name: Jeff Koebrick
-------------------------
Title: Pres
------------------------
WITNESS:
By: /s/ John G. Murchie
---------------------------
Name: John G. Murchie
-------------------------
TERMINATION AGREEMENT
This TERMINATION AGREEMENT (this "Agreement"), executed and delivered as
of this 8TH day of May, 1998 by and between ADVANCED PARTICLE TECHNOLOGIES,
INC., A Delaware corporation ("APT"), and VANGKOE INDUSTRIES INC., a Florida
corporation ("VANGKOE");
WHEREAS, APT and VANGKOE entered Into a Distributor Agreement dated as of
June 30, 1997 (the "Distributor Agreement") pursuant to which VANGKOE has
tendered certain services to APT in its capacity as distributor, and
WHEREAS, the parties accordingly now desire to terminate the Distributor
Agreement.
NOW THEREFORE, the parties agree to be legally bound as follows:
1. Termination of Distributor Agreement. Upon the Effective Time
(defined below), the Distributor Agreement shall be void and of no
further force or effect and hereby be terminated without further
action by any of the parties hereto and without further rights and
obligations on part of APT or VANGKOE.
2. Release. Upon execution of this Agreement VANGKOE hereby remises,
releases, quitclaims, satisfies, and forever discharges APT,
together with its officers, directors, employee; agents and other
representatives of and from all, and all manner of action and
actions, cause and causes of action, suits, debt, dues, sums of
money, accounts, covenants, contracts, controversies, agreements,
promises, variances, trespasses, damages, judgements, executions,
claims, and demands whatsoever, in law or in equity, arising out of
or related to Distributor Agreement with APT, whether known or
unknown, in law or in equity.
3. Terms. APT Agrees to pay the sum of seventy-five thousand dollars
(75,000) to VANGKOE in consideration of VANGKOEs release and
termination of the Distributor Agreement outlined in section 1 and 2
above and its investment and effort in the swimming pool market to
provide APT with access and awareness to the pool plaster
compounders and large particle distributors, creating product
awareness and initial demand for products covered in the Distributor
Agreement, and development of product literature, specification
sheets etc.
VANGKOE agrees to have any sums owed under this agreement to be
offset by amounts owed to and outstanding, if any to APT before any
sums will be paid to VANGKOE.
VANGKOE agrees to provide customer lists, competitive marketing
strategies, technical papers and literature and general information
generated from VANGKOE's investments in trade show attendance and
presentations regarding the swimming pool market.
4. Effective Time. The "Effective Time" for purposes of this Agreement
shall mean May 8, 1998.
5. Sufficient time to review. VANGKOE acknowledges and agrees that
VANGKOE has had sufficient time to review this Agreement, that
VANGKOE has the right to
<PAGE>
Page Two of TERMINATION AGREEMENT
consult with legal consul and other professional persons unrelated
to the APT regarding this Agreement, and that VANGKOE has received
all information they require from APT in order to make a knowing and
voluntary release and waiver of all claims against APT under the
Distributor Agreement.
6. Miscellaneous.
(a) This Termination Agreement shall be governed by and construed in
accordance with the laws of the State of Florida, without giving
effect to principles of conflict of laws.
(b) This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original and all of which together
shall constitute one and the same document.
(c) If any provision of this Agreement is invalidated by a Court of
competent jurisdiction, then all of the remaining provisions of this
Agreement shall remain in full force and effect.
(d) This Agreement constitutes the entire agreement between the
parties hereto with respect to the matters set forth herein and
supersedes in its entirety any and all agreements or communications,
whether written or oral, previously made in connection with the
matters herein. Any agreement to amend or modify the terms and
conditions of this Agreement must be in writing and executed by both
parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Agreement, as of the date first written
above.
ADVANCED PARTICLE TECHNOLOGIES, INC.
By: /s/ William Amt
---------------------------
Name: William Amt
-------------------------
Title: President
------------------------
VANGKOE INDUSTRIES, INC.
By: /s/ Jeff Koebrick
---------------------------
Name: Jeff Koebrick
-------------------------
Title: President
------------------------
MATERIALS BILL OF SALE AGREEMENT
This MATERIALS BILL OF SALE AGREEMENT executed and delivered as of May 8, 1998
by and between CONVERSION TECHNOLOGIES INTERNATIONAL, INC., A Delaware
corporation ("CTI"), and VANGKOE INDUSTRIES INC., a Florida corporation
("VANGKOE");
WITNESSETH:
WHEREAS, CTI and VANGKOE enter into an Materials Bill of Sale Agreement
dated as of May 8, 1998 and
WHEREAS, VANGKOE warrants it has unencumbered ownership and rights to
transfer all leasehold improvements and laboratory equipment and supplies as
describe on Schedule A, and said leasehold improvements, laboratory equipment
and supplies are free and clear from liens, suits of any kind, attachments, or
any other known action and or challenge and
WHEREAS, VANGKOE agrees to transfer all its ownership, rights, privileges,
for all leasehold improvements, laboratory equipment and supplies as described
on Schedule A.
NOW, THEREFORE, IT IS MUTUALLY AGREED AS FOLLOWS:
1. ASSIGNMENT. VANGKOE will take all necessary actions as required by law to
transfer the ownership and turn over to CTI all leasehold improvements,
laboratory equipment, and supplies along with any and all certificates,
warranties, ownership manual, booklets, and instructions, necessary and required
to operate any of the equipment listed in Schedule A on May 8, 1998.
2. COMPENSATION. CTI agrees to pay the sum of seventy-five thousand dollars
($75,000.) to VANGKOE for the leasehold improvements, laboratory equipment and
supplies described in Schedule A. CTI also agrees to affect a new lease with the
landlord to lease all office space presently occupied by VANGKOE under a new
lease arrangement with the landlord to be effective no later then May 8, 1998.
VANGKOE will remain solely responsible for any and all obligations to the
landlord independently of CTI for any period prior to May 8TH regarding said
office space. VANGKOE agrees to have any sums owed under this agreement to be
offset by amounts owed to and outstanding, if any, to APT before any sums will
be paid to VANGKOE.
3. MISCELLANEOUS.
(a) VANGKOE will pay for the cost of all claims concerning right of use or
ownership in reference to all leasehold improvements, laboratory
equipment, and supplies, including all legal costs with regards to any and
all items listed in Schedule A.
(b) This Materials Bill of Sale Agreement shall be governed by and construed
in and all of which together shall constitute one and the same document.
<PAGE>
Page Two of MATERIAL BILL OF SALE AGREEMENT
(c) If any provision of this Materials Bill of Sale Agreement is invalidated
by a Court of competent jurisdiction, then all of the remaining provisions
of this Agreement shall remain in full fore and effect.
(d) This Agreement constitutes the entire agreement between the parties hereto
with respect to the matters set forth herein and supersedes in its
entirety any and all agreements or communications, whether written or
oral, previously made in connection with the matters herein. Any agreement
to amend or modify the terms and conditions of this Agreement must be in
writing and executed by both parties hereto.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THEIR DULY AUTHORIZED
OFFICERS TO EXECUTE AND DELIVER THIS MATERIAL BILL OF SALE AGREEMENT AS OF THE
DATE FIRST WRITTEN ABOVE.
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
By: /s/ William Amt
---------------------------
Name: William Amt
-------------------------
Title: President
------------------------
VANGKOE INDUSTRIES, INC.
By: /s/ Jeff Koebrick
---------------------------
Name: Jeff Koebrick
-------------------------
Title: President
------------------------
WITNESS
By: /s/ John G. Murchie
---------------------------
Name: John G. Murchie
-------------------------
<PAGE>
SCHEDULE A
EQUIPMENT LIST
1. ROSS HIGH SPEED MIXER - MODEL I--LC; SERIAL No. 64576
2. H.B. KITCHEN MIXER
3. GLASOL MIXER
4. SOUTHERN PRECISION INSTRUMENTS MICROSCOPE - MODEL NO. 1866
5. THERMODYME MIXING STIR PLATE
6. ORION PH METER - MODEL NO. 720 A
7. ORION PH METER - MODEL NO. 420 A
8. QL LAB OVEN
9. LABCOVCO FUME HOOD - MODEL NO. 47
10. ZAHN VISCUSITY 5 CUP SET
11. CAMPBELL HAUSFIELD 5 HP AIR COMPRESSOR & 80 GALLON TANK
12. 82 LINEAR FT OF CABINETS
13. 104 LINEAR FT. OF COUNTER TOP SPACE
PIGMENT LIST
COLOR VENDOR QUANTITY VOLUME
- ----- ------ -------- ------
BLUE MASSON, FERRO, 20 8 oz
HARSHAW
GREEN " 10 8 oz
GREY " 6 8 oz
2 12 oz
PINK " 3 8 oz
YELLOW " 12 8 oz
RED " & DONMION 18 8 oz
WHITE " 6 8 oz
T1O2 DUPONT 7 24 oz
BLACK " 8 8 oz
CARBON BLACK COLUMBIA 4 32 oz
Other miscellaneous
Pigments and high value
Materials & chemicals
CERAMAGLASS TRADEMARK & INTELLECTUAL PROPERTY AGREEMENT
This TRADEMARK & INTELLECTUAL PROPERTY AGREEMENT executed and delivered as of
May 8, 1998 by and between CONVERSION TECHNOLOGIES INTERNATIONAL, INC., A
Delaware corporation ("CIT"), and VANGKOE INDUSTRIES INC., a Florida corporation
("VANGKOE");
WITNESSETH:
WHEREAS, CTI and VANGKOE enter into a Trademark & Intellectual Property
Agreement ("TIPA") dated as of May 8, 1998 and
WHEREAS, VANGKOE warrants that it has unencumbered ownership and rights to
transfer the United States government issued Trademark for CERAMAGLASS, and that
it is free and clear from liens, suits of any kind, attachments, or any other
known action and or challenge and
WHEREAS, VANGKOE Warrants that it has unencumbered ownership and rights to
transfer all the Intellectual Property concerning CERAMAGLASS, and that it is
free and clear from liens, suits of any kind, attachments, or any known action
and or challenge and
NOW, THEREFORE, IT IS MUTUALLY AGREED AS FOLLOWS:
1. ASSIGNMENT. VANGKOE will take all necessary actions as required by law to
transfer all its ownership, rights, privileges and use, in the Trademark
CERAMAGLASS to CTI as of May 8, 1998.
VANGKOE will take all necessary actions as required by law to transfer
all its ownership, rights, privileges and use, in all the Intellectual Property
for CERAMAGLASS to CTI as of May 8, 1998.
2. COMPENSATION. CTI agrees to compensate VANGKOE the sum of twenty-five
thousand dollars ($25,000.) for the CERAMAGLASS Trademark and Intellectual
Property. VANGKOE agrees to have any sums owed under this agreement to be offset
by amounts owed to and outstanding, if any, to APT before any sums will be paid
to VANGKOE.
3. TERMS.
(a) CTI will at its expense and cost seek to obtain the Registered Trademark
for CERAMAGLASS. Should CTI be unable to obtain a registered Trademark for
CERAMAGLASS within one year from this agreement, the twenty-five thousand
dollars paid to VANGKOE will be returned to CTI by offsetting and
deducting an equivalent amount against any royalties owed to VANGKOE until
the full $25,000 is paid back to CTI.
<PAGE>
Page 2 of CERAMAGLASS TRADEMARK & INTELLECTUAL PROPERTY AGREEMENT
(b) CTI will have all rights to use the name CERAMAGLASS and any and all
Intellectual Property associated with its name, to include but not to be
limited to advertising literature, promotional materials, samples,
formulas, price sheets, media pieces
and any and all other pertinent data relating to the product and Trademark
CERAMAGLASS whether or not a Trademark has been obtained by VANGKOE.
(c) This Trademark & Intellectual Property Agreement for CERAMAGLASS shall be
governed by and construed in and all of which together shall constitute
one and the same document.
(d) If any provision of this Agreement is invalidated by a Court of competent
jurisdiction, then all of the remaining provisions of this Agreement shall
remain in full force and effect.
(e) This Agreement constitutes the entire agreement between the parties hereto
with respect to the matters set forth herein and supersedes in its
entirety any and all agreements or communications, whether written or
oral, previously made in connection with the matters herein. Any agreement
to amend or modify the terms and conditions of this Agreement must be in
writing and executed by both parties hereto.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THEIR DULY AUTHORIZED
OFFICERS TO EXECUTE AND DELIVER THIS TRADEMARK AND INTELLECTUAL PROPERTY
AGREEMENT FOR CERAMAGLASS AS OF THE DATE FIRST WRITTEN ABOVE.
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
By: /s/ William Amt
---------------------------
Name: William Amt
-------------------------
Title: President
------------------------
VANGKOE INDUSTRIES, INC. WITNESS
By: /s/ Jeff Koebrick By: /s/ John G. Murchie
--------------------------- ---------------------------
Name: Jeff Koebrick Name: John G. Murchie
------------------------- -------------------------
Title: President
------------------------
CERAMAQUARTZ TRADEMARK & INTELLECTUAL PROPERTY AGREEMENT
This TRADEMARK & INTELLECTUAL PROPERTY AGREEMENT executed and delivered as of
May 8, 1998 by and between CONVERSION TECHNOLOGIES INTERNATIONAL, INC., A
Delaware corporation ("CTI"), and VANGKOE INDUSTRIES INC., a Florida corporation
("VANGKOE");
WITNESSETH:
WHEREAS, CTI and VANGKOE enter Into a Trademark & Intellectual Property
Agreement ("TIPA") dated as of May 8, 1998 and
WHEREAS, VANGKOE warrants that it has unencumbered ownership and rights to
transfer the United States government issued Trademark for CERAMAQUARTZ, and
that it is free and clear from liens, suits of any kind, attachments, or any
other known action and or challenge and
WHEREAS, VANGKOE Warrants that it has unencumbered ownership and rights to
transfer all the Intellectual Property concerning CERAMAQUARTZ, and that it is
free and clear from liens, suits of any kind, attachments, or any known action
and or challenge and
NOW, THEREFORE, IT IS MUTUALLY AGREED AS FOLLOWS:
1. ASSIGNMENT. VANGKOE will take all necessary actions as required by law to
transfer all it, ownership, rights, privileges and use, in the Trademark
CERAMAQUARTZ to CTI as of May 8, 1998.
VANGKOE will take all necessary actions as required by law to transfer all
its ownership, rights, privileges and use, in all the Intellectual Property for
CERAMAQUARTZ to CTI as of May 8, 1998.
2. COMPENSATION. CTI agrees to compensate VANGKOE the sum of twenty-five
thousand dollars ($25,000.) for the CERAMAQUARTZ Trademark and Intellectual
Property. VANGKOE agrees to have any sums owed under this agreement to be offset
by amounts owed to and outstanding, if any to APT before any sums will be paid
to VANGKOE.
3. TERMS.
(a) CTI will at its expense and cost seek to obtain the Registered Trademark
for CERAMAQUARTZ. Should CTI be unable to obtain a Registered Trademark
for CERAMAQUARTZ within one year from the agreement, the twenty-five
thousand dollars paid to VANGKOE will be returned to CTI by offsetting and
deducting an equivalent amount against any royalties owed to VANGKOE until
the full $25,000 is paid back to CTI.
(b) CTI will have all rights to use the name CERAMAQUARTZ and any and all
Intellectual Property associated with its name, to include but not to be
limited to advertising literature, promotional materials, samples,
formulas, price sheets, media pieces and any and all other
<PAGE>
Page 2 of CERAMAQUARTZ TRADEMARK & INTELLECTUAL PROPERTY AGREEMENT
pertinent data relating to the product and Trademark CERAMAQUARTZ whether
or not a Trademark has been obtained.
(c) This Trademark & Intellectual Property Agreement for CERAMAQUARTZ shall be
governed by and construed in and all of which together shall constitute
one and the same document,
(d) If any provision of this Agreement is invalidated by a Court of competent
jurisdiction, then all of the remaining provisions of the Agreement shall
remain in full force and effect.
(e) This Agreement constitutes the entire Agreement between the parties
hereto with respect to the matters set forth herein and supersedes in its
entirety any and all agreements or communications, whether written or
oral, previously made in connection with the matters herein. Any agreement
to amend or modify the terms and conditions of this Agreement must be in
writing and executed by both parties hereto.
IN WITNESS WHEREOF, WE PARTIES HERETO HAVE CAUSED THEIR DULY AUTHORIZED OFFICERS
TO EXECUTE AND DELIVER THIS TRADEMARK AND INTELLECTUAL PROPERTY AGREEMENT FOR
CERAMAQUARTZ AS OF THE DATE FIRST WRITTEN ABOVE.
CONVERSION TECHNOLOGIES INTERNATIONAL, INC.
By: /s/ William Amt
---------------------------
Name: William Amt
-------------------------
Title: President
------------------------
VANGKOE INDUSTRIES, INC. WITNESS
By: /s/ Jeff Koebrick By: /s/ John G. Murchie
--------------------------- ---------------------------
Name: Jeff Koebrick Name: John G. Murchie
------------------------- -------------------------
Title: President
------------------------
[Letterhead of Conversion Technologies]
March 11, 1998
Mr. Dave Dlubak
President
Dlubak Glass Company
11567 County Highway 110
Upper Sandusky, OH 43511
Reference: Sub-Contract Agreement with Dlubak Glass
Dear Dave:
The following outlines the fundamental points on which we have agreed that
Conversion Technologies will subcontract all of its CRT glass sorting and
recycling business to Dlubak Glass Company for a five-year period. This
agreement Is contingent upon Toshiba providing Dlubak/Conversion with a
five-year agreement to process cullet under the existing terms and conditions.
o Conversion will transfer its contracts with Hitachi and/or Toshiba to
Dlubak and Dlubak will pay Conversion $28 per ton for all dirty cullet and
clean cullet (received at no cost) which is processed in Dunkirk. Dlubak
will pay Conversion $20 per ton for any dirty cullet and clean cullet
(received at no cost) processed at another Dlubak location. Dlubak will
not pay Conversion any processing fee for glass cullet that must be
purchased from Hitachi or Toshiba.
o Should Dlubak negotiate a higher price for CRT glass sold to the
television industry, Dlubak will make a good faith effort to share a
portion of the incremental profit with Conversion on the above contracts.
o Dlubak will assume the $125,000 promissory note that Conversion has
secured with Toshiba.
o Dlubak will assume the $125,000 promissory note that Conversion has
secured with Hitachi (only if Hitachi agrees to the proposed contact for
five years).
o Dlubak will purchase the inventory of materials shown on the attached list
for $1 and will clean and remove these materials from Conversion's
facility within the five-year contract. Dlubak will work with Conversion
in the disposition of Wheelabrator dust/fines and other non-CRT glass
materials by providing its processing services at cost.
<PAGE>
Letter to Dlubak Glass Company
March 11, 1998
Page 2
o Should Dlubak elect to process the broken cullet received either through
Conversion or directly from Hitachi and Toshiba, Conversion will rent
57,000 square feet of its building to Dlubak and the use of the existing
cullet processing equipment for a monthly rate of $1/month. This rate
includes heat, lighting, insurance, property taxes and the use of all
common areas such as shipping, office space, etc. Once Dlubak has removed
the inventory of raw materials it has purchased from Conversion, Dlubak
may at its option cease this rental agreement with Conversion.
o Should Dlubak elect to employ Conversion's labor to process the cullet,
Conversion will provide and bill Dlubak at a rate of $13.50 per hour for
all hours the labor is employed by Dlubak.
o Dlubak would be responsible for all costs associated with processing the
cullet such as process equipment electricity, forklift propane, skid sheet
fuel, etc.
o At the end of this agreement Conversion will sell its cullet processing
equipment (see the attached list) to Dlubak for the sum of one dollar and
offer Dlubak the option to purchase the Dunkirk facility for a price to be
determined in the future.
o Dlubak and Conversion will enter into non-compete agreements and Dlubak
will sell to Conversion high leaded CRT glass at market price (presently
$160 per ton but not to exceed $225 per ton (this cullet will be for the
exclusive use as a substrate in ion exchange resins).
If the above meets with your approval please acknowledge below and I will take
the necessary steps to prepare a sub-contract for us to sign.
Dave, I appreciate the help you have offered to Conversion and believe that a
relationship with your company would benefit both of our companies, as well as
the CRT tube manufacturers and producers.
Very Truly Yours,
/s/ William L. Amt
William L. Amt
President
Acknowledged by:
DLUBAK GLASS COMPANY
-----------------------------
Mr. Dave Dlubak
President
<PAGE>
Letter to Dlubak Glass Company
March 11, 1998
Page 2
o Should Dlubak elect to process the broken cullet received either through
Conversion or directly from Hitachi and Toshiba, Conversion will rent
57,000 square feet of its building to Dlubak and the use of the existing
cullet processing equipment for a monthly rate of $1/month. This rate
includes heat, lighting, insurance, property taxes and the use of all
common areas such as shipping, office space, etc. Once Dlubak has removed
the inventory of raw materials it has purchased from Conversion, Dlubak
may at its option cease this rental agreement with Conversion.
o Should Dlubak elect to employ Conversion's labor to process the cullet,
Conversion will provide and bill Dlubak at a rate of $13.50 per hour for
all hours the labor is employed by Dlubak.
o Dlubak would be responsible for all costs associated with processing the
cullet such as process equipment electricity, forklift propane, skid sheet
fuel, etc.
o At the end of this agreement Conversion will sell its cullet processing
equipment (see the attached list) to Dlubak for the sum of one dollar and
offer Dlubak the option to purchase the Dunkirk facility for a price to be
determined in the future.
o Dlubak and Conversion will enter into non-compete agreements and Dlubak
will sell to Conversion high leaded CRT glass at market price (presently
$160 per ton but not to exceed $225 per ton (this cullet will be for the
exclusive use as a substrate in ion exchange resins).
If the above meets with your approval please acknowledge below and I will take
the necessary steps to prepare a sub-contract for us to sign.
Dave, I appreciate the help you have offered to Conversion and believe that a
relationship with your company would benefit both of our companies, as well as
the CRT tube manufacturers and producers.
Very Truly Yours,
/s/ William L. Amt
William L. Amt
President
Acknowledged by:
DLUBAK GLASS COMPANY
/s/ Dave Dlubak
-----------------------------
Mr. Dave Dlubak
President
<PAGE>
Letter to Dlubak Glass Company
March 11, 1998
Page 3
GLASS CULLET EQUIPMENT TO BE SOLD TO DLUBAK GLASS
The Following Glass Cullet Processing Equipment Will Be Sold To Dlubak For The
Price Of One Dollar At The Conclusion Of This Agreement:
o Numerous cullet storage bins and small tools
o XRF glass sorting system with conveyors and all replacement parts
o All wet blasting and dry blasting systems including conveyors, dust
collection systems and trammel screens
o The double steam jacketed ribbon blender
o All screening and sizing equipment presently employed to process the
191 cullet.
RAW MATERIALS INVENTORY TO BE PURCHASED BY DLUBAK GLASS
- --------------------------------------------------------------------------------
292 LEADED CRT 56.3 TONS
- --------------------------------------------------------------------------------
291 [less than] 3/8" FINES 946.91 TONS
- --------------------------------------------------------------------------------
291 [greater than] 3/8" FINES 212.20 TONS
- --------------------------------------------------------------------------------
241 CLEAN FUNNEL NOMINAL
- --------------------------------------------------------------------------------
210 UNLEADED 12.51 TONS
- --------------------------------------------------------------------------------
194 MULTI-MIX 392.25 TONS
- --------------------------------------------------------------------------------
193 WHEELABRATED NOMINAL
- --------------------------------------------------------------------------------
193 CULLET 1.02 TONS
- --------------------------------------------------------------------------------
191 WIP CULLET 32.2 TONS
- --------------------------------------------------------------------------------
191 CULLET 3081.88 TONS
- --------------------------------------------------------------------------------
112 CULLET 22.9 TONS
- --------------------------------------------------------------------------------
HITACHI & TOSHIBA DIRTY CULLET 37.90 TONS
- --------------------------------------------------------------------------------
HITACHI & TOSHIBA PLATEGLASS 6.59 TONS
- --------------------------------------------------------------------------------
TOSHIBA SLUDGE 555.0 TONS
- --------------------------------------------------------------------------------
HITACHI SLUDGE 55.0 TONS
- --------------------------------------------------------------------------------
ORIGINAL
LEASE
This Lease, made and executed this 1st day of April 1998 by and between 312
Industrial Park (hereinafter referred to as "Landlord"), and Conversion
Technologies (hereinafter referred to as "Tenant") whose address is 3452 Lake
Lynda Drive, Suite 280, Orlando Fl 32817.
That for an in consideration of the premises, the rents reserved, and the
agreements and covenants herein contained, the Landlord does hereby lease and
demise unto the Tenant, and the Tenant does hereby hire and take from the
Landlord, the premises located at 7 San Bartola Drive, St. Augustine, Florida
32084, as described on Exhibit ________ as Building A and B; (herein the
"Premises"). This Lease is intended to and shall terminate and revoke all prior
leases regarding the subject Premises.
AND TENANT does hereby covenant and agree as follows:
1. TERM and RENTAL: That Tenant will, a does hereby, hold the Premises as tenant
for the term of 20 months commencing on May 1st 1998, and fully ending at
midnight on December 31st, 1999 at and for the rental for the term of the Lease
of $75,000 payable without deduction or demand in monthly installments of
$3,750.00 each. The Tenant shall pay with each rent payment all Florida sales
and use taxes required on the rental properties. The first and last monthly
installments and damage deposit of $3,750.00 are due and payable upon the
execution of this Agreement and the remaining installments are payable in
advance on the first day of each ensuing month to and at the office of Landlord
at 10-A St. Johns Medical Park, St. Augustine, Florida 32086 or at such other
place as may be designated by Landlord in writing. If the term shall commence
upon a day other than the first day of a calendar month, then Tenant shall pay,
upon the commencement of the term, a pro rata portion of the fixed monthly rent
described in the foregoing clause prorated on a per diem basis with respect to
the fractional calendar month preceding the commencement of the first lease year
hereof. Any installment not received by Landlord within ten (10) days that the
same shall come due shall be subject to a late charge of ten percent (10%) of
the payment then due plus Fifty and No/100 Dollars ($50.00) per day for each day
thereafter until paid. The Tenant shall also pay along with lease payment a
"CAM" charge that includes a pro rata share of taxes and insurance of $1.00 per
square foot Insurance is based on a rate from past usage and some additional
preliminary dictated by insurance carrier due to tenants use of hazardous
equipment or high risk materials will be paid entirely by tenants.
2. UTILITIES AND OTHER CHARGES: That tenant will, at Tenant's cost and
expense, furnish and pay for (a) all gas, electric, water, sewer, refuse
collection, and other utility bills for utilities supplied to the
Premises, (b) air conditioning and heating maintenance and repair, (c)
pest control and treatment costs incurred in or about the Premises and (d)
other charges provided for herein as the same shall become due.
3. USE: That Tenant will use the Premises for the full term; continuously and
uninterruptedly and that Tenant will not use, nor permit the Premises or
any part thereof to be used for any disorderly or unlawful purpose.
4. ASSIGNMENT: That Tenant will not encumber, transfer or assign this
Agreement, nor let or sublet the whole or any part of the Premises without
the written consent of Landlord first had and obtained. No such
encumbrance, assignment or subletting in whole or in part shall relieve
Tenant of any of the obligations contained in this Lease. Any consent
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granted by the Landlord shall not be construed to release tenant from full
liability hereunder and shall not relieve Tenant from obtaining similar
consent of the Landlord to any subsequent encumbrance, assignment or
subletting to others.
5. GOOD ORDER AND REPAIR: That Tenant will, at Tenant's sole expense keep the
Premises and all systems, fixtures, light fixtures, windows and appliances
therein or thereon in good order and condition and surrender same at the
expiration of the term hereof in the same order in which they are
received, normal wear and tear only excepted. Tenant acknowledges that the
Premises have been fully inspected and are in a condition acceptable to
Tenant.
6. JANITORIAL: That at Tenant's sole expense Tenant will keep the Premises
and the sidewalks, landscaping and parking areas immediately abutting the
Premises clean, properly swept, and free front obstructions of all nature.
7. INSPECTION: That Tenant will allow the Landlord or Landlord's agent to
have access to the Premises quarterly or more frequently with reasonable
notice (3 days) for the purpose of inspection, or for the purpose (but
with no obligation) of making repairs Landlord considers necessary or
desirable, or access at any time in the event of fire or other emergency.
A phone call by landlord or tenant is deemed reasonable.
8. NOTICE OF DEFECT: That Tenant will give the Landlord prompt notice of any
defects, damage or breakage in or to the structure, equipment, or fixtures
of or upon the Premises.
9. ORDINANCES AND REGULATIONS: That Tenant will, at Tenant's cost promptly
comply with and carry out all orders, requirements, or conditions now or
hereafter imposed upon Tenant by the ordinances, laws or regulations of
any public authority having jurisdiction of the Premises (whether required
of Landlord or otherwise).
10. INDEMNITY: That all personal property in the Premises shall be and remain
at Tenant's sole risk, and Landlord shall not be liable for any damage to,
or loss of such personal property whether arising from any acts of
negligence of any persons or from the leaking of the roof, or from the
bursting, leaking or overflowing of water, sewer, or steam pipes, or from
heating or plumbing fixtures, or from electric wires or fixtures, or from
any other cause whatsoever.
Tenant does hereby agree to indemnify and save Landlord harmless from and
against any and all liability for any injury to or death of any person or
persons or damage to property in any way arising out of or connected with the
use of occupancy of the Premises, or in any way arising out of the activities of
Tenant, its agents, employees, licensees or invitees on the Premises and / or
any building located thereon and from all costs, expenses and liabilities,
including but not limited to reasonable attorney's fees, incurred by Landlord in
connection therewith, excepting, however, liability caused by Landlord's
negligence.
Tenant covenants and agrees that Landlord shall not be liable to Tenant
for any injury or death to any person or persons, or any person claiming through
Tenant, arising out of any accident or occurrence on the Premises, including,
without limiting the generality of the forgoing, injury, death or damage caused
by an operations or use of the Premises or by the Premises or of any portions of
the Building being out of repair, or caused by a defect in or failure of
equipment, pipes, or wiring, or caused by a broken glass, or caused
2
<PAGE>
by the backing up of drains, or caused by gas, water, electricity, or oil
leaking, escaping or flowing into Premises, or caused by fire or smoke.
11. SUBORDINATION: Tenant agrees that this Lease shall be, and is hereby, make
subordinate to any mortgages that are now or may hereafter be placed upon
the Premises and to any and all advances to be made thereunder (and to the
interest accrued or to accrue thereon) and all renewals, replacements, and
extensions thereof. The provisions of this paragraph are intended to be
effective at the time of execution of this Lease and shall continue in
effect throughout the term hereof. No further document or deed shall be
required to make this subordination effective, but the parties
nevertheless agree that in the event any present or future mortgagee of
the building shall request the execution and delivery of any writing to
further evidence the provisions of this paragraph, Tenant shall promptly
and fully execute such documents as Landlord may reasonable require.
12. REPAIRS AND IMPROVEMENTS: That Tenant will, at Tenant's sole risk, cost,
and expense, during the term of this Agreement or extension thereof, make
all repairs or improvements (including but not limited to the exterior
walls and doors, plumbing system, electrical system, etc.) to the Premises
as they become necessary or are required to preserve the standard set
forth in paragraph 5 hereof. No alterations or additions to the structure
of the Premises shall be made without the written consent of Landlord
first had and obtained. Notice is hereby given that Landlord's interest in
the Premises shall not be charged with any cost or expense incurred by
Tenant in connection with or as part of said work. This is the intended
use of the damage deposit.
13. RENT SIGN: That Tenant will permit Landlord to post a "For rent" or
similar sign and to show the Premises at reasonable hours to prospective
tenants during the last thirty (30) days of their term of this Lease.
14. PUBLIC LIABILITY INSURANCE: That Tenant will carry at Tenant's sole cost
and expense during the full term of this Lease in a company acceptable to
Landlord, for the protection of Tenant and Landlord, comprehensive public
liability insurance with limits of not less than Five Hundred Thousand
Dollars ($500,000.00) with respect to any single occurrence and not less
that One Million and No/100 dollars ($5,000,000.00) in the aggregate. The
insurance policy or certificate from Tenant's insurance company shall be
deposited with Landlord, and shall provide that it shall not be canceled
for any reason unless and until Landlord is given no less than thirty (30)
days notice in writing by the insurance company.
15. MECHANICS' LIENS: That Tenant shall have no right to encumber or subject
the interest of the Landlord in the Premises to any mechanics',
materialmen's or other liens of any nature whatsoever, and upon the filing
of any such lien caused by Tenant or arising out of action taken by
Tenant, the failure of the Tenant to have the same removed from record
within thirty(30) days of the recording thereof shall constitute a
violation and default of this Agreement.
16. FURNITURE AND FIXTURES: That Tenant shall have the privilege of installing
any new furniture and new fixtures necessary in the conduct of Tenant's
business, and the same shall remain the property of Tenant provided they
be removed by Tenant before the expiration of this Lease. Tenant will
immediately make such repairs as are necessary to restore the Premises to
their original condition following the removal of any such item or
promptly reimburse the Landlord for the cost of such repairs.
3
<PAGE>
Any items remaining on the Premises at the end of the Term shall be the
property of Landlord unless Landlord then elects to have such removed at
Tenant's expense.
17. DEFAULT:
A. Each of the following shall expressly be deemed a default by Tenant
and a breach of this Lease, namely:
(I) A failure on the part of tenant to pay any installment of rent
or to pay any additional rent, which failure persists after the expiration
of ten (10) days from the due date.
(II) A failure on the part of Tenant to observe or perform any of
the other terms, covenants or conditions of this Lease on the
part of Tenant to be observed and performed, which failure
persists after the expiration of twenty (20) days from the
date Landlord gives notice to Tenant calling attention to the
existence of such failure, provided, however, if the matter
which is the subject of the notice is non-monetary and of such
a nature that the same cannot reasonably be corrected within
twenty(20) days, then no default shall be deemed to have
occurred if Tenant before the expiration of the twenty(20) day
period from the date of giving the aforesaid notice by
Landlord, actively commences the curing of the default in
good faith and diligently prosecutes the same to completion.
B. If Tenant shall default in the performance of any obligation
hereunder, or if Tenant shall abandon the Premises, or if this Lease
shall be taken from Tenant as a result of any execution against
Tenant in any proceeding in which the Tenant shall have no appeal,
then Tenant shall be in default hereunder and Landlord may without
notice re-enter the Premises either by force or otherwise and
dispossess Tenant by summary proceedings or otherwise, and Tenant or
other occupant or occupants of the Premises will remove their
effects and hold the Premises as if this Lease had not been made.
C. In case of any default, re-entry, expiration, or dispossession by
summary proceedings or otherwise, the Landlord without limitations
as to or in addition to right or remedies allowed by law:
(I) Have all rents due or to come due hereunder, at Landlord's
option, immediately become due and be payable without notice,
together with such expenses as Landlord may incur for legal
expenses and attorney's fees, including those incident to the
recovery of possession, brokerage, or putting the Premises in
good order, or for preparing the same for re-rental; or
(II) May relet the Premises or any part or parts thereof, either in
the name of Landlord or otherwise, for a term or terms which
may at Landlord's option be less than or exceed the period
which would otherwise have constituted the balance of the term
of this Lease and may grant concessions or free rent without
thereby in any way affecting Tenant's liability for the rental
payable hereunder for the period of concession or free rent.
Tenant shall also pay the Landlord as liquidated damages for
the failure of Tenant to observe and perform said Tenant's
covenants herein contained, any deficiency between the rent
hereby reserved covenanted to be paid and the net amount, if
any, of the rents collected by reason of the reletting of the
Premises for each month of the period which would otherwise
have constituted the balance of the term of this
4
<PAGE>
Lease. In computing such liquidated damages there shall be
added to the said deficiency such expenses as Landlord may
incur in connection with the recovery of possession of the
Premises and reletting, including, but not limited to, legal
expenses, attorneys' fees, brokerage, and for keeping the
Premises in good order or for preparing the same for
reletting. Any such liquidated damages shall be due, in full,
upon Landlord's demand or may, at Landlord's option, be paid
in monthly installments by tenant on the rent days specified
in this Lease and any suit brought to collect the amount of
the deficiency for any month shall not prejudice in any way
the rights of Landlord to demand full payment of all remaining
sums or to collect the deficiency for any subsequent month by
a similar action or proceeding. Landlord, at Landlord's
option, may make such alterations or decorations in the
Premises as Landlord in Landlord's sole judgment considers
advisable and necessary for the purpose of decorations shall
not operate or be construed to release Tenant from liability
hereunder as aforesaid. Landlord shall in no event be liable,
and Tenant's liability shall not be affected or diminished in
any way whatsoever for failure to relet the Premises, or in
the event that the Premises are relet, for failure to collect
the rent thereof under such re-letting; or
(III) In the event of a breach or threatened breach by Tenant of any
of the covenants or provisions hereof, Landlord shall have the
right of injunction and the right to invoke any remedy allowed
by law or in equity as if reentry, summary dispossession
proceedings, and other remedies were not herein provided for.
Mention in this Lease or any particular remedy shall not
preclude Landlord from any other remedy, in law or equity.
If Landlord shall enter into and repossess the Premises by reason of the default
of Tenant in the performance of any of the terms, covenants, or conditions
herein contained, then and in that event tenant hereby covenants and agrees that
Tenant will not claim the right to redeem or reenter the Premises or restore the
operation of this instrument, and tenant hereby waives the right to such
redemption and reentrance under any present or future law, and does expressly
waive its right, if any, to make payment of any sum or sums of rent, or
otherwise, of which Tenant shall have made default under any of the covenants of
this Lease, and to claim any subrogation to the rights of tenant under these
presents, or any of the covenants thereof, by reason of such payment.
Any action taken by Landlord under this Article shall not operate as a waiver of
any right which Landlord would otherwise have against Tenant for rent hereby
reserved or otherwise, and Tenant shall remain responsible to Landlord for any
loss or damage suffered by Landlord by reason of Tenant's default or breach. The
words "reenter" and "reentry" as used in this Lease are not restricted to their
technical legal meaning.
Landlord shall be entitled to recover from Tenant all expenses incurred by it in
the event of a default by Tenant or a necessary enforcement action under this
Lease, including but not limited to its attorneys fees.
18. RECOVERY OF POSSESSION: If proceeding shall at any time be commenced for
recovery of possession as aforesaid and compromise or settlement shall be
effected either before or after judgment whereby Tenant shall be permitted
to retain possession of the Premises, then such proceedings shall not
constitute a waiver of any condition or agreement contained herein or of
any subsequent breach thereof or of this Lease.
5
<PAGE>
19. TERMINATION BY INSOLVENCY: If a decree or order by a court having
jurisdiction of the Premises shall be entered (a) adjudging Tenant
bankrupt or insolvent, or (b) approving as properly filed a petition
seeking reorganization of Tenant under any bankruptcy or insolvency law,
or (c) for the winding up or liquidation of Tenant's affairs, or (d) for
the appointment of a receiver or a liquidator or trustee in bankruptcy or
insolvency of Tenant or any of Tenant's property, and such decree or order
shall continue undischarged or unstayed for thirty (30) days, or if Tenant
shall institute or consent to insolvency or bankruptcy proceedings by or
against Tenant, or file petition, answer, or consent to the appointment of
a receiver or liquidator or trustee in bankruptcy or insolvency of Tenant
or Tenant's property, or make assignment for the benefit of creditors, or
admit in writing Tenant's inability to pay debts generally as they become
due, or take corporate action in furtherance of any of the aforesaid
purposes, then and in any such event, Landlord may, if Landlord so elects,
with or without notice or entry or other action, forthwith terminate this
Lease, and shall upon such termination be entitled to recover damages in
an amount equal to the present value of the rent reserved under this Lease
for the residue of the stated term less the fair rental value of the
Premises for such residue or in any greater amount as may be permitted by
law up to the full amount of the rent reserved by this Lease to the end of
the stated term. In addition to any other rights and remedies Landlord may
have by any provisions in this Lease or in any statute or rule or law,
Landlord may retain as liquidated damages any rent, security, deposit, or
monies received by Landlord from Tenant or others on behalf of Tenant.
20. HOLDOVER: Should Tenant continue in possession after the end of the term,
such holding over shall not constitute a renewal or extension of this
Lease, but Landlord may, at Landlord's option, construe the Tenant as a
tenant at sufferance or such hold over as a month to month tenancy subject
to all the terms and conditions of this Lease.
21. DAMAGE OR DESTRUCTION: If the Premises shall be damaged as a result of
fault or neglect of Tenant's servants, employees, agents, visitors, or
licensees, Tenant shall pay for all damage and there shall be no abatement
of rent. If the Premises shall be partially damaged or be made
inaccessible by fire, flood, windstorm, the elements, or other cause
without fault or neglect of Tenant or Tenant's servants, employees,
agents, visitors, licensees, the damage shall be repaired by and at the
expense of Landlord if and to the extent covered by insurance but not
otherwise, and rent, until the premises are so repaired, shall be
apportioned according to the portion of the Premises which is usable to
Tenant. In making such repairs, Landlord shall not be liable for delays
which may arise by reason of adjustment or insurance loss, strikes, labor
difficulties, or by reason of other causes beyond Landlord's control. If
the Premises are substantially or totally destroyed or the Premises are
rendered totally untenantable by reason of fire, flood, windstorm, the
elements, or other cause, and the Landlord shall decide not to rebuild the
same, then and in such event, Landlord may within sixty (60) days after
such damage by fire or other cause, give Tenant notice of Landlord's
intention to terminate the Lease, which termination shall be effective
upon the third day after such notice is given, and Tenant shall thereupon
vacate the Premises and surrender the same to Landlord. Tenant shall
immediately notify Landlord in case of any damage by fire, flood,
windstorm, the elements, or other cause.
Tenant shall at Tenant's expense continuously maintain broad form contents
insurance on Tenant's personal property located on the Premises for the full
insurable value of such personal property:
6
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22. LIENS ON FIXTURES: It is hereby agreed that Landlord shall, during the
term of this Lease or as it may be extended, have an express lien (in
addition to any statutory Landlord's lien), for the payment of rent
aforesaid, upon all the trade fixtures, good, and stock in trade, and
personal property of the Tenant which are, or hereafter may be placed upon
the Premises.
23. LANDLORD NOT A PARTNER: It is expressly understood that the Landlord shall
not be construed or held to be a partner or associate of the Tenant in the
conduct of Tenant's business; it being expressly understood that the
relationship between the parties hereto is and shall remain at all times
that of Landlord and Tenant.
24. NOTICES: All notices required to be given hereunder shall be in writing,
and if intended for the Landlord, shall be mailed by registered mail or
certified, postage prepaid, to the office of the Landlord, 10 Johns
Medical Park, St. Augustine, Florida 32086, ATTN: Dr. Robert Thousand, or
if intended for the Tenant, shall be served upon one of the officers of
Tenant personally, or shall be mailed by registered mail, postage prepaid,
to the Premises or the address of Tenant as specified on page 1 of this
Lease. Either party shall have the right to change its principal office by
service by registered mail or certified, of such change.
25. GENERAL: It is further understood and agreed, that this instrument
contains the entire agreement between the parties hereto and shall not be
modified in any manner except by an instrument in writing executed by the
parties hereto, and that the conditions and agreements herein are binding
on, and may be legally enforced by the parties hereto, their heirs,
executors, administrators, successors and permitted assigns, respectively,
and that no waiver of any breach of any condition or agreement contained
herein shall be construed to be a waiver of that condition or agreement or
of any subsequent breach thereof, or of this Lease. Feminine or neuter
pronouns shall be substituted for those of the masculine form, and the
plural shall be substituted for the singular numbers in any place herein,
in which the content may require such substitution.
26. QUIET POSSESSION: It is further understood and agreed, that subject to the
terms of this Lease, that Tenant, paying the rent hereby reserved, and
performing and observing the several covenants hereof, may peacefully hold
and enjoy the Premises throughout the duration of this Lease without any
interruptions by the Landlord, its successors or assigns, or any person
lawfully claiming through it.
27. OTHER PROVISIONS: The titles appearing in this Lease are for the purposes
of easy reference and shall not be considered a part of this Lease or in
any way to modify, amend, or affect the provisions thereof. This Lease is
to be construed and enforced in accordance with the laws of the State of
Florida.
28. EMINENT DOMAIN: In the event that more than fifteen percent (15%) of the
ground floor area of the Premises shall be acquired or condemned by
eminent domain for any public or quasi-public purpose, then the term of
this Lease shall cease and terminate by either party giving notice thereof
to the other not more than thirty(30) days after the date on which title
vests in such authority, and Tenant shall have no claim against Landlord
for the value of any unexpired term of said Lease from the date of title
vesting in such proceeding.
In the event that the less then fifteen percent (l5) of the ground floor area of
the Premises be taken in any such condemnation, or shall be acquired for any
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public or quasi-public purposes, the Landlord, at its election, if feasible, may
restore the Premises for use and, if so, the rent shall be adjusted pro-rata
based on the then remaining area of the altered premises.
Tenant shall have no right to interpose and prosecute a claim against the
condemning authority for the value of Tenant's leasehold interest hereunder or
for alterations, fixtures and improvements taken by the condemning authority.
However, Tenant may claim any special damages such as severance damages or loss
of business damage and all such awards of special damages shall be the property
of the Tenant.
29. TAX CHARGES AND ASSESSMENTS: Tenant shall pay all personal property taxes
levied by any taxing authority on machinery, equipment, inventory or other
personal property or other assets of Tenant as the same shall come due.
Tenant shall likewise pay all other taxes, charges or assessments, levied
by any governmental or quasi-governmental authority for or on account of
Tenant's use of rental of the Premises or the conduct of Tenant's business
therein, including but not limited to, sales, use and occupation license
taxes and water, sewer or utility charges or assessments.
30. LANDLORD'S PERFORMANCE FOR ACCOUNT OF TENANT: If the Tenant shall continue
in default in the performance of any of the covenants or agreements herein
contained after the time limited for the curing thereof, as aforesaid,
then Landlord may perform the same for the account of Tenant. Any amount
paid or expense or liability incurred by Landlord in the performance of
any such matter for the account of Tenant shall be deemed to be additional
rent and the same (together with interest thereon at the rate of eighteen
percent (l8%) per annum from the date upon which any such expense or
liability shall have been incurred) may, at the option of Landlord be
added to any rent then due or thereafter falling due hereunder.
Nothing contained herein shall be construed to postpone the right of Landlord
immediately upon expending such sums to collect such sums with interest by
action or otherwise.
31. DEFINITION OF LANDLORD: The term "Landlord" as used in this Lease means
only the owner or the mortgagee in possession for the time being of the
Premises or the owner of the Lease so that in the event of any sale or
sales of the Premises or of this Lease, Landlord shall be and hereby is
entirely freed and relieved of all covenants and obligations of Landlord
hereunder accruing from and after the date of such sale or assignment, and
it shall be deemed and construed without further agreement between the
parties or their successors in interest or between the parties and the
purchaser at any such sale of the Lease or of the Premises, that the
purchaser has agreed to carry out any and all covenants and obligations of
Landlord hereunder accruing from and after the date of such sale
assignment.
32. LANDLORD'S ENTITY AT END OF LEASE: If during the two months of the term of
this Lease, Tenant shall have removed all or substantially all of Tenant's
property from the Premises, Landlord may prior to the expiration or
termination of the term of the Lease, without releasing tenant from any
obligations to repair or restore the Premises or to pay the rent in full,
and without any elimination or abatement thereof, immediately enter upon
and alter, renovate, and redecorate the Premises.
33. FIRE EXTINGUISHERS: Tenant agrees to supply and maintain at its own
expense any fire extinguishers, smoke alarms, or other fire
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prevention equipment required by law, rules, orders, ordinances and
regulations of any city county, or state in which the herein Premises are
located, or required by any underwriters association, bureau, or any other
similar body having jurisdiction involving said Premises.
35. SUBSEQUENT MODIFICATION REQUIRED BY MORTGAGEE: The parties understand that
the Property of which the Premises form a part is or may hereafter be subject to
a mortgage lien or liens. In the event any present or future mortgagee shall
require modification of the form of this Lease, Tenant agrees to cooperate in
the execution and delivery of any document reasonably required by such mortgagee
to evidence such modification. Provided only that such modification does not
substantially alter the agreements of the parties as set forth herein.
36. ENVIRONMENTAL: Tenants are taking possession of property with a current
environmental letter stating that the property is free of all environmental
contamination and shall do nothing to jeopardize this current environmental
condition.
37. TIME OF THE ESSENCE: Time is of the essence of this Lease.
IN WITNESS WHEREOF the parties have hereunto set their hands and seals the day
and year first above written.
Signed, sealed and delivered LANDLORD:
in the presence of: 312 INDUSTRIAL PARK
/s/ Brenda Mandan By: /s/ Robert R. Phousand
- ----------------------------- ----------------------
Witness Its President
- -----------------------------
Witness TENANT:
/s/ Gary Jellum By: /s/ William Amt
- ----------------------------- ---------------
Witness Its. President
9
LEASE
This Lease, made and executed this 22nd day of JANUARY, 1998 by and between
Willard Park Inc. (hereinafter referred to as "Landlord"), and ADVANCED PARTICLE
TECHNOLOGIES, INC. (hereinafter referred to as "Tenant") whose address is 3452
LAKE LYNDA DRIVE, STE. #280, ORLANDO, FL 32817.
That for an in consideration of the premises, the rents reserved, and the
agreements and covenants herein contained, the Landlord does hereby lease and
demise unto the Tenant, and the Tenant does hereby hire, and take from the
Landlord, the premises located at #1 WILLARD DRIVE St. Augustine, Florida 32084,
as described on Exhibit A as Building SOUTH BUILDING; (herein the "Premises").
This Lease is intended to and shall terminate and revoke all prior leases
regarding the subject Premises.
AND TENANT does hereby covenant and agree as follows:
1. TERM and RENTAL: That Tenant will and does hereby, hold Premises as tenant
for the term of 27 MONTHS commencing on DECEMBER 1 1997, and fully ending at
midnight on FEBRUARY 29, 2000, and for the rental for the term of the Lease of
$5.50/SQFT x 8400 sf + 6% tax, payable without deduction or demand in monthly
installments of $4,081.00 inc. tax each. The Tenant shall pay with each rent
payment all Florida sales and use taxes required on the rental properties. The
first and last monthly installments and damage deposit of $ as per Exhibit B are
due and payable upon the execution of this Agreement and the remaining
installments are payable in advance on the first day of each ensuing month to
and at the office of Landlord at 10-A St. Johns Medical Park, St. Augustine,
Florida 32086 or at such other place as may be designated by Landlord in
writing. If the term shall commence upon a day other than the first day of a
calendar month, then Tenant shall pay, upon the commencement of the term, a pro
rata portion of the fixed monthly rent described in the foregoing clause
prorated on a per diem basis with respect to the fractional calendar month
preceding the commencement of the first lease year hereof. Any installment not
received by Landlord within ten (10) days that the same shall come due shall be
subject to a late charge of ten percent (10%) of the payment then due plus Fifty
and No/100 Dollars ($50.00) per day for each day thereafter until paid.
2. UTILITIES AND OTHER CHARGES: That tenant will, at Tenant's cost and
expense, furnish and pay for (a) all gas, electric, water, sewer, refuse
collection, and other utility bills for utilities supplied to the
Premises, (b) air conditioning and heating maintenance and repair, (c)
pest control and treatment costs incurred in or about the Premises and (d)
other charges provided for herein as the same shall become due.
3. USE: That Tenant will use the Premises for the full term; continuously and
uninterruptedly and that Tenant will not use, nor permit the Premises or
any part thereof to be used for any disorderly or unlawful purpose.
4. ASSIGNMENT: That Tenant will not encumber, transfer or assign this
Agreement, nor let or sublet the whole or any part of the Premises without
the written consent of Landlord first had and obtained. No such
encumbrance, assignment or subletting in whole or in part shall relieve
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Tenant of any of the obligations contained in this Lease. Any consent
granted by the Landlord shall not be construed to release tenant from full
liability hereunder and shall not relieve Tenant from obtaining similar
consent of the Landlord to any subsequent encumbrance, assignment or
subletting to others.
5. GOOD ORDER AND REPAIR: That Tenant will, at Tenant's sole expense keep the
Premises and all systems, fixtures, light fixtures, windows and appliances
therein or thereon in good order and condition and surrender same at the
expiration of the term hereof in the same order in which they are
received, normal wear and tear only excepted. Tenant acknowledges that the
Premises have been fully inspected and are in a condition acceptable to
Tenant.
6. JANITORIAL: That at Tenant's sole expense Tenant will keep the Premises
and the sidewalks, landscaping and parking areas immediately abutting the
Premises clean, properly swept, and free from obstructions of all nature.
7. INSPECTION: That Tenant will allow the Landlord or Landlord's agent to
have access to the Premises quarterly or more frequently with reasonable
notice (3 days) for the purpose of inspection, or for the purpose (but
with no obligation) of making repairs Landlord considers necessary or
desirable, or access at any time in the event of fire or other emergency.
A phone call by landlord or tenant is deemed reasonable.
8. NOTICE OF DEFECT: That Tenant will give the Landlord prompt notice of any
defects, damage or breakage in or to the structure, equipment, or fixtures
of or upon the Premises.
9. ORDINANCES AND REGULATIONS: That Tenant will, at Tenants cost promptly
comply with and carry out all orders, requirements, or conditions now or
hereafter imposed upon Tenant by the ordinances, laws or regulations of
any public authority having jurisdiction of the Premises (whether required
of Landlord or otherwise).
10. INDEMNITY: That all personal property in the Premises shall be and remain
at Tenant's sole risk, and Landlord shall not be liable for any damage to,
or loss of such personal property whether arising from any acts of
negligence of any persons or from the leaking of the roof, or from the
bursting, leaking or overflowing of water, sewer, or steam pipes, or from
heating or plumbing fixtures, or from electric wires or fixtures, or from
any other cause whatsoever.
Tenant does hereby agree to indemnify and save Landlord harmless from and
against any and all liability for any injury to or death of any person or
persons or damage to property in any way arising out of or connected within the
use or occupancy of the Premises, or in any way arising out of the activities of
Tenant, its agents, employees, licensees or invitees on the Premises and / or
any building located thereon and from all costs, expenses and liabilities,
including but not limited to reasonable attorney's fees, incurred by Landlord in
connection therewith, excepting, however, liability caused by Landlord's
negligence.
Tenant covenants and agrees that Landlord shall not be liable to Tenant
for any injury or death to any person or persons, or any person claiming through
Tenant, arising out of any accident or occurrence on the Premises, including,
without limiting the generality of the forgoing, injury, death or damage caused
by an operations or use of the Premises or by the Premises or of any portions of
the Building being out of repair, or caused by a defect in or failure of
equipment, pipes, or wiring, or caused by a broken glass, or caused
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by the backing up of drains, or caused by gas, water, electricity, or oil
leaking, escaping or flowing into Premises, or caused by fire or smoke.
11. SUBORDINATION: Tenant agrees that this Lease shall be, and is hereby, make
subordinate to any mortgages that are now or may hereafter be placed upon
the Premises and to any and all advances to be made thereunder (and to the
interest accrued or to accrue thereon) and all renewals, replacements, and
extensions thereof. The provisions of this paragraph are intended to be
effective at the time of execution of this Lease and shall continue in
effect throughout the term hereof. No further document or deed shall be
required to make this subordination effective, but the parties
nevertheless agree that in the event any present or future mortgagee of
the building shall request the execution and delivery of any writing to
further evidence the provisions of this paragraph. Tenant shall promptly
and fully execute such documents as Landlord may reasonable require.
12. REPAIRS AND IMPROVEMENTS: That Tenant will, at Tenant's sole risk, cost,
and expense, during the term of this Agreement or extension thereof, make
all repairs or improvements (including but not limited to the exterior
walls and doors, plumbing system, electrical system, etc.) to the Premises
as they become necessary or are required to preserve the standard set
forth in paragraph 5 hereof. No alterations or additions to the structure
of the Premises shall be made without the written consent of Landlord
first had and obtained. Notice is hereby given that Landlords interest in
the Premises shall not be charged within any cost or expense incurred by
Tenant in connection within or as part of said work. This is the intended
use of the damage deposit.
13. RENT SIGN: That Tenant will permit Landlord to post a "For rent" or
similar sign and to show the Premises at reasonable hours to prospective
tenants during the last thirty (30) days of their term of this Lease.
14. PUBLIC LIABILITY INSURANCE: That Tenant will carry at Tenant's sole cost
and expense during the full term of this Lease in a company acceptable to
Landlord, for the protection of Tenant and Landlord, comprehensive public
liability insurance within limits of not less than Five Hundred Thousand
Dollars ($500,000.00) within respect to any single occurrence and not less
that One Million and No/100 dollars ($1,000,000.00) in the aggregate. The
insurance policy or certificate from Tenant's insurance company shall be
deposited with Landlord, and shall provide that it shall not be canceled
for any reason unless and until Landlord is given no less than thirty (30)
days notice in writing by the insurance company.
15. MECHANICS' LIENS: That Tenant shall have no right to encumber or subject
the interest of the Landlord in the Premises to any mechanics',
materialmen's or other liens of any nature whatsoever, and upon the filing
of any such lien caused by Tenant or arising out of action taken by
Tenant, the failure of the Tenant to have the same removed from record
within thirty (30) days of the recording thereof shall constitute a
violation and default of this Agreement.
16. FURNITURE AND FIXTURES: That Tenant shall have the privilege of installing
any new furniture and new fixtures necessary in the conduct of Tenant's
business, and the same shall remain the property of Tenant provided they
be removed by Tenant before the expiration of this Lease. Tenant will
immediately make such repairs as are necessary to restore the Premises to
their original condition following the removal of any such item or
promptly reimburse the Landlord for the cost of such repairs.
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Any items remaining on the Premises at the end of the Term shall be the
property of Landlord unless Landlord then elects to have such removed at
Tenant's expense.
17. DEFAULT:
A. Each of the following shall expressly be deemed a default by Tenant
and a breach of this Lease, namely:
(I) A failure on the part of tenant to pay any installment of rent
or to pay any additional rent, which failure persists after the expiration of
ten (10) days from the due date.
(II) A failure on the part of Tenant to observe or perform any of
the other terms, covenants or conditions of this Lease on the
part of Tenant to be observed and performed, which failure
persists after the expiration of twenty (20) days from the
date Landlord gives notice to Tenant calling attention to the
existence of such failure, provided, however, if the matter
which is the subject of the notice is non-monetary and of such
a nature that the same cannot reasonably be corrected within
twenty(20) days, then no default shall be deemed to have
occurred if Tenant before the expiration of the twenty(20) day
period from the date of giving the aforesaid notice by
Landlord, actively commences the curing of the default in good
faith and diligently prosecutes the same to completion.
B. If Tenant shall default in the performance of any obligation
hereunder, or if Tenant shall abandon the Premises, or if this Lease
shall be taken from Tenant as a result of any execution against
Tenant in any proceeding in which the Tenant shall have no appeal,
then Tenant shall be in default hereunder and Landlord may without
notice re-enter the Premises either by force or otherwise and
dispossess Tenant by summary proceedings or otherwise, and Tenant or
other occupant or occupants of the Premises will remove their
effects and hold the Premises as if this Lease had not been made.
C. In case of any default, re-entry, expiration, or dispossession by
summary proceedings or otherwise, the Landlord without limitations
as to or in addition to right or remedies allowed by law:
(I) Have all rents due or to come due hereunder, at Landlords
option, immediately become due and be payable without notice,
together with such expenses as Landlord may incur for legal
expenses and attorney's fees, including those incident to the
recovery of possession, brokerage, or putting the Premises in
good order, or for preparing the same for re-rental; or
(II) May relet the Premises or any part or parts thereof, either in
the name of Landlord or otherwise, for a term or terms which
may at Landlord's option be less than or exceed the period
which would otherwise have constituted the balance of the term
of this Lease and may grant concessions or free rent without
thereby in any way affecting Tenant's liability for the rental
payable hereunder for the period of concession or free rent.
Tenant shall also pay the Landlord as liquidated damages for
the failure of Tenant to observe and perform said Tenant's
covenants herein contained, any deficiency between the rent
hereby reserved covenanted to be paid and the net amount, if
any, of the rents collected by reason of the reletting of the
Premises for each month of the period which would otherwise
have constituted the balance of the term of this
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Lease. In computing such liquidated damages there shall be
added to the said deficiency such expenses as Landlord may
incur in connection with the recovery of possession of the
Premises and reletting, including, but not limited to, legal
expenses, attorneys fees, brokerage, and for keeping the
Premises in good order or for preparing the same for
reletting. Any such liquidated damages shall be due, in full,
upon Landlord's demand or may, at Landlord's option, be paid
in monthly installments by tenant on the rent days specified
in this Lease and any suit brought to collect the amount of
the deficiency for any month shall not prejudice in any way
the rights of Landlord to demand full payment of all remaining
sums or to collect the deficiency for any subsequent month by
a similar action or proceeding. Landlord, at Landlord's
option, may make such alterations or decorations in the
Premises as Landlord in Landlord's sole judgment considers
advisable and necessary for the purpose of decorations shall
not operate or be construed to release Tenant from liability
hereunder as aforesaid. Landlord shall in no event be liable,
and Tenant's liability shall not be affected or diminished in
any way whatsoever for failure to relet the Premises, or in
the event that the Premises are relet, for failure to collect
the rent thereof under such re-letting; or
(III) In the event of a breach or threatened breach by Tenant of any
of the covenants or provisions hereof, Landlord shall have the
right of injunction and the right to invoke any remedy allowed
by law or in equity as if reentry, summary dispossession
proceedings, and other remedies were not herein provided for.
Mention in this Lease or any particular remedy shall not
preclude Landlord from any other remedy, in law or equity.
If Landlord shall enter into and repossess the Premises by reason of the default
of Tenant in the performance of any of the terms, covenants, or conditions
herein contained, then and in that event tenant hereby covenants and agrees that
Tenant will not claim the right to redeem or reenter the Premises or restore the
operation of this instrument, and tenant hereby waives the right to such
redemption and reentrance under any present or future law, and does expressly
waive its right, if any, to make payment of any sum or sums of rent, or
otherwise, of which Tenant shall have made default under any of the covenants of
this Lease, and to claim any subrogation to the rights of tenant under these
presents, or any of the covenants thereof, by reason of such payment.
Any action taken by Landlord under this Article shall not operate as a waiver of
any right which Landlord would otherwise have against Tenant for rent hereby
reserved or otherwise, and Tenant shall remain responsible to Landlord for any
loss or damage suffered by Landlord by reason of Tenant's default or breach. The
words "reenter" and "reentry" as used in this Lease are not restricted to their
technical legal meaning.
Landlord shall be entitled to recover from Tenant all expenses incurred by it in
the event of a default by Tenant or a necessary enforcement action under this
Lease, including but not limited to its attorneys fees.
18. RECOVERY OF POSSESSION: If proceeding shall at any time be commenced for
recovery of possession as aforesaid and compromise or settlement shall be
effected either before or after judgment whereby Tenant shall be permitted
to retain possession of the Premises, then such proceedings shall not
constitute a waiver of any condition or agreement contained herein or of
any subsequent breach thereof or of this Lease.
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19. TERMINATION BY INSOLVENCY: If a decree or order by a court having
jurisdiction of the Premises shall be entered (a) adjudging Tenant
bankrupt or insolvent, or (b) approving as properly filed a petition
seeking reorganization of Tenant under any bankruptcy or insolvency law,
or (c) for the winding up or liquidation of Tenant's affairs, or (d) for
the appointment of a receiver or a liquidator or trustee in bankruptcy or
insolvency of Tenant or any of Tenant's property, and such decree or order
shall continue undischarged or unstayed for thirty (30) days, or if Tenant
shall institute or consent to insolvency or bankruptcy proceedings by or
against Tenant, or file petition, answer, or consent to the appointment of
a receiver or liquidator or trustee in bankruptcy or insolvency of Tenant
or Tenant's property, or make assignment for the benefit of creditors, or
admit in writing Tenant's inability to pay debts generally as they become
due, or take corporate action in furtherance of any of the aforesaid
purposes, then and in any such event, Landlord may, if Landlord so elects,
with or without notice or entry or other action, forthwith terminate this
Lease, and shall upon such termination be entitled to recover damages in
an amount equal to the present value of the rent reserved under this Lease
for the residue of the stated term less the fair rental value of the
Premises for such residue or in any greater amount as may be permitted by
law up to the full amount of the rent reserved by this Lease to the end of
the stated term. In addition to any other rights and remedies Landlord may
have by any provisions in this Lease or in any statute or rule or law,
Landlord may retain as liquidated damages any rent, security, deposit, or
monies received by Landlord from Tenant or others on behalf of Tenant.
20. HOLDOVER: Should Tenant continue in possession after the end of the term,
such holding over shall not constitute a renewal or extension of this
Lease, but Landlord may, at Landlords option, construe the Tenant as a
tenant at sufferance or such hold over as a month to month tenancy subject
to all the terms and conditions of this Lease.
21. DAMAGE OR DESTRUCTION: If the Premises shall be damaged as a result of
fault or neglect of Tenant's servants, employees, agents, visitors, or
licensees, Tenant shall pay for all damage and there shall be no abatement
of rent. If the Premises shall be partially damaged or be made
inaccessible by fire, flood, windstorm, the elements, or other cause
without fault or neglect of Tenant or Tenant's servants, employees,
agents, visitors, licensees, the damage shall be repaired by and at the
expense of Landlord if and to the extent covered by insurance but not
otherwise, and rent, until the premises are so repaired, shall be
apportioned according to the portion of the Premises which is usable to
Tenant. In making such repairs, Landlord shall not be liable for delays
which may arise by reason of adjustment or insurance loss, strikes, labor
difficulties, or by reason of other causes beyond Landlords control. If
the Premises are substantially or totally destroyed or the Premises are
rendered totally untenantable by reason of fire, flood, windstorm, the
elements, or other cause, and the Landlord shall decide not to rebuild the
same, then and in such event, Landlord may within sixty (60) days after
such damage by fire or other cause, give Tenant notice of Landlord's
intention to terminate the Lease, which termination shall be effective
upon the third day after such notice is given, and Tenant shall thereupon
vacate the Premises and surrender the same to Landlord. Tenant shall
immediately notify Landlord in case of any damage by fire, flood,
windstorm, the elements, or other cause.
Tenant shall at Tenant's expense continuously maintain broad form contents
insurance on Tenant's personal property located on the Premises for the full
insurable value of such personal property:
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22. LIENS ON FIXTURES: It is hereby agreed that Landlord shall, during the
term of this Lease or as it may be extended, have an express lien (in
addition to any statutory Landlord's lien), for the payment of rent
aforesaid, upon all the trade fixtures, good, and stock in trade, and
personal property of the Tenant which are, or hereafter may be placed upon
the Premises.
23. LANDLORD NOT A PARTNER: It is expressly understood that the Landlord shall
not be construed or held to be a partner or associate of the Tenant in the
conduct of Tenant's business; it being expressly understood that the
relationship between the parties hereto is and shall remain at all times
that of Landlord and Tenant.
24. NOTICES: All notices required to be given hereunder shall be in writing,
and if intended for the Landlord, shall be mailed by registered mail or
certified, postage prepaid, to the office of the Landlord, 10 St. Johns
Medical Park, St. Augustine, Florida 32086, ATTN: Dr. Robert Thousand, or
if intended for the Tenant, shall be served upon one of the officers of
Tenant personally, or shall be mailed by registered mail, postage prepaid,
to the Premises or the address of Tenant as specified on page 1 of this
Lease: Either party shall have the right to change its principal office by
service by registered mail or certified, of such change.
25. GENERAL: It is further understood and agreed, that this instrument
contains the entire agreement between the parties hereto, and shall not be
modified in any manner except by an instrument in writing executed by the
parties hereto, and that the conditions and agreements herein are binding
on, and may be legally enforced by the parties hereto, their heirs,
executors, administrators, successors and permitted assigns, respectively,
and that no waiver of any breach of any condition or agreement contained
herein shall be construed to be a waiver of that condition or agreement or
of any subsequent breach thereof, or of this Lease. Feminine or neuter
pronouns shall be substituted for those of the masculine form, and the
plural shall be substituted for the singular numbers in any place herein,
in which the content may require such substitution.
26. QUIET POSSESSION: It is further understood and agreed, that subject to the
terms of this Lease, that Tenant, paying the rent hereby reserved, and
performing and observing the several covenants hereof, may peacefully hold
and enjoy the Premises throughout the duration of this Lease without any
interruptions by the Landlord, its successors or assigns, or any person
lawfully claiming through it.
27. OTHER PROVISIONS: The titles appearing in this Lease are for the purposes
of easy reference and shall not be considered a part of this Lease or in
any way to modify, amend, or affect the provisions thereof. This Lease is
to be construed and enforced in accordance within the laws of the State of
Florida.
28. EMINENT DOMAIN: In the event that more than fifteen percent (15%) of the
ground floor area of the Premises shall be acquired or condemned by
eminent domain for any public or quasi-public purpose, then the term of
this Lease shall cease and terminate by either party giving notice thereof
to the other not more than thirty (30) days after the date on which title
vests in such authority, and Tenant shall have no claim against Landlord
for the value of any unexpired term of said Lease from the date of title
vesting in such proceeding.
In the event that the less then fifteen percent (l5) of the ground floor area of
the Premises be taken in any such condemnation, or shall be acquired for any
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public or quasi-public purposes, the Landlord, at its election, if feasible, may
restore the Premises for use and, if so, the rent shall be adjusted pro-rata
based on the then remaining area of the altered premises.
Tenant shall have no right to interpose and prosecute a claim against the
condemning authority for the value of Tenant's leasehold interest hereunder or
for alterations, fixtures and improvements taken by the condemning authority.
However, Tenant may claim any special damages such as severance damages or loss
of business damage and all such awards of special damages shall be the property
of the Tenant.
29. TAX CHARGES AND ASSESSMENTS: Tenant shall pay all personal property taxes
levied by any taxing authority on machinery, equipment, inventory or other
personal property or other assets of Tenant as the same shall come due.
Tenant shall likewise pay all other taxes, charges or assessments, levied
by any governmental or quasi-governmental authority for or on account of
Tenant's use of rental of the Premises or the conduct of Tenant's business
therein, including but not limited to, sales, use and occupation license
taxes and water, sewer or utility charges or assessments.
30. LANDLORDS PERFORMANCE FOR ACCOUNT OF TENANT: If the Tenant shall continue
in default in the performance of any of the covenants or agreements herein
contained after the time limited for the curing thereof, as aforesaid,
then Landlord may perform the same for the account of Tenant. Any amount
paid or expense or liability incurred by Landlord in the performance of
any such matter for the account of Tenant shall be deemed to be additional
rent and the same (together with interest thereon at the rate of eighteen
percent(l8%) per annum from the date upon which any such expense or
liability shall have been incurred) may, at the option of Landlord be
added to any rent then due or thereafter falling due hereunder.
Nothing contained herein shall be construed to postpone the right of Landlord
immediately upon expending such sums to collect such sums with interest by
action or otherwise.
31. DEFINITION OF LANDLORD: The term "Landlord" as used in this Lease means
only the owner or the mortgagee in possession for the time being of the
Premises or the owner of the Lease so that in the event of any sale or
sales of the Premises or of this Lease, Landlord shall be and hereby is
entirely freed and relieved of all covenants and obligations of Landlord
hereunder accruing from and after the date of such sale or assignment, and
it shall be deemed and construed without further agreement between the
parties or their successors in interest or between the parties and the
purchaser at any such sale of the Lease or of the Premises, that the
purchaser has agreed to carry out any and all covenants and obligations of
Landlord hereunder accruing from and after the date of such sale
assignment.
32. LANDLORD'S ENTRY AT END OF LEASE: If during the two months of the term of
this Lease, Tenant shall have removed all or substantially all of Tenant's
property from the Premises, Landlord may prior to the expiration or
termination of the term of the Lease, without releasing tenant from any
obligations to repair or restore the Premises or to pay the rent in full,
and without any elimination or abatement thereof, immediately enter upon
and alter, renovate, and redecorate the Premises.
33. FIRE EXTINGUISHERS: Tenant agrees to supply and maintain at its own
expense any fire extinguishers, smoke alarms, or other fire
8
<PAGE>
prevention equipment required by law, rules, orders, ordinances and
regulations of any city county, or state in which the herein Premises are
located, or required by any underwriters association, bureau, or any other
similar body having jurisdiction involving said Premises.
34. SUBSEQUENT MODIFICATION REQUIRED BY MORTGAGEE: The parties understand that
the Property of which the Premises form a part is or may hereafter be
subject to a mortgage lien or liens. In the event any present or future
mortgagee shall require modification of the form of this Lease, Tenant
agrees to co-operate in the execution and delivery of any document
reasonably required by such mortgagee to evidence such modification.
Provided only that such modification does not substantially alter the
agreements of the parties as set forth herein.
35. ENVIRONMENTAL: Tenants are taking possession of property with a current
environmental letter stating that the property is free of all
environmental contamination and shall do nothing to jeopardize this
current environmental condition.
36. TIME OF THE ESSENCE: Time is of the essence of this Lease.
IN WITNESS WHEREOF the parties have hereunto set their hands and seals the day
and year first above written.
Signed, sealed and delivered LANDLORD:
in the presence of: WILLARD PARK INC.
/s/ Robert R. Phousand By: /s/ Jane P. Phousand
- --------------------------- ------------------------------------
Witness Its. President
- ---------------------------
Witness TENANT:
ADVANCED PARTICLE TECHNOLOGIES, INC.
/s/ Kelly Westby By: /s/ William Amt
- --------------------------- ------------------------------------
Witness Its. President
9
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EXHIBIT "A"
[GRAPHIC OMITTED]
<PAGE>
EXHIBIT `B'
312 INDUSTRIAL PARK LEASE
NAME OF TENANT: ADVANCED PARTICLE TECHNOLOGIES, INC.
ADDRESS OF TENANT: 3452 LAKE LYNDA DRIVE, SUITE #280
ORLANDO, FL 32817
LENGTH OF LEASE: DECEMBER 1, 1997 THROUGH FEBRUARY 29, 2000
NUMBER OF SQ FT RENTED: 8400 AT $5.50 SQ FT.
FIRST MONTHS RENT $3,850.00
---------
6% SALES TAX ON RENT $ 231.00
---------
2ND MONTHS RENT $4,081.00
---------
SECURITY DEPOSIT $3,850.00 - $500.00 = $3,350.00
-------------------------------
LAST MONTHS RENT ON ACCOUNT
----------
TOTAL $11,512.00
----------
THE MONTHLY RENT WILL BE $4,081.00. RENT IS DUE ON THE FIRST DAY OF EACH
MONTH.
ANY OTHER NOTATIONS NEEDED:
THIS TRANSFERS VANGKOE'S CONTRACT TO ADVANCED PARTICLE TECHNOLOGIES, INC. AS
OF DECEMBER 1, 1997 TO CONTINUE THROUGH FEBRUARY 29, 2000. (SEE ATTACHED
CONTRACT) $500.00 REMAINING OF PREVIOUS SECURITY DEPOSIT CREDITED AGAINST
FULL DEPOSIT OF $3,850.00. $4,081.00 FOR LAST MONTHS RENT ALSO CREDITED.
MANUFACTURER REPRESENTATIVE AGREEMENT
THIS MANUFACTURER REPRESENTATIVE AGREEMENT, entered into as of this 1st
day of January, 1998, by and between CONVERSION TECHNOLOGIES INTERNATIONAL,
INC., a company organized and existing under the laws of the State of Delaware,
with principal offices at 3452 Lake Lynda Drive, Suite 280, Orlando, Florida
32817, facsimile number: (407) 207-5955 (hereinafter the "COMPANY") and
ENGINEERED PRODUCTS SALES ASSOCIATES, a company organized and existing under the
laws of Pennsylvania, with principal offices at 443 Silver Dew, Lake Mary,
Florida 32746, facsimile number: (407) 302-6397 (hereinafter "REPRESENTATIVE").
WITNESSETH
WHEREAS, the COMPANY is engaged in the business of marketing and
distributing a variety of silica-based abrasives and construction materiel
substrates including alumina-silicate glass, soda lime glass, ceramic and
colored substances; and
WHEREAS. REPRESENTATIVE desires to act as the COMPANY's independent
marketing and sales representative for such products.
NOW, THEREFORE, IT IS MUTUALLY AGREED AS FOLLOWS:
1. APPOINTMENT. Subject to the terms and conditions of this Agreement, the
COMPANY hereby appoints REPRESENTATIVE, and REPRESENTATIVE hereby accepts
appointment, as the COMPANY'S nonexclusive Independent marketing and sales
representative during the term of this Agreement to promote and assist the
COMPANY in the sale or the products (the "PRODUCTS") manufactured by or for, and
sold by, the COMPANY.
2. CUSTOMERS. A schedule of current customers of COMPANY for which
REPRESENTATIVE is eligible to obtain a commission on sales of PRODUCTS thereto
("Customers") under the terms and conditions further described in Paragraph 8
hereof, shall be attached hereto as Exhibit A and be made a part hereof. Subject
to REPRESENTATIVE'S Exclusive Right of Solicitation under the terms and
conditions of this Agreement in general and as more particularly described in
the proviso immediately hereafter, COMPANY shall have the ultimate right to (i)
sell the PRODUCTS to any customer, including without limitation, the Customers
listed on Exhibit A, with or without involvement of REPRESENTATIVE, and (ii)
appoint one or inure additional marketing and/or sales representatives,
distributors and/or other agents or representatives to promote and assist the
COMPANY in the sale of the PRODUCTS to any customers, including the Customers
("Reversionary Right of Solicitation"); provided, however, that for so long as
REPRESENTATIVE meets the quarterly Performance Criteria as further described in
Subparagraph 5(d) hereof, REPRESENTATIVE shall have the exclusive right during
the term of this Agreement to conduct sales promotion work and solicitations of
sales
<PAGE>
of PRODUCTS to CUSTOMERS ("Exclusive Right of Solicitation"), and, in turn,
COMPANY shall not have the Reversionary Right of Solicitation; provided further
that, if at any time during the term of this Agreement, REPRESENTATIVE fails to
meet any such quarterly Performance Criteria, then COMPANY may suspend or
terminate REPRESENTATIVE's Exclusive Right of Solicitation as further described
in Subparagraph 5(d) hereof. In the event of any such sales and/or appointments,
REPRESENTATIVE shall be entitled to a commission only on any sales to such
Customers only as set forth in Paragraph 8 hereof, and hereby expressly agrees
that it shall not be entitled otherwise to any kind of other compensation,
remuneration, indemnification, or damages by virtue of such sales and/or
appointment. REPRESENTATIVE acknowledges and agrees that the Customers and
customer list containing such Customers are the exclusive property of COMPANY
and such Customers are subject to the non-competition provisions of Subparagraph
5(g).
3. TERM. This Agreement shall be effective for a period commencing as of
January 1, 1998 and expiring on December 31, 2000. Thereafter, this Agreement
shall renew for successive terms of twelve (12) calendar months each, unless one
of the parties hereto chooses not to have this Agreement renewed and so notifies
the other party in writing at least ninety (90) calendar days prior to the
expiration date of the initial term indicated above or of any successive renewal
term. The parties expressly agree that this Agreement shall always be
interpreted as a definite term agreement, and not as an indefinite term
agreement, regardless of any successive renewals of this Agreement as provided
for above. They further agree that expiration of this Agreement at the end of
the initial term or any renewal term shall not be and shall not be interpreted
as being unilateral termination of the Agreement by either party.
4. REPRESENTATIVE'S AND COMPANY'S REPRESENTATIONS AND WARRANTIES AND
COVENANTS.
REPRESENTATIVE represents and warrants as follows:
(a) Organization and Authority. REPRESENTATIVE represents, warrants and
covenants that it is duly organized and existing under the laws of
Pennsylvania, and is in good standing under the laws of its state of
incorporation to conduct its business activities as presently being
conducted and contemplated in this Agreement and has full power
and authority to enter into this Agreement and to perform the duties
contemplated hereby. COMPANY represents, warrants and covenants that
it is, and will remain in full compliance with all applicable laws
and regulations involved in its solicitation and sales of PRODUCTS.
(b) Staff and Facilities. REPRESENTATIVE represents, warrants and
covenants that it presently has, is maintaining, and shall continue
to maintain during the term of this Agreement, at its sole cost and
expense, a properly established and experienced staff, and suitable
and adequate organization, premises and facilities
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for properly and efficiently carrying out its obligations under this
Agreement to the extent necessary.
(c) Disclosures. So as to avoid a conflict of interest between
REPRESENTATIVE and the COMPANY or an adverse effect on the COMPANY,
REPRESENTATIVE represents and warrants that due to REPRESENTATIVE's
prior business or other activities or for any other reason,
REPRESENTATIVE's appointment under this Agreement will not result in
a conflict of interest or will not adversely affect the sale of the
PRODUCTS.
REPRESENTATIVE further represents, warrants and covenants that it
shall, during the term of this Agreement, decline to promote or
engage in, directly or indirectly, the sale or servicing of any
additional products of COMPANY absent the prior written consent of
the COMPANY.
(d) No Misrepresentations. REPRESENTATIVE represents, warrants and
covenants that it has not made nor will it make any
misrepresentations regarding the COMPANY'S capabilities, operating
and financial condition, delivery, performance, perceived, actual or
otherwise, either as an embellishment or detriment to customers'
perception of the COMPANY.
COMPANY represents and warrants as follows:
(a) Organization and Authority. COMPANY represents, warrants and
covenants that it is duly organized and existing under the laws of
Delaware, and is in good standing under the laws of its state of
incorporation to conduct its business activities as presently being
conducted and contemplated in this Agreement and has full power and
authority to enter into this Agreement and to perform the duties
contemplated hereby. COMPANY represents, warrants and covenants that
it is, and will remain in full compliance with all applicable laws
and regulations involved in its solicitation and sales of PRODUCTS.
5. REPRESENTATIVE'S OBLIGATIONS. REPRESENTATIVE acknowledges and expressly
agrees that each of the obligations set forth in this Paragraph 5 is inherent in
the relationship between the parties contemplated in this Agreement.
Accordingly, REPRESENTATIVE at its sole cost and expense expressly agrees
as follows:
(a) Sales Promotion. REPRESENTATIVE shall carry out sales promotion work
and solicitation of sales for the PRODUCTS diligently, using its
best efforts for the account of the COMPANY and in accordance with
the COMPANY'S established practices and procedures. These efforts
shall include, but shall not in any way be limited to: (i)
marketing, advertising and promoting the PRODUCTS effectively;
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<PAGE>
(ii) ordering and keeping a representative selection of the
COMPANY's up-to-date promotional sales literature, price list,
catalogues and other promotion materials in good condition; (iii)
informing the COMPANY of any suggestions for modification, variation
or improvement of the PRODUCTS for the purpose of meeting specific
local requirements for sales to Customers; (iv) ensuring the
PRODUCTS are sold as advertised in the form and with the labeling or
making designated by die COMPANY; and (v) at the request of the
COMPANY, collecting and transferring to the COMPANY, its
subsidiaries or its affiliated companies any of the PRODUCTS owned
by the COMPANY.
(b) Order and Inquiries. REPRESENTATIVE shall promptly and actively
follow up every lead supplied by the COMPANY, and shall transmit or
cause to be transmitted to the COMPANY without delay any order for
or inquiry concerning the PRODUCTS from time to time received by
REPRESENTATIVE.
(c) Customer Service and Assistance. Upon request, REPRESENTATIVE shall
provide such assistance to the COMPANY or customers of the COMPANY
and REPRESENTATIVE, as may be mutually agreed upon by the
REPRESENTATIVE and the COMPANY from time to time.
(d) Reports and Meetings. On June 15, 1998 and within ten (10) calendar
days from the end of each calendar quarter thereafter during which
this Agreement is in effect, REPRESENTATIVE, or a principal of
REPRESENTATIVE, as appropriate, shall (A) submit reports to the
COMPANY setting forth such information as may be reasonably
requested by the COMPANY, including, but not limited to: (i) in
reasonable detail, market analysis and sales forecasts with respect
to the PRODUCTS for the quarterly period immediately following each
above-mentioned calendar quarter; and (ii) also in reasonable
detail, information as to the activities of the COMPANY's and the
REPRESENTATIVE's competitors and potential competitors and,
generally, as to any matter known by REPRESENTATIVE, including laws,
degrees, and regulations of any governmental entity which could
affect the sale of the PRODUCTS, and (B) meet in person at the
COMPANY'S Orlando, Florida offices with a designated representative
of the COMPANY for the purpose of the COMPANY and the
REPRESENTATIVE mutually (i) to establish and set out clearly in
writing certain objective performance criteria, targets and/or other
standards ("Performance Criteria") in respect of each party's
performance of its respective obligations hereunder, and (ii) to
evaluate and determine whether each of the respective Performance
Criteria agreed to by the parties for the immediately preceding
quarter was met or otherwise satisfied by such party; provided,
however, that the Performance Criteria for the initial period of
this Agreement up to the June 15th meeting, shall be mutually
established by the parties as soon as reasonably practicable after
the execution hereof). To the extent that the parties
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<PAGE>
agree that any of such Performance Criteria was not met or otherwise
satisfied by the respective obligated party, then the other party
shall be entitled either (A) to suspend privileges granted to the
other hereunder, including, without limitation, with respect to
REPRESENTATIVE's failure to meet such Performance Criteria,
COMPANY's right to suspend REPRESENTATIVE's exclusive Right of
Solicitation (as described in Paragraph 2 hereof), or (B) terminate
this Agreement under the terms of Subparagraph 11(c) hereof. To the
extent that the parties cannot agree either on the respective
Performance Criteria for any calendar quarter or a party's
satisfaction thereof, as described in the immediately preceding
sentence, then the matter shall be subject to the dispute resolution
procedures described in Paragraph 16 hereof.
In addition, at least one of the principals of REPRESENTATIVE shall
meet in person with designated representative of COMPANY at
COMPANY's Orlando, Florida offices at a minimum of once a month for
each month during which this Agreement is in effect. The parties
agree that such meetings are for the mutual benefit of both
REPRESENTATIVE and COMPANY and, therefore, attendance at such
meetings by REPRESENTATIVE's principal(s) shall be without any
compensation whatsoever to such principal(s) or to REPRESENTATIVE
for such principal(s)' time or otherwise.
(e) Industrial Property Rights. REPRESENTATIVE recognizes and shall
respect the rights of the COMPANY, as well as the rights of its
respective subsidiaries and affiliated companies, if any, in its
respective trademarks, trade names, copyrights and patents, whether
or not registered, and REPRESENTATIVE shall not use any of its
trademarks in conjunction with the PRODUCTS without the prior
written consent of the COMPANY. REPRESENTATIVE shall communicate to
the COMPANY all inventions or improvements made by REPRESENTATIVE
relating to the PRODUCTS, including in its applications, and
REPRESENTATIVE hereby irrevocably assigns and transfers to the
COMPANY all right, title and interest in and to such related
inventions and improvements and such inventions and improvements
shall pursuant to the terms hereof become the property of the
COMPANY. REPRESENTATIVE shall assist the COMPANY and its
subsidiaries and affiliated companies, when requested, in obtaining,
registering, and maintaining patents, trademarks, tradenames and
copyrights in the COMPANY's and its subsidiaries' and affiliated
companies' names which are used in conjunction with the PRODUCTS as
may be necessary from time to time.
REPRESENTATIVE shall supply to the COMPANY samples of any labels or
advertising material prepared by REPRESENTATIVE and bearing any
trademarks or tradenames of the COMPANY or its subsidiaries or
affiliated companies, if any.
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<PAGE>
(f) Confidential Information. Except with the prior written consent of
the COMPANY, REPRESENTATIVE shall not use or disclose to any person,
business or public body any written and oral information, data and
documents relating to this COMPANY, its subsidiaries or affiliates,
the PRODUCTS, or the COMPANY's business, including without
limitation patents, trademarks, trade names, know-how, memoranda,
personal notes, worksheets, computer data, and other proprietary
information; prospective and existing customers of COMPANY, other
individuals and businesses with whom COMPANY currently does business
or plans to do business; financial and other corporate records;
operational, sales, promotional and marketing methods and techniques
and studies; pricing information; information other than in the
discharge of REPRESENTATIVE's duties, including sales promotion
activities; etc. (collectively, the "Information").
(i) The parties agree that the COMPANY's Information is
proprietary and confidential, and REPRESENTATIVE acknowledges
that the unauthorized disclosure or use thereof would
materially adversely affect the COMPANY's business and
competitive position. The COMPANY and the REPRESENTATIVE
further agree that the Information (A) is valuable, special
and a unique asset of the COMPANY, (B) has provided and will
hereafter provide the COMPANY with a substantial competitive
advantage in the operation of its business, and (C) is a
legitimate business interest of the COMPANY. The COMPANY and
REPRESENTATIVE agree that the existence of these legitimate
business interests justifies the need for the confidentiality
and non-circumvention covenants set forth herein.
(ii) As an express condition to COMPANY's use of REPRESENTATIVE's
services hereunder and its execution of this Agreement,
REPRESENTATIVE shall not, during the term of this Agreement,
or at any time thereafter (unless a court interpreting this
provision finds such unlimited period to be unreasonable, and,
accordingly, the parties intend this restrictive covenant to
last for a period of 10 years) either directly or indirectly,
communicate, publish, disclose. divulge, or use, or authorize
anyone else to communicate, publish, disclose, divulge, or
use, for the benefit of himself or any other person, persons,
partnership, association, corporation, or other entity, any
Information which may be communicated to REPRESENTATIVE or of
which REPRESENTATIVE may be apprised by virtue of this
Agreement. Any and all information, knowledge, know-how, and
techniques which COMPANY designates as confidential shall be
deemed confidential for purposes of this Agreement, except
information which (i) REPRESENTATIVE can demonstrate came to
its attention prior to disclosure thereof by COMPANY; (ii) at
or after the time of disclosure by COMPANY to REPRESENTATIVE,
lawfully
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<PAGE>
had become a part of the public domain through lawful
publication or communication by others; or (iii) is lawfully
required to be disclosed by any governmental agency or
applicable law. REPRESENTATIVE further covenants and agrees
that at all times during the term hereof and at all times
thereafter REPRESENTATIVE will hold all of the foregoing
information in secrecy as trustee or custodian for the COMPANY
for the exclusive benefit of the COMPANY, and will faithfully
do everything in its power to assist the COMPANY in holding in
secrecy the foregoing.
(iii) If REPRESENTATIVE becomes legally obligated to disclose any
information, the REPRESENTATIVE shall give the COMPANY prompt
rind timely notice of such fact so that the COMPANY may obtain
a protective order or other appropriate remedy concerning any
such disclosure or waive the REPRESENTATIVE's compliance with
the provisions of this Agreement. The REPRESENTATIVE shall not
disclose any such information without first giving the
COMPANY ten (10) business days to consent to the disclosure or
notify the REPRESENTATIVE of its intention to seek a
protective order or other appropriate remedied; provided,
however, that the REPRESENTATIVE may disclose such Information
less than ten (10) days after giving notice to the COMPANY if
ordered to do so by any duly authorized state or federal
governmental entity in court of law or equity. The
REPRESENTATIVE shall cooperate fully with the COMPANY in
connection with the COMPANY'S efforts to obtain a protective
order or other appropriate remedy. In the event the COMPANY is
unable to obtain a protective order or other appropriate
remedy with respect to the Information or has not responded to
the REPRESENTATIVE's notice within the ten (10) day period, or
the reduced time period, if applicable, referred to above,
and the REPRESENTATIVE has complied with its obligations
under this Paragraph, the REPRESENTATIVE shall not be liable
for the disclosure of Information legally required to he
disclosed and not subject to a protective order or other
appropriate remedy; provided, however, that the REPRESENTATIVE
shall have nevertheless used its best efforts to have the
Information so required to be disclosed treated
confidentially.
(g) Non-Competition and Non-Solicitation.
(i) REPRESENTATIVE covenants that, except as otherwise approved in
advance and in writing by COMPANY, REPRESENTATIVE shall not,
during the term of this Agreement, and for a continuous
uninterrupted period of twelve (12) months commencing upon the
expiration or termination of this Agreement, regardless of the
cause for termination,
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<PAGE>
individually, or jointly with others, either directly or
indirectly, for himself, or through, on behalf of, or in
conjunction with any person, persons, partnership,
association, corporation, or other entity, own, maintain,
operate, engage in, become associated with, serve as a
consultant to, accept compensation from or have any interest
in any business enterprise (including, without limitation, any
person, firm or corporation, regardless of whether such
enterprise be a new business started by REPRESENTATIVE alone
or with others) whose products or services compete with those
offered by the COMPANY (its predecessors or affiliates), and
shall not directly or indirectly act as an officer, director,
employee, partner, contractor, consultant, advisor, principal,
agent, or proprietor, or in any other capacity for, nor lend
any assistance (financial, managerial, consulting or
otherwise) to or cooperate with, any such business enterprise.
This Subparagraph 5(g) constitutes a series of separate
covenants for each county, state (including the District of
Columbia) and country in which COMPANY or its subsidiaries or
affiliates transacts business.
(ii) REPRESENTATIVE specifically acknowledges that it will have
access to Information, including, without limitation,
prospective and existing customers or customer lists of
COMPANY. REPRESENTATIVE covenants and agrees that during the
term of this Agreement, and for a continuous uninterrupted
period of twelve (12) months, commencing upon the expiration
or termination of this Agreement, except as otherwise approved
in advance and in writing by COMPANY, REPRESENTATIVE shall
not, either directly or indirectly, for himself, or through,
on behalf of, or in conjunction with any person, persons,
partnership, association, corporation, or entity: (A) divert
or attempt to divert or solicit any prospective or existing
customer of COMPANY to any competitor by direct or indirect
inducement or otherwise; or (B) employ or seek to employ any
person who is at that time employed by COMPANY, any affiliate
of COMPANY, or otherwise directly or indirectly induce or
solicit such person to leave his or her employment.
(iii) COMPANY and REPRESENTATIVE agree that the Information and the
substantial relationships with COMPANY's specific prospective
and existing customers: (i) are valuable, special, and a
unique asset of COMPANY; (ii) have provided and will hereafter
provide COMPANY with a substantial competitive advantage in
the operation of its business; and (iii) are a legitimate
business interest of COMPANY. COMPANY and REPRESENTATIVE also
agree that the existence of these legitimate business
interests justifies the need for the restrictive covenants set
forth in
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Subparagraphs 5(f) and 5(g), and the restrictive covenants are
reasonably necessary to protect COMPANY's legitimate business
interests.
(iv) In the event that any other provision of these Subparagraphs
5(f) and f(g) or the application of any such provision shall
be held to be prohibited or unenforceable in any jurisdiction,
such provision shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability. The
remaining provisions of this covenant to refrain from
competition shall remain in full force and effect, and any
such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any
other jurisdiction. The parties shall use their best efforts
to replace the provision that is contrary to law with a legal
one approximating to the extent possible the original intent
of the parties.
(h) Sub-representatives. REPRESENTATIVE shall not, without the prior
written consent of the COMPANY, appoint any sub-representatives,
agents, subdistributors or dealers to carry out any of the
activities covered by this Agreement. In the event that the COMPANY
shall consent to any such appointment by REPRESENTATIVE, the latter
as sole principal thereof and for its account shall in each case
cause the sub-representative, agent, sub-distributor or dealer to
comply with any and all obligations imposed on REPRESENTATIVE under
this Agreement.
(i) Representations. REPRESENTATIVE shall not make any representations
as to the PRODUCTS other than those, if any, contained in the
written PRODUCTS information and data provided by the COMPANY.
REPRESENTATIVE shall be totally responsible for any of its
independent representation not provided or made at the express
direction of the COMPANY and shall hold the COMPANY harmless from
any claims and expenses, including, but not limited to, reasonable
attorneys' fees, resulting from such unauthorized representations.
(j) Expenses. REPRESENTATIVE shall bear and pay when due all expenses
incurred by it or its employees in the performance of its
obligations under this Agreement.
6. THE COMPANY'S OBLIGATIONS. The COMPANY at its sole cost and expense
expressly agrees to the following:
(a) Promotional Assistance. The COMPANY agrees to reasonably supply
REPRESENTATIVE, at the COMPANY's then prevailing price rate, with
catalogues, promotional sales literature as such other information
or materials as
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the COMPANY, in its sole judgment, believes will assist
REPRESENTATIVE in promoting and assisting in the sale and acceptance
of the PRODUCTS. Any translations or adaptations of the aforesaid
materials shall be at the sole expense and responsibility of
REPRESENTATIVE; provided, however, that the COMPANY reserves its
absolute right to approve said translations or adaptations.
(b) Executed Orders and Invoices. The COMPANY agrees to transmit or
cause to be transmitted to REPRESENTATIVE copies of (i) executed
orders with customers referred by REPRESENTATIVE, and (ii) invoices
covering deliveries pursuant to such orders.
(c) Expenses. The COMPANY shall bear and pay when due all expenses
incurred by it or its employees in the performance of its
obligations under this Agreement.
7. HANDLING AND ACCEPTANCE OF ORDERS, PRICES, DELIVERY AND CREDIT.
(a) Orders. REPRESENTATIVE shall promptly submit to the COMPANY for the
latter's acceptance all orders for the PRODUCTS. The COMPANY will
not be bound by any such order until (i) COMPANY and customer have
executed an appropriate agreement which sets forth the terms and
conditions of the purchase and sale of the PRODUCTS, and (ii) such
order is accepted by the COMPANY which, at its sole discretion, it
may accept or reject for any reason whatsoever any such order
without incurring any liability whatsoever to REPRESENTATIVE or any
third party upon any and all such rejections. Orders for the
PRODUCTS shall be deemed to have been accepted by the COMPANY only
upon acceptance in writing by the COMPANY unless otherwise agreed to
by COMPANY. Furthermore, under no circumstances shall COMPANY be
liable for any damages, penalties, costs or offsets arising out of
the failure to deliver any order or for any damages, penalties,
costs or offsets for late delivery of any order including, without
limitation, special or consequential damages; provided, however,
that in light of both parties' desire to limit their liability to
customers. COMPANY agrees to use its best commercially reasonable
effects to notify the customer of the COMPANY's disclaimers and
limitations on liability in an appropriate manner.
Any and all orders from time to time submitted by REPRESENTATIVE
shall clearly identify the Customer, and if accepted by the COMPANY,
shall be valid only for such Customer.
Furthermore, each such order shall be subject to the COMPANY's
prevailing terms and conditions or sale, which may be changed or
established from time to time by the COMPANY at its discretion.
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(b) Price. The price for the PRODUCTS shall be the one designated from
time to time by the COMPANY, and any and all changes shall be
effective upon thirty (30) calendar days' written notice by the
COMPANY. COMPANY shall establish and have exclusive control over all
prices, discounts, specifications and other terms relating to the
sales of PRODUCTS pursuant to this Agreement. REPRESENTATIVE shall
not represent pricing of the COMPANY to any party or parties without
prior written confirmation or such pricing from the COMPANY.
REPRESENTATIVE shall not accept orders in the COMPANY's name or make
delivery promises without the COMPANY'S prior written approval.
(c) Delivery. Shipments against orders accepted by the COMPANY under
this Agreement shall be made in accordance with the terms and
conditions prescribed by the COMPANY and accepted by the customer
and shall be subject to credit, government restrictions and/or
conditions outside the COMPANY's control.
(e) Credits. Customer credits and allowances shall be determined solely
by COMPANY.
8. COMPREHENSIVE OF REPRESENTATIVE - COMMISSIONS.
(a) [Intentionally Omitted].
(b) Commission.
(i) REPRESENTATIVE shall be entitled to various percentage
commissions as set forth on the Schedule of Commissions
attached hereto and made a part hereof as Exhibit B, but only
on sales to Customers listed on the Schedule of Customers
attached hereto as Exhibit A and derived from orders from such
Customers submitted by REPRESENTATIVE to the COMPANY and
accepted by the latter. Commissions shall be computed on net
amounts of invoices rendered and collected by the COMPANY for
the PRODUCTS sold, excluding transportation, freight and
pallet costs, any special handing fees, any sales or other
applicable taxes and duties, insurance or refunds. No
commission shall be earned by REPRESENTATIVE and/or be due and
owing from the COMPANY until the COMPANY receives payment in
full from the customer for the PRODUCTS sold. The COMPANY may,
upon ninety (90) days' written notice to REPRESENTATIVE,
change or amend the Schedule or Commissions set forth in
Exhibit B. Subject to REPRESENTATIVE's Exclusive Right of
Solicitation (as defined herein), COMPANY may apportion the
applicable commission between REPRESENTATIVE and other sales
representatives of the COMPANY where the COMPANY
-11-
<PAGE>
determines, in its sole discretion, that such an apportionment
is warranted or required. In cases in which price appears to
be the primary factor determining the placement of an order, a
lesser commission rate will be accepted by REPRESENTATIVE if
it appears to be in the best interest of both parties and if
the amount of such lower commission is mutually agreed upon
between the parties before the sale to a customer. COMPANY
shall deduct from any commission due at any time an amount
equivalent to commissions previously paid to REPRESENTATIVE on
the sale of PRODUCTS which have been subsequently returned by
the customer or for which allowances have been credited to the
customer for any reason, or for which no commission should
have been paid to REPRESENTATIVE under the terms hereof for
any reason.
(ii) During the term of this Agreement, COMPANY shall pay to
REPRESENTATIVE the monthly commission due, if any, within five
(5) business days after the (i) 15th of such month with
respect to any payment(s) received in full by COMPANY during
the period beginning on the 1st and ending on the 15th of such
month (regardless whether the 15th falls on a business day),
and (ii) last day of such month with respect to any payment(s)
received in full by COMPANY during the period beginning on the
16th (regardless of whether the 16th falls on a business day)
and ending on the last day of such month; provided, however,
that in light of the Initial Retainer payments to
REPRESENTATIVE, no commission shall be due and payable or
otherwise owed by COMPANY to REPRESENTATIVE for sales of
PRODUCTS made prior to March 1, 1998, regardless of whether to
Customers listed on Exhibit A.
(iii) Payment shall be made in U.S. dollars, and, subject to a
mutual decision of the parties, by either depositing (at
REPRESENTATIVE's expense) the amount of such commissions in
the account of REPRESENTATIVE at such bank as designated in
writing by REPRESENTATIVE from time to time, or by mailing a
check for such amount to REPRESENTATIVE's place of business as
shall be designated in writing by REPRESENTATIVE from time to
time.
(iv) The COMPANY and REPRESENTATIVE acknowledge that REPRESENTATIVE
shall not receive any commission or compensation whatsoever
for any of the COMPANY's sales to customers not expressly
listed on Exhibit A.
-12-
<PAGE>
9. INDEMNIFICATION.
(a) COMPANY shall indemnify, defend, release and hold harmless
REPRESENTATIVE, its subsidiaries, affiliates, successors and assigns, and its
officers, directors, agents, employees and shareholders (collectively, the
"REPRESENTATIVE Indemnitees") from and against, any and all losses, obligations,
liabilities, penalties, and damages which REPRESENTATIVE Indenmitees may incur
or suffer and all deficiencies, actions, administrative proceedings and
judgments, reasonable costs and expenses (including reasonable legal fees) with
which any of them may be faced arising out of claims of any kind for damages or
expenses as a result of COMPANY's breach of any representations, covenants or
warranties, as set forth herein or otherwise relating to COMPANY's manufacture,
sales or other service rendered pursuant to the terms hereof.
(b) REPRESENTATIVE agrees to indemnify COMPANY, its parents,
subsidiaries, affiliates, successors and assigns, and its officers,
directors, agents, employees and shareholders (collectively,
"COMPANY Indemnitees"), against any and all losses, obligations,
liabilities, penalties, and damages (including but not limited to
compensatory damages) which the COMPANY Indemnitees may incur or
suffer and all deficiencies, actions (including without limitation,
any proceedings to establish insurance coverage), administrative
proceedings and judgments, reasonable costs and expenses (including
reasonable legal fees), with which any of them may be faced arising
out of claims of any kind for damages or expenses as a result of
REPRESENTATIVE's breach of any of its representations, covenants or
warranties as set forth herein, or otherwise relating to
REPRESENTATIVE's marketing, sales or other services rendered
pursuant to the terms hereof, to the extent such damages or expenses
are attributable to any negligence or willful misconduct of
REPRESENTATIVE.
(c) If any claims are made against COMPANY or REPRESENTATIVE as to which
the indemnification provided herein applies, COMPANY or
REPRESENTATIVE, as the case may be (the "indemnified party"), shall
promptly notify the other (the "indemnifying party") thereof within
ten (10) business days in writing, and allow the indemnifying party
and its insurers the opportunity to assume direction and control of
the defense against such claims, at its sole expense, including
without limitation, the selection of counsel at the sole option of
the indemnifying party or its insurers to the extent that the
indemnified party's liability is not thereby invoked. The
indemnified party shall cooperate with the indemnifying party and
its insurer in the disposition of any such matter and the
indemnified party will have the right to participate in the defense
of any claim to which this Paragraph applies. Unless made with the
express written consent of the indemnifying party, no sums paid by
the indemnified party in settlement of any lawsuit for alleged
damages arising from the use of PRODUCTS shall be recoverable under
this Paragraph.
-13-
<PAGE>
(d) In no event shall the indemnifying party be liable under this
Paragraph for punitive damages, or any costs or fees related
thereto, as a result of the conduct, acts or omissions of the
indemnified party, its agents or employees.
10. LIMITATIONS OF WARRANTIES. COMPANY warrants that it will convey to
Customers of the PRODUCTS good title to the PRODUCTS, free of all liens or any
kind whatsoever. REPRESENTATIVE HEREBY ACKNOWLEDGES AND EXPRESSLY AGREES THAT
THE COMPANY MAKES NO OTHER WARRANTY OF ANY KIND WHATSOEVER, WHETHER WRITTEN,
ORAL, EXPRESS OR IMPLIED AND ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY DISCLAIMED BY THE COMPANY AND
EXCLUDED FROM THIS AGREEMENT.
11. TERMINATION AND CONSEQUENCES AND OBLIGATIONS UPON TERMINATION OF
EXPIRATION.
(a) Either party may terminate this Agreement, without demand or
judicial resolution to that effect, at any time upon giving ninety
(90) calendar days' prior written notice to the other party, or upon
the occurrence of an event for termination or a just cause for
termination as defined in Subparagraphs 11(b) and 11(c) below,
respectively. Said termination shall become effective immediately as
of the date on which such event for termination or just cause for
termination occurs, unless a specific term is otherwise expressly
provided for in this Agreement.
(b) This Agreement shall terminate upon the occurrence of any of the
following events: (1) either party's failure to comply with any of
its material obligations under this Agreement, and to correct such
failure within a term of thirty (30) calendar days from the date of
written notice to that effect from the other party; (ii) the
bankruptcy of either party, any assignment by either party for the
benefit of its creditors, the inability of either party to pay its
debts as the same fall due, the appointment of a receiver for or any
execution levied upon all or substantially all of either party's
business or assets, or the filing of any petition for voluntary or
involuntary bankruptcy or similar proceeding for or against either
party; (iii) the expropriation of all or substantially all of the
business or assets of either party, or the nationalization of either
party; (iv) dissolution and/or liquidation or either party; (v) the
acquisition, directly or indirectly, of any part of the capital
stock or of any interest REPRESENTATIVE by any person or company
selling, manufacturing, importing or distributing PRODUCTS that, in
the sole judgment of the COMPANY, is actually or potentially
competitive with the PRODUCTS; and (vi) any change in the ownership
or management of REPRESENTATIVE which, in the sole judgment of the
COMPANY, is significant and which, also in the sole judgment of the
COMPANY, adversely affects the promotion, acceptance
-14-
<PAGE>
and sale of the PRODUCTS pursuant to the terms and conditions of
this Agreement.
(C) Each of the following events shall be considered to constitute just
cause for unilateral termination of this agreement by the COMPANY or
REPRESENTATIVE, as the case may be, as provided for in Subparagraph
11(a) above: (i) non-compliance by REPRESENTATIVE or COMPANY, as the
case may be, with its obligations stipulated in Subparagraph 5(d) in
this Agreement; (ii) any act or omission of REPRESENTATIVE which
seriously affects the interest of the COMPANY; (iii) the bankruptcy
or insolvency of REPRESENTATIVE or COMPANY; (iv) the liquidation or
termination of the activities of REPRESENTATIVE or COMPANY; and (v)
with respect to termination of this Agreement by the COMPANY only,
COMPANY shall have (7) days from the date hereof to rescind and
terminate this Agreement by written notice to REPRESENTATIVE and in
the judgment of COMPANY's Board of Director's such recission and
termination is necessary in the best interests of COMPANY.
(d) Upon termination or expiration of this Agreement for any reason
whatsoever including, but not limited to, termination or expiration
by passage of time or nonrenewal, the parties expressly agree that
the following shall take effect: (i) all rights granted to
REPRESENTATIVE under or pursuant to this Agreement shall immediately
cease; (ii) REPRESENTATIVE shall be entitled to receive the payment
of a commission pursuant to and in accordance with the terms and
conditions of Paragraph 8 of this Agreement with respect to sales of
the PRODUCTS resulting from contracts or orders placed by
REPRESENTATIVE and accepted by the COMPANY on or before the date of
termination of this Agreement; (iii) all contracts or orders
placed by REPRESENTATIVE for the PRODUCTS and accepted, but not
filled or delivered by the COMPANY as of the date of termination,
shall be filled and delivered by the COMPANY subject to the terms
and conditions of this Agreement; (iv) all contracts or orders for
the PRODUCTS not accepted by the COMPANY on or before the date of
termination shall, at the COMPANY's sole option, be cancelled; and
(v) REPRESENTATIVE shall forthwith return to the COMPANY all
confidential Information and other promotional sales information
materials and literature, stationery, price lists, catalogues,
photographs, letters, and papers that shall have been furnished by
the COMPANY to REPRESENTATIVE during the term of this Agreement, it
being understood that no copies of this foregoing materials may be
retained by REPRESENTATIVE subsequent to the date of termination or
expiration of this Agreement.
(e) REPRESENTATIVE acknowledges and expressly agrees that the COMPANY
shall not be liable to REPRESENTATIVE and REPRESENTATIVE hereby
-15-
<PAGE>
waives any claims for incidental or consequential damages of any
kind or character on account of the loss by REPRESENTATIVE of
prospective compensation or anticipated compensation, or of
expenditures, investments or commitments made in connection
therewith.
12. FORCE MAJEURE. Neither party shall be liable under this Agreement for
any loss or damage of any nature incurred as a result of any failures of delays
in performance because of any cause or circumstances beyond its control. This
includes, but is not limited to, any failures or delays in performance caused by
any strikes, lockouts, labor disputes, fires, acts of God or the public enemy,
riots, incendiaries, interference by civil or military authorities, compliance
with the laws, orders or policies of any governmental authority, delays in
transit or delivery on the part of transportation companies, or failures of
communication facilities or sources of raw materials.
13. RELATIONSHIP OF PARTIES - AUTHORITY OF REPRESENTATIVE. The parties
acknowledge and expressly agree that REPRESENTATIVE is an independent
contractor, and that this agreement shall not constitute REPRESENTATIVE as an
agent or partner of the COMPANY for any purpose. REPRESENTATIVE is not granted
any right or authority to assume or create any obligation or responsibility,
express or implied, on behalf of the COMPANY or to bind the COMPANY in any
manner whatsoever.
14. NOTICES. Any notice required or authorized to be given hereunder,
except for routine end typical shipment documentation, shall be communicated in
writing according to the terms and conditions of this Agreement and served by
certified letter return receipt requested or by facsimile or telex addressed to
the COMPANY or REPRESENTATIVE (as the case may be) at the applicable address set
forth in the beginning of this Agreement, or shall be given personally to an
officer of the other party confirmed by a writing at the time given or by cable
or telex. Notwithstanding, nothing contained herein shall justify or excuse
either party's failure to give oral notice for purposes of informing the other
party of circumstances or events that require prompt notification, but such oral
notice shall not satisfy the requirement of written notice.
15. ENTIRE AGREEMENT - SEPARATE COVENANTS - MODIFICATION - WAIVER.
(a) This Agreement, including the exhibits attached hereto, constitute
the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreements between the
parties relating to the same subject matter. Any change, addition to
or waiver of any of their terms and conditions of this Agreement
shall be binding upon the parties only if previously approved in
writing by the respective authorized representatives of the parties.
(b) The parties hereto have endeavored to limit REPRESENTATIVE's rights
to compete to the extent necessary to protect the COMPANY from
unfair
-16-
<PAGE>
competition; however, they recognize that reasonable persons may
differ in making such determinations. Accordingly, the parties agree
that each of the covenants and provisions contained in this
Agreement shall be deemed severable and construed as independent of
any other covenant or provision. Moreover, if all or any portion of
a covenant or provision in this Agreement is held invalid,
unreasonable or unenforceable by a court or agency having valid
jurisdiction in an unappealed final decision to which COMPANY is a
party, the remaining covenants and provisions shall remain valid and
enforceable. REPRESENTATIVE expressly agrees to be bound by any
lesser covenant or provision subsumed within the terms of such
covenant or provision that imposes the maximum duty permitted by
law, as if the resulting covenant or provision were separately
stated in, and made a part of this Agreement and the parties
covenant and agree that they will promptly amend this Agreement to
the extent necessary and legally enforceable to accomplish the
intent of such parties in the provision hereof rendered
unenforceable.
(c) This Agreement and its valid execution shall constitute an accord,
satisfaction and waiver by each party of all rights and
indemnities, whether contractual, statutory or otherwise, against
the other party arising out of any previous relationship or contract
between the parties hereto. The failure of either party to require
the performance or any term or condition of this Agreement or the
waiver by either party of any breach of this Agreement shall not
prevent a later enforcement of such term or condition or be deemed a
waiver of any later breach.
16. DISPUTE RESOLUTION - ARBITRATION - GOVERNING LAW.
(a) Dispute Resolution. If any dispute, claim, question or disagreement
(a "Disputed Matter") arises between any of the parties hereto which
relates to this Agreement or a breach of this Agreement, the parties
shall use their best efforts to settle such Disputed Matter. If the
parties cannot reach a mutually agreeable solution to such Disputed
Matter within 20 days of one party sending the other party written
notice of such Disputed Matter (the "Resolution Period"), the
Disputed Matter shall be submitted to arbitration as hereinafter
provided.
(b) Arbitration. After the Resolution Period has expired, upon the
demand of any party to this Agreement, any controversy or claim
arising out of or relating to this Agreement, or any breach thereof,
including, without limitation, any claim that this Agreement or any
portion thereof is invalid, illegal or otherwise voidable, shall be
submitted to arbitration before and in accordance with the rules of
the American Arbitration Association and judgment upon the award
may be entered in any court having jurisdiction thereof.
Notwithstanding the foregoing sentence to the contrary, either party
shall have the right to seek and obtain any provisional remedy,
including, without limitation, a temporary restraining order,
injunctive
-17-
<PAGE>
relief, or other equitable relief, from any court of competent
jurisdiction, as may be necessary in such party's sole subjective
judgment, to protect its interests during the pendency of such
arbitration. The prevailing party to said arbitration or judgment of
a court of competent jurisdiction shall be entitled to an award of
reasonable attorney's fees. The situs of time arbitration
proceedings shall be the regional office of the American Arbitration
Association which is located nearest to Orlando, Florida, or such
other office of the American Arbitration Association as the parties
hereto shall mutually agree.
(c) Governing Law. The provisions of this Agreement and the documents
delivered pursuant hereto shall be governed by and construed in
accordance with the laws of the State of Florida, without reference
to its principles of conflicts of laws.
17. ASSIGNMENT. REPRESENTATIVE, shall not assign its rights or delegate
its obligations under this Agreement without the prior written consent of the
COMPANY. In turn, the COMPANY reserves the right to assign or otherwise transfer
its rights or delegate its obligations under this Agreement, at its sole option
and without REPRESENTATIVE's prior consent.
18. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute one and the same Agreement.
19. INSURANCE. Each party shall maintain at its own expense, purchase from
an insurance company of its choice, and maintain during the entire term of this
Agreement, policies of Worker's Compensation Insurance, General Liability
Insurance, and Product Liability Insurance covering its responsibilities
regarding the PRODUCTS under this Agreement, provided, however, that only
COMPANY and not REPRESENTATIVE shall have the obligation to maintain Product
Liability Insurance. Upon request, either party shall provide the other with
evidence that such insurances are existing and maintained.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate, as of the date first above written, by their respective
authorized officials.
COMPANY:
WITNESS: CONVERSION TECHNOLOGIES
INTERNATIONAL, INC.
/s/ Gary Jellum
- ----------------------------- By: /s/ William Amt
---------------------------
Title: President
/s/ Gary Jellum
- -----------------------------
Print Name
REPRESENTATIVE:
ENGINEERED PRODUCTS SALES
ASSOCIATES
By: /s/ Jack D. Hays, Jr.
---------------------------
Title: President
-19-
<PAGE>
Customer List and Performance Criteria
CTI/EPSA Agreement
EXHIBIT "A"
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Trade Historical Sales Performance
Customer Location Y/E 6-30-96 Y/E 6-30-97 97 - 5 mos. Avg. Sales/mo
7/1 - 11/22 29 Months
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Conversion Distributors Supported by Engineered Product Sales Associates
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A&E Atlanta GA $ - $ - $ - $ -
Cedar Height Clay Company Ohio $ - $ - $ - $ -
* Chemical Distributors, Inc. NY $ 1,530 $ 6,631 $ 1,740 $ 341
Checker Industries PA $ 3,400 $ 653 $ - $ 140
* Corrosion Specialties, Inc. TN,GA,SC,FL,NC $ 3,757 $ 1,973 $ - $ 198
Dawson McDonald MA $ 3,076 $ (4) $ - $ 106
EPRO, Inc. OH,PA,MI,IL,KY $ - $ - $ - $ -
Fortune Metal Finishing MA $ - $ - $ - $ -
Genesis Bonded Abrasives TN $ - $ - $ - $ -
Kali Industries Supply co. NY $ - $ 2,408 $ - $ 83
Metal Finishing Supply Company WI $ - $ - $ - $ -
* Metal Preparations NY $ 16,114 $ 33,667 $ 14,609 $ 2,220
Metal Spray VA $ - $ - $ - $ -
* Midvale Industries MO,OK,IL $ 10,960 $ 14,237 $ - $ 869
* N.T. Ruddock, Co. OH,PA,MI,IL,KY $ 25,563 $ 96,913 $ 72,784 $ 6,733
* Omni Finishing, Inc. PA,NJ,DE,MD $ 5,443 $ 3,352 $ - $ 303
* Porter Warner Industries TN,AI,GA $ 11,696 $ 23,856 $ 10,000 $ 1,571
Ryan Equipment IL $ - $ - $ - $ -
* Standard Sand & Silica FL $ 6,706 $ 9,120 $ - $ 546
* W.H. Shurtleff Co. MA $ 4,360 $ 3,660 $ - $ 277
--------------------------------------------------------------------------
Subtotal Distribution $ 92,605 $ 196,464 $ 99,133 $ 13,386
--------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Manufacturers/OEM Accounts Supported by Engineered Product Sales Associates
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Able Alloy, Inc. Ohio $ - $ - $ - $ -
Advance Materials Corporation PA $ - $ - $ - $ -
AIM NJ,TX $ - $ - $ - $ -
American Marazzi NJ $ - $ - $ - $ -
Architerra NJ $ - $ - $ - $ -
Armstrong Worldwide Industries PA,OK,IN $ - $ - $ - $ -
Bayer PA $ - $ - $ - $ -
Benjamin Moore NJ,OH $ - $ - $ - $ -
B&W Tile CA $ - $ - $ - $ -
Caterpillar IL $ - $ - $ - $ -
Ceramix TX $ - $ - $ - $ -
<CAPTION>
- ------------------------------------------------------------------------------------------- ----------------------------------
Performance Criteria
Customer Total Average Monthly Running Sales
Revenues 1998 1999 2000
- ------------------------------------------------------------------------------------------- ----------------------------------
- ------------------------------------------------------------------------------------------- ----------------------------------
Conversion Distributors Supported by Engineered Product Sales Associates
- ------------------------------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
A&E Atlanta $ - 1,000 1,200 1,560
Cedar Height Clay Company $ - 1,000 1,200 1,560
* Chemical Distributors, Inc. $ 9,901 1,000 1,200 1,560
Checker Industries $ 4,053 1,000 1,200 1,560
* Corrosion Specialties, Inc. $ 5,730 1,000 1,200 1,560
Dawson McDonald $ 3,072 1,000 1,200 1,560
EPRO, Inc. $ - 1,000 1,200 1,560
Fortune Metal Finishing $ - 1,000 1,200 1,560
Genesis Bonded Abrasives $ - 1,000 1,200 1,560
Kali Industries Supply co. $ 2,408 1,000 1,200 1,560
Metal Finishing Supply Company $ - 1,000 1,200 1,560
* Metal Preparations $ 64,389 2,664 3,464 4,503
Metal Spray $ - 1,000 1,200 1,560
* Midvale Industries $ 25,197 1,000 1,200 1,560
* N.T. Ruddock, Co. $ 195,260 10,100 20,199 36,359
* Omni Finishing, Inc. $ 8,795 1,000 1,200 1,560
* Porter Warner Industries $ 45,552 1,885 2,262 2,940
Ryan Equipment $ -- 1,000 1,200 1,560
* Standard Sand & Silica $ 15,826 1,000 1,200 1,560
* W.H. Shurtleff Co. $ 8,020 1,000 1,200 1,560
--------------- ----------------------------------
Subtotal Distribution $ 388,201 $29,649 $43,925 $67,202
--------------- ----------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------- ----------------------------------
Manufacturers/OEM Accounts Supported by Engineered Product Sales Associates
- ------------------------------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Able Alloy, Inc. $ - 500 750 1,125
Advance Materials Corporation $ - 500 750 1,125
AIM $ - 500 750 1,125
American Marazzi $ - 500 750 1,125
Architerra $ - 500 750 1,125
Armstrong Worldwide Industries $ - 500 750 1,125
Bayer $ - 500 750 1,125
Benjamin Moore $ - 500 750 1,125
B&W Tile $ - 500 750 1,125
Caterpillar $ - 500 750 1,125
Ceramix $ - 500 750 1,125
</TABLE>
<PAGE>
Customer List and Performance Criteria
CTI/EPSA Agreement
EXHIBIT "A"
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Trade Historical Sales Performance
Customer Location Y/E 6-30-96 Y/E 6-30-97 97 - 5 mos. Avg. Sales/mo
7/1 - 11/22 29 Months
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certainteed Corporation PA,IN $ - $ - $ - $ -
Church & Dwight NJ $ - $ - $ - $ -
Crossville Ceramics TN $ - $ - $ - $ -
CSX Corporation PA,WV,KY $ - $ - $ - $ -
Concure PA $ - $ - $ - $ -
Conrail NY $ - $ - $ - $ -
Cutter Company, Inc. MA $ - $ - $ - $ -
Daltile CA,TX,PA $ - $ - $ - $ -
Ebara Solar, Inc. Ohio $ - $ - $ - $ -
EPL Ceraminc Materials IN $ - $ - $ - $ -
Endicott Tile PA,NE $ - $ - $ - $ -
Epro, Inc. Ohio $ - $ - $ - $ -
Flexbond PA $ - $ - $ - $ -
Forever New PA $ - $ - $ - $ -
Florida Tile FL $ - $ - $ - $ -
Hztchsner Manufacturing NH $ - $ - $ - $ -
Glit, Inc. GA $ - $ - $ - $ -
Grand Northern Products MN $ - $ - $ - $ -
Interceramics USA PA,TX $ - $ - $ - $ -
KPT USA IN $ - $ - $ - $ -
Laufen USA Ohio $ - $ - $ - $ -
Marion Ceramics SC $ - $ - $ - $ -
Metropolitan Ceramic Tile PA,OH $ - $ - $ - $ -
Neweil Companies OH,PA $ - $ - $ - $ -
O-C Fiberglass OH $ - $ - $ - $ -
Poroclonite OH $ - $ - $ - $ -
Pratt Whitney - United Aircraft CT $ - $ - $ - $ -
Quarry Tile Company PA,WA $ - $ - $ - $ -
Royal Monarch - St. Georages Group PA $ - $ - $ - $ -
Jacksonville mfg.., Inc. (Regalware AR $ 6,640 $ 8,120 $ 3,500 $ 630
Sauereisen Coatings Company PA $ - $ - $ - $ -
Sandcamp Abrasives Ohio $ - $ - $ - $ -
Seneca Tiles OH $ - $ - $ - $ -
Sherwin Williams OH $ - $ - $ - $ -
Sonoma Tile PA,CA,TX $ - $ - $ - $ -
St. Georges Group PA $ - $ - $ - $ -
Standard Ceramics Supply PA $ - $ - $ - $ -
<CAPTION>
- ------------------------------------------------------------------------------------------- ----------------------------------
Performance Criteria
Customer Total Average Monthly Running Sales
Revenues 1998 1999 2000
- ------------------------------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Certainteed Corporation $ - 500 750 1,125
Church & Dwight $ - 500 750 1,125
Crossville Ceramics $ - 500 750 1,125
CSX Corporation $ - 500 750 1,125
Concure $ - 500 750 1,125
Conrail $ - 500 750 1,125
Cutter Company, Inc. $ - 500 750 1,125
Daltile $ - 500 750 1,125
Ebara Solar, Inc. $ - 500 750 1,125
EPL Ceraminc Materials $ - 500 750 1,125
Endicott tile $ - 500 750 1,125
Epro, Inc. $ - 500 750 1,125
Flexbond $ - 500 750 1,125
Forever New $ - 500 750 1,125
Florida Tile $ - 500 750 1,125
Hztchsner Manufacturing $ - 500 750 1,125
Glit, Inc. $ - 500 750 1,125
Grand Northern Products $ - 500 750 1,125
Interceramics USA $ - 500 750 1,125
KPT USA $ - 500 750 1,125
Laufen USA $ - 500 750 1,125
Marion Ceramics $ - 500 750 1,125
Metropolitan Ceramic Tile $ - 500 750 1,125
Neweil Companies $ - 500 750 1,125
O-C Fiberglass $ - 500 750 1,125
Poroclonite $ - 500 750 1,125
Pratt Whitney - United Aircraft $ - 500 750 1,125
Quarry Tile Company $ - 500 750 1,125
Royal Monarch - St. Georages Group $ - 500 750 1,125
Jacksonville mfg.., Inc. (Regalware $ 18,260 630 630 630
Sauereisen Coatings Company $ - 500 750 1,125
Sandcamp Abrasives $ - 500 750 1,125
Seneca Tiles $ - 500 750 1,125
Sherwin Williams $ - 500 750 1,125
Sonoma Tile $ - 500 750 1,125
St. Georges Group $ - 500 750 1,125
Standard Ceramics Supply $ - 500 750 1,125
</TABLE>
<PAGE>
Customer List and Performance Criteria
CTI/EPSA Agreement
EXHIBIT "A"
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Trade Historical Sales Performance
Customer Location Y/E 6-30-96 Y/E 6-30-97 97 - 5 mos. Avg. Sales/mo
7/1 - 11/22 29 Months
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stark Ceramics, Inc. OH $ - $ - $ - $ -
Stonelight PA,CA $ - $ - $ - $ -
Summitville Tile, Inc. OH,NC $ - $ - $ - $ -
Synergy PA $ - $ - $ - $ -
Terra Design NJ $ - $ - $ - $ -
Terra Green Ceramics IN $ - $ - $ - $ -
Tile Cera TN $ - $ - $ - $ -
Tile Works PA/IA $ - $ - $ - $ -
Triple G. coatings NJ $ - $ - $ - $ -
US Ceramics Tile Company OH $ - $ - $ - $ -
Upstate Auto Warehouse NY $ 3,450 $ 2,207 $ - $ 195
W.A. Ritz PA $ - $ - $ - $ -
W.M. Barr TN $ - $ - $ - $ -
Westinghouse NC $ - $ - $ - $ -
Westin Quarry Tile PA, CA $ - $ $ - $ -
Subtotal Direct Sales $ 10,090 $ 10,327 $ 3,500 $ 825
--------------------------------------------------------------------------
Total $ 102,694 $ 206,790 $ 102,633 $ 14,211
--------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Conversion Customers and Distributors Not Covered By Agreement with Engineered Product Sales Associates
- ---------------------------------------------------------------------------------------------------------------------------------
Agmet Metals OH $ - $ - $ - $ -
A-Line Products Corp. $ 300 $ - $ - $ 10
Aven Tools $ - $ 15 $ - $ 1
American Econotread, Inc. $ 23 $ - $ - $ 1
Air Response & Services. $ - $ 430 $ - $ 15
Advanced Finishing Equip. $ - $ - $ 35 $ 1
Acquarius Coatings $ - $ 580 $ - $ 20
Benjamin Moore & Co. $ 296 $ - $ - $ 10
Bimark Wirral, Ltd. England $ - $ - $ - $ -
Casual Patio Design, Inc $ - $ 350 $ - $ 12
Chautauqua Woods $ - $ - $ 35 $ 1
Coronado Laboratories, Inc. $ - $ 175 $ - $ 6
Conlog Control, Ltd. Israel $ 6,728 $ - $ 8,420 $ 522
Carpenter Brothers, Inc. $ 570 $ - $ - $ 20
Cytech Laboratories, Inc. FL $ 13 $ 2,124 $ - $ 74
Daewoo Japan $ 8,078 $ - $ - $ 279
<CAPTION>
- ------------------------------------------------------------------------------------------- ----------------------------------
Performance Criteria
Customer Total Average Monthly Running Sales
Revenues 1998 1999 2000
- ------------------------------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Stark Ceramics, Inc. $ - 500 750 1,125
Stonelight $ - 500 750 1,125
Summitville Tile, Inc. $ - 500 750 1,125
Synergy $ - 500 750 1,125
Terra Design $ - 500 750 1,125
Terra Green Ceramics $ - 500 750 1,125
Tile Cera $ - 500 750 1,125
Tile Works $ - 500 750 1,125
Triple G. coatings $ - 500 750 1,125
US Ceramics Tile Company $ - 500 750 1,125
Upstate Auto Warehouse $ 5,656 500 750 1,125
W.A. Ritz $ - 500 750 1,125
W.M. Barr $ - 500 750 1,125
Westinghouse $ - 500 750 1,125
Westin Quarry Tile $ - 500 750 1,125
Subtotal Direct Sales $ 23,916 $31,130 $46,380 $ 69,255
- ------------------------------------------------------------------------------------------- ----------------------------------
Total $ 412,117 $60,779 $90,305 $136,457
- ------------------------------------------------------------------------------------------- ----------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------- ----------------------------------
Conversion Customers and Distributors Not Covered By Agreement with Engineered Product
Sales Associates
- ------------------------------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Agmet Metals $ - N/A N/A N/A
A-Line Products Corp. $ 300 N/A N/A N/A
Aven Tools $ 15 N/A N/A N/A
American Econotread, Inc. $ 23 N/A N/A N/A
Air Response & Services. $ 430 N/A N/A N/A
Advanced Finishing Equip. $ 35 N/A N/A N/A
Acquarius Coatings $ 580 N/A N/A N/A
Benjamin Moore & Co. $ 296 N/A N/A N/A
Bimark Wirral, Ltd. $ - 500 750 1,125
Casual Patio Design, Inc $ 350 N/A N/A N/A
Chautauqua Woods $ 35 N/A N/A N/A
Coronado Laboratories, Inc. $ 175 N/A N/A N/A
Conlog Control, Ltd. $ 15,148 N/A N/A N/A
Carpenter Brothers, Inc. $ 570 N/A N/A N/A
Cytech Laboratories, Inc. $ 2,136 N/A N/A N/A
Daewoo $ 8,078 N/A N/A N/A
</TABLE>
<PAGE>
Customer List and Performance Criteria
CTI/EPSA Agreement
EXHIBIT "A"
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Trade Historical Sales Performance
Customer Location Y/E 6-30-96 Y/E 6-30-97 97 - 5 mos. Avg. Sales/mo
7/1 - 11/22 29 Months
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Deacon Manufacturing, Inc. $ - $ 25 $ - $ 1
Deltek, Inc. $ - $ 21 $ - $ 1
Dulubak OH
Dragon Engineering co., Ltd. $ - $ 22 $ - $ 1
Eviro-Blast $ 1,325 $ 1,040 $ - $ 82
Entrepreneurial Association $ - $ 7 $ - $ 0
* Fusco Abrasive Systems CA $ 33,412 $ 16,115 $ 1,720 $ 1,767
Grand Northern Products $ 494 $ - $ 350 $ 29
Guyson Industries $ 125 $ - $ - $ 4
Hatachi SC
Kleifer & Schulz, Inc. $ - $ 720 $ - $ 25
KOR $ - $ 626 $ - $ 22
* Kramer Industries $ - $ 612 $ - $ 21
Kentucky Apparel & Laundry $ 500 $ - $ - $ 17
Metal Dimensions $ (333) $ - $ - $ (11)
Metal Fini Canada $ - $ - $ - $ -
MidWest Finishing $ 585 $ - $ - $ 20
MJD Enterprises, Inc. $ 2,100 $ - $ - $ 72
P.S. Bruckel, Inc. $ 7,975 $ - $ - $ 275
* Ritchey Supply $ 2,996 $ - $ - $ 103
* Rosber, S.A. de C.V. Mexico $ 4,320 $ - $ - $ 149
Rutherford Saw Shop $ 15 $ - $ - $ 1
* Bob Schmidt, Inc. $ 5,798 $ - $ - $ 200
Sherman Holdings $ - $ - $ 105 $ 4
Storchem, Inc. $ - $ 986 $ - $ 34
Southwest Abrasives Co. $ 138 $ - $ - $ 5
Smith International CA,OR,WA
Spesco, Inc. $ 1,056 $ 580 $ 580 $ 76
Techniglass OH
Thompson OH
Toshiba NY
SONY IL,AR
Viking Engineering co. $ - $ 40 $ - $ 1
Vacu-Blast Limited United Kingdom $ 7,412 $ 18,108 $ 7,320 $ 1,132
Vangkoe Industries, Inc. $ - $ 766 $ - $ 26
W.M. Barr, Co. $ 7,560 $ - $ - $ 261
Wooster Products $ 7,005 $ - $ - $ 242
<CAPTION>
- ------------------------------------------------------------------------------------------- ----------------------------------
Performance Criteria
Customer Total Average Monthly Running Sales
Revenues 1998 1999 2000
- ------------------------------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Deacon Manufacturing, Inc. $ 25 N/A N/A N/A
Deltek, Inc. $ 21 N/A N/A N/A
Dulubak
Dragon Engineering co., Ltd. $ 22 N/A N/A N/A
Eviro-Blast $ 2,365 N/A N/A N/A
Entrepreneurial Association $ 7 N/A N/A N/A
* Fusco Abrasive Systems $ 51,247 N/A N/A N/A
Grand Northern Products $ 844 N/A N/A N/A
Guyson Industries $ 125 N/A N/A N/A
Hatachi
Kleifer & Schulz, Inc. $ 720 N/A N/A N/A
KOR $ 626 N/A N/A N/A
* Kramer Industries $ 612 N/A N/A N/A
Kentucky Apparel & Laundry $ 500 N/A N/A N/A
Metal Dimensions $ (333) N/A N/A N/A
Metal Fini $ - N/A N/A N/A
MidWest Finishing $ 585 N/A N/A N/A
MJD Enterprises, Inc. $ 2,100 N/A N/A N/A
P.S. Bruckel, Inc. $ 7,975 N/A N/A N/A
* Ritchey Supply $ 2,996 N/A N/A N/A
* Rosber, S.A. de C.V. $ 4,320 N/A N/A N/A
Rutherford Saw Shop $ 15 N/A N/A N/A
*Bob Schmidt, Inc. $ 5,798 N/A N/A N/A
Sherman Holdings $ 105 N/A N/A N/A
Storchem, Inc. $ 986 N/A N/A N/A
Southwest Abrasives Co. $ 138 N/A N/A N/A
Smith International N/A N/A N/A
Spesco, Inc. $ 2,216 N/A N/A N/A
Techniglass
Thompson
Toshiba
SONY
Viking Engineering co. $ 40 N/A N/A N/A
Vacu-Blast Limited $ 32,840 N/A N/A N/A
Vangkoe Industries, Inc. $ 766 N/A N/A N/A
W.M. Barr, Co. $ 7,560 N/A N/A N/A
Wooster Products $ 7,005 N/A N/A N/A
</TABLE>
<PAGE>
Customer List and Performance Criteria
CTI/EPSA Agreement
EXHIBIT "A"
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Trade Historical Sales Performance
Customer Location Y/E 6-30-96 Y/E 6-30-97 97 - 5 mos. Avg. Sales/mo
7/1 - 11/22 29 Months
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
All Swimming Pool Plaster Decking Compound Producers
All seamless flooring compounders
--------------------------------------------------------------------------
Subtotal $ 201,196 $ 242,349 $ 121,023 $ 19,468
--------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------- ----------------------------------
Performance Criteria
Customer Total Average Monthly Running Sales
Revenues 1998 1999 2000
- ------------------------------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
All Swimming Pool Plaster Decking Compound Producers
All seamless flooring compounders
--------------- ----------------------------------
Subtotal $ 564,568
--------------- ----------------------------------
</TABLE>
*CTI Distributor per map produced by Susan Kirby
- --------------------------------------------------------------------------------
Working Relationship between Conversion and EPSA
- --------------------------------------------------------------------------------
Pricing and distribution
1 CTI will, with EPSA assistance, select and appoint distributors for its
products and establish performance criteria. The primary purpose of CTI's
distribution will be to market, sell and distribute abrasive materials in
small to modest quantities to end users and contractors. CTI will price
its abrasive products to encourage all customers to purchase CTI's
abrasive products from its appointed distributors.
2 CTI will establish distribution volume discounts for non-abrasive products
to encourage individual flooring and stucco contractors to seek out CTI
distributors for small volume purchases of colored particles and related
products such as plasters, pre-ceramic polymers and fillers.
3 EPS will methodically support CTI's distribution through monthly sales
meetings at the distributors offices, joint sales calls, communication of
CBI policies and procedures, technical support, and interactive
communication between CTI and the distribution.
4. EPSA will serve as CTI's representative for non abrasive products to
manufacturers, large volume users and compounders who offer the potential
to purchase large volumes of CTI materials or incorporate these materials
into their products for resale. EPSA will methodically support CTI's
effort to solicit these customers through individual and joint joint sales
calls, communication of CTI technical and commercial data, technical field
support, and interactive communication between CTI and its customers.
Exclusivity
1 CTI has the exclusive authority to appoint or terminate any distributor of
its products at any time.
2 EPSA will serve as CTI's exclusive sales representative to its appointed
domestic distributors east of the Mississippi River and be entitled to
sales commissions on all sales through these distributors CTI
distributors.
3 CTI may solicit and work directly with any non-distributor, manufacturer,
OEM producer or large volume user of its products and will not be
obligated to pay EPSA
<PAGE>
Customer List and Performance Criteria
CTI/EPSA Agreement
EXHIBIT "A"
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Trade Historical Sales Performance
Customer Location Y/E 6-30-96 Y/E 6-30-97 97 - 5 mos. Avg. Sales/mo
7/1 - 11/22 29 Months
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
<CAPTION>
- ------------------------------------------------------------------------------------------- ----------------------------------
Performance Criteria
Customer Total Average Monthly Running Sales
Revenues 1998 1999 2000
- ------------------------------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
</TABLE>
a commission on any sales. However, CTI may grant EPSA the exclusive right
to serve as CTI's representative or agent to specific customers. Only in
this instance will CTI pay a sales representative commission to EPSA.
Performance
1 The level EPSA's performance in working with CTI's distributors will be
evaluated quarterly and based upon a number of parameters such as
communications effectiveness, Distributor feed back, and overall sales
performance.
2 The level of EPSA in working with CTI's manufacturers, compounders and
OEM's will be evaluated quarterly and based upon sales call frequency,
depth of customer relationship and sales performance. Exclusivity will be
granted in 90 day increments until an agreed level of volume is achieved.
Once volume is achieved EPSA's performance will be reviewed quarterly
sales call frequency, and be evaluated upon and assessment of EPSA's
customer relationship and volume of sales
<PAGE>
EXHIBIT B
PROPOSED COMMISSION SCHEDULE
"ENGINEERED PRODUCTS SALES ASSOCIATES"
ABRASIVES
----------------------------------------------------------------------------
Alumaglass Alumaglass Fired Ceramics, Fired Ceramics,
Visigrit Visigrit
----------------------------------------------------------------------------
Selling Price Incremental Selling Price Incremental
(per ton) Rate (per ton) Rate
----------------------------------------------------------------------------
($) (%) ($) (%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
300-349* 8 150-199 8
----------------------------------------------------------------------------
350-399 10 200-249 10
----------------------------------------------------------------------------
400-449 12 250-299 12
----------------------------------------------------------------------------
450-499 14 300-349 14
----------------------------------------------------------------------------
500-549 16 350-399 16
----------------------------------------------------------------------------
550-600 18 400-449 18
----------------------------------------------------------------------------
Above 600 20 Above 450 20
----------------------------------------------------------------------------
DECORATIVE PARTICLES
----------------------------------------
Sand & Feldspar Feldspar
----------------------------------------
Selling Price Incremental
(per ton) Rate
----------------------------------------
($) (%)
----------------------------------------
----------------------------------------
Less than 300* --
----------------------------------------
300-409 10
----------------------------------------
410-449 12
----------------------------------------
450-489 14
----------------------------------------
490-529 16
----------------------------------------
530-569 18
----------------------------------------
Above 570 20
----------------------------------------
MANUFACTURER REPRESENTATION TERMINATION AGREEMENT
THIS MANUFACTURER REPRESENTATION TERMINATION AGREEMENT (the "Agreement"),
entered into as of this _______ day of __________________, 1998, and effective
as of the 1st day of August, 1998, by and between CONVERSION TECHNOLOGIES
INTERNATIONAL, INC., a company organized and existing under the laws of the
State of Delaware, with principal offices at 2180 Park Ave. North, Suite 110,
Winter Park, Florida 32789, facsimile number (407) 207-5955 (hereinafter the
"Company") and ENGINEERED PRODUCTS SALES ASSOCIATES, a company organized and
existing under the laws of the State of Pennsylvania, with principal offices at
443 Silver Dew, Lake Mary, Florida 32746, facsimile number (407) 302-6397
(hereinafter "Representative").
WITNESSETH
WHEREAS, the Company and the Representative have entered into a
Manufacturer Representation Agreement dated January 1, 1998 (the "Contract") for
the purpose of retaining the Representative, on a nonexclusive basis, as the
Company's independent marketing and sales representative for certain products;
and
WHEREAS, the Company and the Representative now mutually desire to
terminate the Contract in accordance with the terms and conditions set forth in
the Contract, except as such are modified and amended in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties agree as follows:
1. TERMINATION OF THE CONTRACT. In accordance with Section 15(a) of the
Contract, the parties hereby modify and amend the Contract with respect to the
termination provisions of Section 11 and the compensation provisions of Section
8 as follows:
(a) Termination on a Date Certain. The Contract shall terminate, by
mutual consent and agreement, at 5:01 p.m. on Friday, July 31, 1998 (the
"Termination Date").
(b) Effect of Termination on the Representative's Compensation.
(i) The Company shall continue to pay to Representative
compensation in accordance with the provisions of Sections 8 and 11 (d) for a
period of not more than 90 days after the Termination Date.
(ii) Section 8 (b)(i) shall be amended and modified by the
addition of the following sentence to the end of the paragraph, "If there is no
subsequent commission due to the Representative from which to deduct such
amounts, then, upon written request by the Company, the Representative shall pay
to the Company such amount no later than thirty (30) days following the
Representative's receipt of the Company's demand for payment."
1
<PAGE>
(iii) For the purposes of clarification the phrase "date of
termination" contained in the Contract shall mean the Termination Date, as
defined above.
2. ACKNOWLEDGEMENT OF CONTINUING OBLIGATIONS OF CONFIDENTIALITY AND
NON-COMPETITION. In accordance with Section 5 (f) and 5 (g) setting forth the
Representative's obligations with respect to Confidential Information and
Non-Competition and Non-Solicitation, respectively, the parties hereby reaffirm
and acknowledge their continuing obligations as set forth therein.
3. EFFECT OF THIS AGREEMENT ON THE CONTRACT. Except as modified or amended
herein, the remainder of the Contract shall continue in full force and effect
and in accordance with its terms. In the event of a conflict between this
Agreement and the Contract, the provisions of this Agreement shall control.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date and year first above written, by their respective authorized
officers.
WITNESSES: "Company"
CONVERSION TECHNOLOGIES
INTERNATIONAL, INC., a Delaware
corporation
____________________________
____________________________________
By: ________________________________
Its:________________________________
"Representative"
ENGINEERED PRODUCTS SALES
ASSOCIATES, a ______________ company
____________________________ ____________________________________
By: ________________________________
Its:________________________________
2
<PAGE>
SANTORO & REINSEL, LLC
1910 KOPPERS BUILDING
PITTSBURGH, PENNSYLVANIA 15219
TELEPHONE: (412) 471-4900
FACSIMILE: (412) 471-0978
STEVEN M. REINSEL
(412) 471-0954
October 21, 1998
Mr. Chris Beck
Conversion Technologies International, Inc.
6345 N.W. 26th Terrace
Boca Raton, FL 33496
RE: Engineered Products Sales Associates
Dear Mr. Beck:
Please be advised that this firm represents Engineered Products
Sales Associates ("EPSA") in conjunction with its relationship with Conversion
Technologies International, Inc. ("CTI"). As you are likely aware, EPSA has not
received approximately $10,000 in commissions which it is owed by CTI. Such
commissions are well past due. Failure to pay these sums constitutes a material
breach of CTI's continuing obligations to EPSA pursuant to the Manufacturer
Representative Agreement between these parties, which was terminated by CTI,
effective August 1,1998. Therefore, if CTI fails to fully satisfy its
outstanding payment obligations to EPSA on or before October 30, 1998, EPSA's
obligations to CTI will be null and void and of no force or effect.
Should you have any questions or concerns regarding the foregoing,
please feel free to call me.
Sincerely,
/s/ Steven M. Reinsel
---------------------------
Steven M. Reinsel
SMR/tal
cc: Jack Hays
www. santoro-reinsel.com e-mail: [email protected]
Exhibit 11
CONVERSION TECHNOLOGIES INTERNATIONAL, INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF NET (LOSS) PER SHARE
For the years ended June 30, 1998 and June 30, 1997
Year Ended Year Ended
June 30, 1998 June 30, 1997
------------- -------------
Loss before extraordinary item $ (8,666,278) $(12,855,169)
------------
Preferred Stock dividends (3,032,318) --
------------ ------------
Loss before extraordinary item
attributable to common stockholders $(11,698,596) $(12,855,169)
============ ============
Weighted average number of
common shares outstanding 4,804,427 4,773,311
============ ============
Loss per common share before
extraordinary item $ (2.44) $ (2.69)
============ ============
Extraordinary item $ 6,425,004 $ --
============ ============
Income per share from extraordinary item $ 1.34 $ --
============ ============
Net loss $ (2,241,274) $(12,855,169)
Preferred stock dividends (3,032,318)
------------ ------------
Net loss attributable to common
stockholders $ (5,273,592) $(12,855,169)
============ ============
Net loss per common share $ 1.10 $ 2.69
============ ============
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 168,483
<SECURITIES> 0
<RECEIVABLES> 276,990
<ALLOWANCES> 18,000
<INVENTORY> 557,292
<CURRENT-ASSETS> 1,079,361
<PP&E> 1,702,614
<DEPRECIATION> 148,057
<TOTAL-ASSETS> 2,766,701
<CURRENT-LIABILITIES> 5,388,007
<BONDS> 15,235
0
614
<COMMON> 1,400
<OTHER-SE> (2,638,555)
<TOTAL-LIABILITY-AND-EQUITY> 2,766,701
<SALES> 1,897,980
<TOTAL-REVENUES> 2,226,347
<CGS> 2,703,441
<TOTAL-COSTS> 5,426,903
<OTHER-EXPENSES> 4,913,422
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 552,300
<INCOME-PRETAX> (8,666,278)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,666,278)
<DISCONTINUED> 0
<EXTRAORDINARY> 6,425,004
<CHANGES> 0
<NET-INCOME> (2,241,274)
<EPS-PRIMARY> (1.10)
<EPS-DILUTED> (1.10)
</TABLE>
