U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended May 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number 1-13776
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GREENMAN TECHNOLOGIES,INC.
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(Exact name of small business issuer as specified in its charter)
DELAWARE 71-0724248
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7 KIMBALL LANE, BUILDING A, LYNNFIELD, MA 01940
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (781) 224-2411
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Securities registered pursuant to Section 12 (b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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Common Stock, $ .01 par value Boston Stock Exchange
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(Title of each class)
Class A Common Stock Purchase Warrants Boston Stock Exchange
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(Title of each class)
Securities registered pursuant to Section 12 (g) of the Exchange Act:
Common Stock, $ .01 par value
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(Title of each class)
Class A Common Stock Purchase Warrants
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(Title of each class)
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Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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 ]
The issuer's revenues for the fiscal year ended May 31, 1997 were $4,020,670.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the average bid and asked prices of such stock, as of September
12, 1997 was $9,703,619.
As of September 12, 1997, 8,255,680 shares of Common Stock of issuer were
outstanding. The aggregate market value of the shares of Common Stock was
$12,383,520.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
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PART 1
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
GreenMan Technologies, Inc. (the "Company" or "GreenMan") was
incorporated under the laws of the State of Arkansas on September 16, 1992 and
reincorporated under the laws of the State Delaware on June 27, 1995. The
Company was formed primarily to develop, manufacture and sell "environmentally
friendly" plastic and thermoplastic rubber feedstocks, rubber parts and products
that are manufactured using recycled materials and/or are themselves partially
or wholly recyclable.
MOLDING OPERATIONS
The Company's Molding operations (the "Molding operation"), located in
Malvern, Arkansas, provides injection molding manufacturing services to customer
specifications in the production of plastic and thermoplastic rubber parts for
such products as stereo components and speakers, water filters and pumps,
plumbing components and automotive accessories. The Molding operation uses
leased, state-of-the-art, injection molding equipment that is energy and labor
efficient, has fast cycle times and minimizes production waste. The facility
also conducts R&D testing and development of the Company's proprietary
thermoplastic material, GEM- (GreenMan Environmental Materials) Stock(TM), and
tests the use of these materials in the manufacture of a variety of potential
applications.
In May 1997, the Company's Molding operation began manufacturing the
Company's first consumer product, a 34 gallon GEM- Stock(TM) trash container
which is being marketed under the GreenMan name ("captive molding"). Other
proposed products, to be manufactured and sold under the GreenMan name will also
be produced in the future at the Molding operation, which management expects to
result in balanced contract/custom and captive molding activities.
RECYCLING OPERATIONS
The Company's Recycling operations (the "Recycling operation"), located
in Jackson, Georgia, were established to develop low-cost sources of rubber and
plastic waste ( from tires and recycled plastics) for use in the production of
the Company's GEM-Stock and for the development of markets for end-products to
be made utilizing GEM-Stock.
The Company has targeted several markets with products incorporating
significant amounts of recovered crumb rubber and plastic waste, including the
building industry (with anti-fatigue floor mats, roofing products, and timbers);
the lawn and garden market (with landscape timbers); the consumer products
market (with trash containers, recycling totes, and storage containers); and the
transportation industry (with rubber modified asphalt, nose cones, barriers,
railroad ties and railway crossing mats).
On June 30, 1997, the Company acquired all of the capital stock of BFI
Tire Recyclers of Minnesota, Inc. ("BTM") and BFI Tire Recyclers of Georgia,
Inc. ("BTG"), both of which were wholly-owned subsidiaries of Browning Ferris
Industries, Inc. ("BFI") and are in the scrap tire collection and processing
business. Collectively, the two operations process approximately 10 million
tires annually. The Company was also granted an exclusive option to purchase
certain assets (including certain contract rights) of BFI's Ford Heights,
Illinois tire recycling operation which has the capacity to process between 12
and 15 million tires annually. Prior to the acquisition, the Company purchased
tire chips from BTG pursuant to a Put or Pay/Take or Pay Agreement (the "Take or
Pay Agreement") and leased land in Jackson, GA. BTM and BTG have been renamed
GreenMan Technologies of Minnesota, Inc. ("GMTM") and GreenMan Technologies of
Georgia, Inc., ("GMTG") respectively, and together, with the Company's existing
Rubber Recycling group will now constitute the Company's Tire Recycling
operations. As a result of the acquisition, the Company's obligations under the
Take-or-Pay Agreement were eliminated.
DURAWEAR
On October 10, 1995, the Company acquired all of the outstanding common
stock of DuraWear Corporation ("DuraWear"). DuraWear was incorporated under the
laws of the State of Delaware on September 5, 1972 and was reincorporated under
the laws of the State of Alabama on December 7, 1990. DuraWear, which is located
in Birmingham, Alabama, manufactures, installs and markets a diverse range of
high-quality, ceramic, polymer composite, and alloy steel materials engineered
to resist severely abrasive and corrosive conditions typically encountered in
bulk-material handling systems in such industries as paper and pulp, mining,
coal handling and grain storage and transportation.
PRODUCTS AND SERVICES
MOLDING OPERATION
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The Company's Molding operation was established primarily to develop,
manufacture and sell "environmentally friendly" plastic and thermoplastic rubber
feedstocks, rubber parts and products that are manufactured using recycled
materials and/or are themselves partially or wholly recyclable. In order to
offset expenses associated with capital leases for the required injection
molding equipment, the Company accepts third-party, contract molding jobs in
order to keep the resident equipment productive. Accordingly, the Molding
operation has, since its inception, provided customers with a reliable,
cost-effective, high-quality source for the manufacture of plastic and
thermoplastic rubber parts. Traditional contract manufacturing is widely used in
the plastic and thermoplastic rubber industries as a cost-effective alternative
to in-house manufacturing. Generally, the customer owns design molds for use in
the manufacture of its products or parts and provides the molds to outside
injection molding companies, such as the Company.
The Company combines leased, state-of-the-art, injection molding
equipment; comprehensive quality and production control systems; and
consultation on mold design to improve labor costs and assembly times, reduce
waste and improve end-product quality. The Company has also assisted certain
customers in converting their product content from virgin materials to (in whole
or in part) recycled feedstock.
Initiated as an adjunct to its injection molding operations, product
assembly services are also offered by the Molding operation. Components are
produced by, and/or delivered to, the Molding operation by customers and
assembled to the required stage of completion.
RECYCLING OPERATION
The Recycling operation was established to identify processing
techniques and alternative lower-cost sources of supply of rubber/used tires and
plastic waste for recycling, as well as to identify rubber and plastic based
end-products for which there is significant market demand.
The Company has developed and is gradually commercializing GEM-Stock
using crumb rubber recovered from automobile and truck tires in combination with
recycled plastic waste and virgin plastic. In April 1996, the Company signed a
perpetual license agreement with a privately held R&D company for the exclusive
world-wide rights and license to use its proprietary additive technology for
co-mingling (mixing or blending) of dissimilar plastics and rubber. This license
agreement provides the Company with the ability to incorporate significantly
more types of low-cost recycled plastic and rubber into the production of
GEM-Stock than it could do in the past. As currently manufactured, products made
using GEM-Stock have properties that are comparable to those products made
incorporating virgin rubber or plastic, at a significant cost savings to the
Company. The Company believes that GEM-Stock is suitable as a raw material for
use in the manufacture of many of the types of commercial parts and products
currently manufactured by the Molding operation. To date, revenues from products
made using GEM-Stock have accounted for less than 10% of the Company's revenues,
and, as yet, there can be no assurance that the Company will be able to
manufacture GEM-Stock in quantities necessary to achieve significant revenues
and profits.
The Company is currently using GEM-Stock in the manufacture of its 34
gallon trash container and intends to use GEM-Stock as the primary raw material
in the Company's proposed line of environmentally-friendly, or "green" consumer
products, such as recycling totes, playground and recreational furniture,
landscape timbers, storage bins, and home-use composters. The Company is
evaluating the economic, marketing and manufacturing feasibility of several of
these proposed products and has conducted preliminary discussions with possible
distributors of such products. There can be no assurance that such discussions
will result in orders for the products, consumer acceptance of the products or
significant revenues for the Company. Management believes that the Company's
internal needs for GEM-Stock will allow the Company to use the raw materials in
the manufacture of its GreenMan products.
The Company has conducted extensive market research over the past
several years and has concluded that significant market opportunities exist for
crumb rubber to be used as chemical feedstocks or for incorporation in parts and
products. Crumb rubber can be produced either through the use of mechanical
grinding methods ("ambiently") or through the use of cryogenic (freezing)
methods ("cryogenically") using a feedstock of tire chips. GEM-Stock is one
application whereby crumb rubber and recycled plastics are combined and used as
a raw material feedstock in place of more expensive virgin materials. There is
also research being conducted in the areas of rubber modified asphalt and the
re-incorporation of crumb rubber into the manufacture of new automobile and
truck tires. The Company believes that the largest areas of growth are in
applications where ultra-fine mesh crumb rubber is used in place of virgin
rubber to enhance the characteristics of existing product formulations, thereby
commanding premium pricing. As a result, a decision has been made to focus the
Company's resources on addressing these "high value-added" crumb rubber
opportunities. This redirection in strategic market targeting along with certain
limitations of the Company's existing cryogenic recycling equipment to produce
sufficient quantities of ultra-fine mesh crumb rubber; resulted in, the Company
redeploying its cryogenic recycling
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equipment into a joint venture with the original equipment manufacturer (See
PRODUCT DEVELOPMENT). The joint venture will address existing opportunities for
larger mesh crumb rubber such as in rubber mats, ground cover and as a filler in
asphalt applications. The Company is currently evaluating several alternative
solutions for producing ultra-fine mesh crumb rubber and is supplementing its
needs through informal market and distribution alliances with other companies.
On June 30, 1997, the Company acquired BTM and BTG, which provides the
Company with access to over 10 million tires annually. The Company was also
granted an exclusive option to purchase certain assets (including certain
contract rights) of BFI's Ford Heights, Illinois tire recycling operation which
has the capacity to process between 12 and 15 million tires annually. BTM and
BTG are in the scrap tire collection and processing business whereby they charge
a fee to dispose of customers' scrap tires and then process the tires into two
inch rubber chips which are then sold as alternative fuel ("TDF" - Tire Derived
Fuel) to cement kilns, paper and pulp producers and electric utilities; or
utilized in civil engineering projects such as landfill construction (leach-bed
lining), soil erosion and road stabilization projects. The Company intends to
utilize a portion of the rubber chip flow for the production of ultra fine mesh
crumb rubber.
DURAWEAR
DuraWear manufactures and markets ceramic, polymer composite and alloy
steel materials, specifically engineered to resist the highly abrasive
conditions typically encountered in bulk material handling systems. DuraWear
sells its products primarily to industries where the process equipment
experiences significant wear as a result of material movement over equipment
surfaces ("abrasion-wear") or material impact on equipment surfaces
("impact-wear"). Such industries include paper and pulp, mining, mineral
processing, coal handling, grain storage and transportation, cement and
fertilizers.
Ceramics. DuraWear produces CeraDur(R), a pale-green-colored ceramic
plate made of approximately 96% alumina, less than 2% silica and a small amount
of nickel, which are combined and fired at very high temperatures, resulting in
high-density and very-low-porosity products. These properties make CeraDur(R)
one of the most abrasion-resistant ceramic plates commercially available for
application in highly abrasive conditions. CeraDur(R) is rated 9 on Moh's scale
(an engineering scale which compares material hardness) and second in hardness
only to diamond, which is rated 10. Other commercially-available products
generally contain less than 96% alumina and are fired at lower temperatures,
resulting in a less-dense product with 25% to 50% less wear life compared to
CeraDur(R).
The Company also manufactures another ceramic product called
Aluminox(R), which contains approximately 90% alumina and a small amount of
nickel. Aluminox(R) is designed to provide less abrasion resistance as compared
to CeraDur(R) for markets and applications where a lower-cost alternative is
required.
Polymer Composites. DuraWear distributes two polymer composites for
abrasion-wear applications. Xylethon(R) has a high-molecular weight
cellular-chain structure which makes it a highly-dense, plastic material. This
alloyed matrix structure provides superior adhesion-resistance and dimensional
stability when compared to polyvinyl chloride ("PVC"), polyurethane and
ultra-high-molecular-weight ("U.H.M.W.") polyethylene. Xylethon(R) is
lightweight compared to abrasion-resistant steel plates, which are generally
nine times heavier, and is less susceptible than steel to the distortions caused
by thermal cycles.
Trowellable Coatings. In areas where pre-engineered shapes cannot be
installed, trowellable cements and mortars are applied to provide wear resistant
linings. The two basic types of coatings are ceramic based epoxy mortars and
metal based epoxy mortars. Ceramic mortars consist of micromesh particles of
alpha alumina in an epoxy matrix. Metal-based mortars contain metal powders in
an epoxy matrix. The coatings have been specifically formulated for strong
adherence to a great variety of substrates. The linings are used for vertical or
horizontal surfaces including walls, floors, and roofing.
MANUFACTURING
MOLDING OPERATION
The Company conducts all its injection molding and assembly operations
at its leased 45,000 sq. ft. facility located in Malvern, Arkansas. The Molding
operation uses leased state-of-the-art injection molding equipment that is
energy and labor efficient; has fast cycle times; and minimizes production
waste.
The Company may need to expand its existing manufacturing operations
through strategically-located satellite operations, to support future expansion
of existing manufacturing capabilities. Such expansion may include compression
molding, (for consumer and industrial floor mats) and extrusion capabilities
(for the manufacture of
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landscape timbers, and other outdoor products). There can be no assurance that
the additional customers, if any, gained by establishing new manufacturing
facilities will justify the expense of constructing, staffing and operating such
facilities or that the Company will not experience difficulties in supervising
and coordinating the activities of separate locations.
RECYCLING OPERATION
The Recycling operation's crumb rubber plant in Jackson, Georgia is
located in a 15,000 sq. ft. building that was built by the Company on land that
it leased from BTG under a multi-year agreement. This agreement was terminated
as a result of the acquisition of BTG on June 30, 1997.
During the first half of fiscal 1997, the Company retained the
production process of the Cryogenic Recycling equipment and evaluated the
production capabilities of the facility. Based upon the cryogenic recycling
equipments capacity to produce sufficient quantities of fine mesh crumb rubber,
the Company decided to redeploy the equipment into a joint venture with the
original equipment manufacturer. (SEE PRODUCT DEVELOPMENT). The joint venture
will address existing opportunities for larger mesh crumb rubber such as in
rubber mats, ground cover and as a filler in asphalt applications. The Company
is currently evaluating several alternative solutions for producing ultra-fine
mesh crumb rubber and is supplementing its needs through informal market and
distribution alliances with other companies.
DURAWEAR
DuraWear manufactures its ceramic products at its facility located on
five acres of land in Birmingham, Alabama. DuraWear's polymer composites and
other products are manufactured by third parties on a contract-basis. DuraWear's
polymer composites are currently produced to DuraWear's specifications under a
confidentiality agreement by only one supplier; the number of alternative
suppliers is limited. Management has identified several alternative suppliers
for DuraWear's polymer composites in the event there are any adverse changes in
its existing relationship. With the exception of its polymer composites, the
Company believes that there are multiple manufacturing sources available for
DuraWear's other products. While DuraWear has long-standing relationships with
its current suppliers, such facilities are not controlled by DuraWear, and these
suppliers could sever their relationships with DuraWear at any time. As such, it
could be difficult for DuraWear to find other suppliers that could manufacture
DuraWear's products to the specifications required by DuraWear on acceptable
terms.
RAW MATERIALS
MOLDING OPERATION
Raw materials required for the Molding operation are generally purchased
directly from suppliers on a purchase-order basis rather than a contract basis.
The Molding operation purchases such materials on an "as and when needed" basis,
primarily from five suppliers. There can be no assurance, absent contracts with
firm price and delivery terms, that suppliers will not increase their prices,
change their credit terms or impose other conditions of sale that may be
unfavorable to the Company. While the Company does not believe that it would
experience any significant difficulty in obtaining materials from alternative
sources on comparable terms, there can be no assurance that such supplies could
be obtained on price and delivery terms favorable to the Company. Until such
time, if ever, that the Company begins to produce GEM-Stock in sufficient
quantities for its own use on a cost-efficient basis, it is and will be required
to purchase crumb rubber and recycled and virgin plastic from third parties in
order to produce its proposed GreenMan consumer products. Management believes
that there are currently a limited number of supplies of high-quality crumb
rubber that is free of fiber and metal.
RECYCLING OPERATION
The Company believes that as a result of its acquisition of BTM and BTG
and the Company's exclusive option to purchase certain assets (including certain
contract rights) of BFI's Ford Heights, Illinois tire recycling operation, the
Company will have access to a supply of tires sufficient to meet the Company's
requirements for crumb rubber in the foreseeable future. The three operations
collectively are capable of processing between 22 and 25 million tires annually.
According to Scrap Tire News, nearly 255 million passenger automobile tires are
currently discarded annually in the U.S., and of that total approximately 1% are
used for asphalt pavement, 11% are burned to provide energy, approximately 2%
are processed for retreading; and the remaining tires are landfilled, adding
more than 200 million tires annually to the estimated 3 billion tires already
stockpiled in landfills. Accordingly, the Company estimates that as a result of
the acquisition of BTM and BTG it will process approximately 20% of all
passenger tires
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in the U.S. that are not placed in landfills, with the ability to increase that
percentage to between 40 - 45% with the exercise of its option to purchase
purchase certain assets (including certain contract rights) of BFI's Ford
Heights, Illinois tire recycling operation.
DURAWEAR
DuraWear obtains on a purchase order (rather than a contract basis) its
primary raw materials, consisting of alumina and nickel oxides, from a number of
sources. The price and other terms upon which such materials are obtained
therefore are also subject to change over which DuraWear has no control.
Management believes that alternate sources of such raw materials are available
on an economically-competitive basis, but there can be no assurance that this
would be the case at a time when such sources might be needed by the Company.
PRODUCT DEVELOPMENT
In April 1996, the Company signed a perpetual license agreement with a
privately held R&D company for the exclusive, world-wide rights and license to
use a proprietary additive technology for co-mingling (mixing or blending) of
dissimilar plastics and rubber types. The Company paid a one-time licensing fee
at signing of the agreement and no additional fees are due for the manufacture
of the Company's own products (i.e. GEM-Stock products). In May, 1997, the
Company commenced production on a limited basis, of its first GEM-Stock based
product, a 34 gallon trash container. A 3% royalty is due when the additive
technology is sold as raw material. This license agreement allows the Company to
incorporate a broader range of low-cost, recycled plastic and rubber types into
the production of GEM-Stock. As currently manufactured, products made using
GEM-Stock have properties that are comparable to products using virgin rubber or
plastic at a significant cost savings to the Company.
In addition to its efforts relating to the conversion of crumb rubber
and the production of GEM-Stock, the Company intends to develop new products,
which may involve entering into joint ventures or other strategic alliances. The
Company has not to-date entered into any such relationships other than noted
above, with respect to new products, nor can there be any such assurance that
the Company will be successful in entering into such relationships, nor that it
will be able to develop new products which result in revenues or profits to the
Company.
On August 26, 1997, the Company executed an agreement relating to the
formation of a joint venture (the "GMT/CRT joint venture") between the Company
and Crumb Rubber Technologies, Inc. of Jamaica, New York ("CRT") to collect and
process tires in the State of New York and to market the crumb rubber derived
from the tires. The joint venture will do business as "Tire Disposal Services,
Inc." , and will address existing opportunities for larger-mesh crumb rubber
such as in rubber mats, ground cover and as a filler in asphalt applications.
The Company will contribute the cryogenic crumb rubber equipment previously
purchased from CRT and formerly located in Jackson, Georgia into the venture as
its capital contribution while CRT will contribute on its part certain
facilities, equipment, customer contracts, licenses and permits and provide
operational and technical expertise.
CUSTOMERS
MOLDING OPERATION
In the fiscal year ended May 31, 1995, three customers, (Jacuzzi
Brothers Division, Little Rock, ("Jacuzzi"), Stant Manufacturing, Inc. ("Stant")
and R.G. Sloane & Co. Inc.,) accounted for approximately 62%, 14%, and 10%
respectively, of the Company's net sales; and in the fiscal year ended May 31,
1996, two customers, (Jacuzzi and Stant) accounted for approximately 38%, and
14%, respectively, of net sales. In the fiscal year ended May 31, 1997, one
customer, Jacuzzi accounted for approximately 29% of the Company's consolidated
net sales. Currently, the Molding operation serves customers in a number of
industries such as: Jacuzzi -- water filters and pumps; Klipsch & Associates --
stereo components and speakers; Sterling Plumbing, Inc. - plumbing components,
Stant -- automotive gas caps and R. G. Sloane & Co., Inc. -- plumbing products.
RECYCLING OPERATION
There were no customers which accounted for 10% or more of consolidated
net sales during the fiscal years ended 1996 and 1997.
DURAWEAR
DuraWear did not have any customers which accounted for 10% or more of
consolidated net sales during the fiscal years ended 1996 and 1997. DuraWear's
customers include Georgia Pacific, Boise Cascade, Container Corp. of America,
Champion International, Longview Fiber Company, Union Camp, and various power
utilities an paper processors throughout the U.S.
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The Company does not have any long-term contracts pursuant to which any
customer is required to purchase any minimum amount of products. There can be no
assurance that the Company will continue to receive orders of the same magnitude
as in the past from existing customers or that it will be able to market its
current or proposed products to new customers. The loss of any major customer
would have a material, adverse effect on the business of the Company as a whole.
SALES AND MARKETING
The Company utilizes outside manufacturer's sales representative
organizations, in addition to its on-going, in-house sales activities. DuraWear
has in place a network of sales representatives for both domestic and
international sales, which may be used by the Company in connection with the
sale of its products.
As the Company seeks to increase its manufacturing of crumb rubber and
GEM-Stock in commercial quantities at an acceptable cost, of which there can be
no assurance, a significant portion of the Company's production will be devoted
for internal use in the manufacture of its 34 gallon trash container and other
proposed GreenMan consumer products. Any excess material will likely be
compounded (mixed) on a contract basis and offered for sale on a merchant
chemical basis through such compounder's traditional sales channels, as well as
directly by the Company.
The Company's proposed consumer products will be sold through Big East
Sales and Marketing, Framingham, Massachusetts -- a firm with a national
presence in the wholesale and retail consumer markets through a nationwide sales
representative network, and which has more than 25-years experience selling
directly to major discount department store chains; builders' supply and
hardware store chains; and lawn and garden stores. Big East Sales and Marketing
has established a separate operating unit called Big East Green which is
dedicated to marketing, selling and promoting the Company's
environmentally-friendly GEM-Stock consumer products.
DuraWear markets its products primarily to the process industry where
material movement typically causes abrasion resulting in wear of the process
equipment. Applications for DuraWear's products span many industries such as
paper and pulp, mining, mineral processing, coal handling, grain storage and
transportation, cement and fertilizers.
COMPETITION
MOLDING OPERATION
The injection molding contract manufacturing industry is
highly-competitive and characterized by severe price-cutting by small regional
contractors. While the Company believes that its facility, modern equipment and
advanced quality control are attractive features to potential customers, there
can be no assurance that the Company can capture adequate competitive contracts
to achieve or sustain profitability, either at its present location or at any
satellite location it seeks to establish.
In marketing its proposed GreenMan consumer products, the Company will
be competing with many established manufacturers of similar products. Most of
these competitors have substantially greater financial and marketing resources
and significantly greater name-recognition among both retailers and consumers
than the Company. A number of companies with products made from recycled tires
have already entered the market. For example, OMNI Rubber Products manufactures
solid-rubber, non-steel reinforced railroad crossings from recycled crumb rubber
and R.A.S. Recycling, Inc., together with Royal Rubber Manufacturing, are
developing playground and recreational surfacing mats made of recycled tire
rubber. In addition, several companies manufacture products similar to the
Company's proposed GreenMan line of products, such as industrial floor mats,
playground furniture, and landscape timbers. There can be no assurance that the
Company will be able to compete successfully in the consumer market.
In the manufacture and sale of its GEM-Stock, the Company will compete
with other producers and suppliers of traditional plastic and thermoplastic
rubber products, including recycled and virgin products. The Company's success
in marketing its products will depend on its ability to convince potential
buyers that its products are of comparable or superior quality to alternative
products and that its products are also comparable in cost to competing
products. There can be no assurance that the Company will be able to compete
effectively with established producers, many of which have substantially greater
financial and manufacturing resources than those of the Company.
RECYCLING OPERATION
Historically, companies in the tire processing industry have generated
significant quantities of tire derived fuel ("TDF") chips to be sold as
alternative fuel to cement kilns, paper and pulp producers or electric utilities
or
8
utilized in civil engineering projects such as landfill construction or road
stabilization projects. There are several tire recycling companies that produce
crumb rubber in limited quantities and at varying levels of quality. There are
also several companies that simply process tires into TDF to be burned as
supplemental fuel or break down the tire material into its elemental components
("Pyrolysis") and sell the components individually. Few, if any companies are
vertically integrated with operations that include tire collection -- through
end product manufacture. The Company believes that the limited success
experienced by these companies is due to industry disaggregation among small and
under-capitalized companies and the limited success in identifying and producing
end-user products that incorporate recycled materials. The Company has developed
a strategy for recycling tire and plastic waste which involves complete "closed
loop" recycling from waste pile to end product. GEM-Stock is one example where
crumb rubber and recycled plastics are combined and used as raw material
feedstock in place of virgin materials. There is also significant research being
conducted in the areas of rubber modified asphalt and the re-incorporation of
crumb rubber into automobile and truck tires.
As a result of the Company's acquisition of BTM and BTG in June 1997,
and its exclusive option to purchase certain assets (including certain contract
rights) of BFI's Ford Heights, Illinois tire recycling operation, the Company
has positioned itself as a leader in tire recycling operations. Collectively,
the Company's current operations process approximately 20% of all passenger
tires in the U.S. that are not placed in landfills with the ability to increase
that percentage to between 40% and 45% with the exercise of the Ford Heights
option.
DURAWEAR
DuraWear has several competitors for its products, most of whom have
greater financial and marketing resources than DuraWear. In the ceramics market,
competitors include Coors Ceramics Co., Champion and Packo Industrial Ceramics,
Inc. and in the polymer composite market include Solidur Plastics, DuPont and BP
America.
DuraWear competes on the basis of the longer-lasting wear resistance
performance of its products as compared to products offered by competitors.
Management believes that on a life cycle costing basis DuraWear products offer
customers significant cost advantages, notwithstanding DuraWear's products'
higher prices.
GOVERNMENT REGULATION
The Company's tire recycling and manufacturing activities may be subject
to extensive and rigorous government regulation designed to protect the
environment (as is the case with other tire recycling processes such as
pyrolysis). Management does not expect that the Company's activities will result
in the emission of air pollutants, the disposal of combustion residues, or the
storage of hazardous substances. The establishment and operation of plants for
tire recycling, however, are subject to obtaining numerous permits and complying
with environmental and other government regulations, both in the U.S. and most
foreign countries. The process of obtaining required regulatory approvals can be
lengthy and expensive. Moreover, regulatory approvals, if granted, may include
significant limitations on the Company's operations. The EPA and comparable
state and local regulatory agencies actively enforce environmental regulations
and conduct periodic inspections to determine compliance with government
regulations. Failure to comply with applicable regulatory requirements can
result in, among other things, fines, suspensions of approvals, seizure or
recall of products, operating restrictions, and criminal prosecutions.
Furthermore, changes in existing regulations or adoption of new regulations
could impose costly new procedures for compliance, or prevent the Company from
obtaining, or affect the timing of, regulatory approvals.
The effect of government regulation may be to delay for a considerable
period of time or to prevent the Company from developing its business as planned
and/or impose costly requirements on the Company, the result of which may be to
furnish an advantage to its competitors or to make the Company's business less
profitable, or unprofitable, to operate.
PROTECTION OF INTELLECTUAL PROPERTY RIGHTS AND PROPRIETARY RIGHTS
None of the equipment or machinery that the Company or DuraWear
currently uses or intends to use in its respective current or proposed
manufacturing activities are proprietary; any competitor can acquire equivalent
equipment and machinery on the open market. The Company believes that it has
developed specialized know-how in the blending of plastics and rubber for use in
its molding machines and that its processes are proprietary. The Company has
acquired exclusive, perpetual, world-wide rights to a proprietary additive
technology which will enable the Company to blend a broader range of virgin and
recycled plastics together, and/or combine such plastics with crumb rubber from
recycled tires. The Company also believes that many of the formulae and
processes used in manufacturing DuraWear's products are proprietary, and
DuraWear has executed confidentiality agreements with the appropriate employees
and subcontractors. However, there can be no assurance that competitors will not
develop processes or products of comparable efficiency and quality. DuraWear
does not have any patents and does not believe any of its products are
patentable. Moreover, there can be no assurance that any patents that may be
9
granted in the future will be enforceable or provide the Company with meaningful
protection from competitors. Even if a competitor's products were to infringe
patents owned by the Company, it could be very costly for the Company to enforce
its rights in an infringement action, and such an action would divert funds and
resources otherwise available for use in the Company's operations. Consequently,
there can be no assurance that the Company would elect to prosecute potential
patent infringement claims it might have. Furthermore, there can be no assurance
that the Company's proposed products will not infringe any patents or rights of
others.
The Company has used the name "GreenMan" and other trade names in
interstate commerce and asserts a common law right in and to such names. A
trademark search has been conducted for the name "GreenMan" which found that
there are no significantly similar names currently being used in the Company's
current and intended industries. The Company intends to file an application with
the U.S. Department of Commerce, Patent and Trademark Office to register its
name and establish trademark rights. There can be no assurance, however, that
such a trademark application will be approved. Although the Company has been
using the GreenMan name in interstate commerce for its custom molding services
and has not yet begun significant marketing for its consumer products, the
inability of the Company to continue to use the name in connection with such
services, as well as in connection with the proposed GreenMan consumer products,
could have an adverse effect on the Company's efforts to establish name
recognition for its products in the commercial and consumer marketplaces.
DuraWear has registered trademarks for a number of its products,
including CeraDur and Xylethon and has used the name "ExcelloSlide" and other
trade names in interstate commerce and asserts a common law right in and to such
names. There can be no assurance, however, that such right would sufficiently
protect the Company's right to use such names or that, if and when the Company
files trademark applications for such names, that such applications would be
approved.
EMPLOYEES
As of May 31, 1997, the Company had approximately 98 employees including
20 employees at DuraWear. With the acquisition of BTM and BTG, the total number
of employees as of June 30, 1997 was 150.
Neither the Company nor DuraWear are a party to any collective
bargaining agreements, and they each consider the relationship with their
employees to be satisfactory.
ITEM 2. DESCRIPTION OF PROPERTIES
The Molding operation currently occupies approximately 45,000 square
feet of combined industrial/manufacturing space in Malvern, Arkansas, including
2,000 square feet of office space under a lease at a monthly rent of $5,325 with
an unaffiliated third party. The lease expired on May 31, 1997 and the Company
is in the process of re-negotiating the lease and is currently a tenant at will.
The Company currently occupies approximately 2,700 square feet of
administrative office space, located in Lynnfield, Massachusetts under a three
year lease at a monthly rental of $3,238 which expires in October 1998.
In December 1995, the Company entered into a five year lease agreement
with BTG whereby the Company would lease for $1 per year, approximately 15,000
square feet of land located in Jackson, Georgia on which the Company built a
tire recycling facility. As a result of the acquisition of BTG on June 30, 1997,
the Company now owns such facility.
DuraWear owns two industrial buildings and an office building in
Birmingham, Alabama, located on five acres of land zoned for industrial
expansion. Both industrial buildings are suitable for manufacturing/production
operations. DuraWear currently utilizes 75% of the available space, with excess
capacity to handle approximately three times their current production volume.
There is readily available space for possible expansion if needed.
Management believes that the Company's existing facilities are adequate
for its current needs.
ITEM 3. LEGAL PROCEEDINGS
In October 1994, the Company was sued in Robert H. Jones v. GreenMan
Technologies, Inc. in the 15th Judicial District Court in Lafayette, Louisiana,
by a former consultant who seeks, among other things, unpaid consulting fees, as
well as licensing fees/royalties relating to the Company's alleged use of a
cryogenic process for recovering crumb rubber that Mr. Jones alleges he
developed. The Company has retained Louisiana counsel and is contesting this
lawsuit vigorously.
Discovery has been conducted and the parties are now awaiting a
pre-trial status conference. No trial date has been set. Because the Company
believes that it never entered into any agreement with the plaintiff, never used
the plaintiff's proprietary technology and paid all consulting fees due the
plaintiff, the Company believes that the litigation will not have a material
adverse effect on its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders during the
fiscal year ended May 31, 1997.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock and the Class A Common Stock Purchase
Warrants are traded on the NASDAQ SmallCap Market under the symbols "GMTI" and
"GMTIW", respectively, and listed on the Boston Stock Exchange under the symbols
"GMY" and "GMYW", respectively since October 2, 1995. The following table sets
forth the high and low bid quotations for the Common Stock and Class A Common
Stock Purchase Warrants for the periods indicated as quoted by NASDAQ. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
Class A Common Stock
Common Stock Purchase Warrants
------------ ------------------
High Low High Low
---- --- ---- ---
FISCAL 1996
- -----------
Quarter Ended November 30, 1995
(from October 2) $ 8.63 $ 6.00 $ 3.00 $ 1.00
Quarter Ended February 29, 1996 7.50 2.50 3.00 1.00
Quarter Ended May 31,1996 6.38 4.00 3.00 .75
FISCAL 1997
- -----------
Quarter Ended August 31, 1996 $ 4.13 $ 2.25 $ 1.38 $ .13
Quarter Ended November 30, 1996 3.22 1.34 .78 .25
Quarter Ended February 28, 1997 1.63 1.00 .31 .13
Quarter Ended May 31,1997 2.00 .69 .28 .09
FISCAL 1998
- -----------
Quarter Ended August 31, 1997 $ 1.72 $ .56 $ .28 $ .13
On September 12, 1997, the closing bid price of the Common Stock was
$1.50 and the closing bid price for the Class A Common Stock Purchase Warrants
was $.22.
As of September 12, 1997, the Company estimated that the number of stock
holders of record of the Company's Common Stock were approximately 1,550.
The Company has not paid any cash dividends on its Common Stock since
inception and it does not anticipate paying any cash dividends in the
foreseeable future.
In October 1996, Landmark International Equities, Inc., the underwriter
of the Company's initial public offering and primary market maker of the
Company's securities ceased operations. They are currently in excess of 20
registered market makers of the Company's securities and the Company is
continuing its efforts to expand the number of firms making market in the
Company's securities.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
GreenMan Technologies, Inc. was incorporated in 1992 primarily to
develop, manufacture, assemble and sell environmentally friendly plastic parts
and products. The Company's Molding operation provides injection molding
manufacturing services in the production of plastic and thermoplastic rubber
parts for such products as stereo components and speakers, water filters and
pumps and computer accessories.
The Company's Recycling operation was established to develop lower cost
sources of supply of rubber and plastic waste for recycling as well as to
identify rubber and plastic based end-products for which management believes
there is a significant market demand. The Company has targeted several markets
with products incorporating recovered crumb rubber including the building
industry with anti-fatigue floor mats, roofing products and timbers, and the
lawn and garden market with landscape timbers and fencing.
In October 1995, the Company sold in its initial public offering
("IPO"), 1,265,000 shares of common stock at $5.00 per share and 1,265,000
redeemable Class A common stock purchase warrants at $.10 per warrant and
11
received net proceeds of approximately $5,390,000 after underwriting commissions
and other issuance costs paid at the closing.
Simultaneous with the closing of the IPO, the Company acquired all of
the outstanding common stock of DuraWear Corporation ("DuraWear"), a company
which manufactures, installs and markets a diverse range of high quality
ceramic, polymer composite, and alloy steel materials engineered to resist
severely abrasive and corrosive conditions typically encountered in bulk
handling systems in such industries as paper and pulp, mining, coal handling and
grain storage and transportation. The consolidated financial statements include
the results of DuraWear since October 10, 1995.
RESULTS OF OPERATIONS
YEAR ENDED MAY 31,1997 COMPARED TO YEAR ENDED MAY 31,1996
Consolidated net sales for the year ended May 31, 1997 ("fiscal 1997")
were $4,020,670 as compared to $4,338,538 for the year ended May 31, 1996
("fiscal 1996"). The decrease in net consolidated sales of $317,868 or 7% was
due to a 39% or $1,263,191 decrease in contract molding and assembly business as
customers in south-central Arkansas utilized existing inventories during the
first half of fiscal 1997. The decrease in revenues of the molding operation was
partially offset by the inclusion of DuraWear sales for the full year compared
to approximately eight months in fiscal 1996, resulting in a $907,122 or 80%
increase in revenue as DuraWear was acquired on October 10, 1995. During fiscal
1997, approximately 29% of consolidated net sales were accounted for by Jacuzzi
Brothers Division, Little Rock, ("Jacuzzi"). During fiscal 1996, approximately
38% and 14% of consolidated net sales were accounted for by Jacuzzi and Stant
Manufacturing Inc., respectively. The effort to secure additional custom molding
business from new customers is ongoing and will continue until the Company
concludes the transition from custom to captive molding.
Gross profit for fiscal 1997 was $621,360 or 15% of consolidated sales
as compared to $1,108,540 or 26% of sales for fiscal 1996. This decrease is
attributable to the reduction in contract molding and assembly business and the
Company's decision to upgrade its Jackson, Georgia crumb rubber production
facility to produce higher-grade product. During the refacilitation, the Company
lacked the capability to process the tire chips received from BFI into higher
value-added feedstock material, thus necessitating the sale of lower gross
margin TDF ("Tire Derived Fuel") as a way to fulfill its tire chip obligation.
The Company was obligated to "take or pay" for 605 tons of TDF chips starting in
September 1996 from BTG (pursuant to a December 1995 agreement, as amended). BTG
acknowledged the delay in production and agreed to reduce the Company's
obligation by fifty percent through June 1997. The Company had a gross loss of
$416,840 on the sale of TDF chips for fiscal 1997. The "take or pay" obligation
was terminated as a result of the Company's acquisition of BTG in June 1997.
Research and development expenditures were $353,250 for fiscal 1997, an
increase of over 400%, as compared to $66,610 for fiscal 1996. The significant
increase is attributable to the Company's ongoing efforts to identify new
proprietary products and formulations and expand the applications of existing
product lines.
Selling, general and administrative expenses were $4,126,611 for fiscal
1997, or 103% of consolidated sales as compared to $2,406,794, or 55% of sales,
for fiscal 1996. The increase of $1,719,817 was partially attributable to the
inclusion of a full year of DuraWear's operating expenses totaling $1,082,091
which resulted in a $264,260 increase in expenses compared to fiscal 1996. The
Company also recognized $646,000 in non-cash expenses in connection with the
issuance of common stock warrants and options and the repricing of certain
previously issued common stock warrants and options in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation". In addition, the Company
initiated a significant financial public relations campaign during fiscal 1997
which resulted in a one-time charge of approximately $200,000. This campaign
consisted of newsprint articles, television features and the mailing of over
100,000 financial information packages to potential investors. The Company also
took a $150,000 charge for the potential uncollectibility of a note receivable.
The fiscal 1997 results also reflect $578,408 of costs associated with the
Company's recycling operation which operated under limited conditions as a
result of the decision to upgrade the Jackson, Georgia crumb rubber production
equipment.
As a result of the Company's decision to refocus its resources on the
opportunities for "high-value-added" crumb rubber, the limitations of the
Company's existing cryogenic recycling equipment to produce sufficient
quantities of ultra-fine mesh crumb rubber, the risks associated with a startup
venture, and the Company's minority interest in the joint
12
venture the Company wrote-down the carrying value of the equipment to its
estimated liquidation value. Accordingly, the Company recorded a $1,000,000
impairment loss in fiscal 1997 against the Company's deposit on the cryogenic
recycling equipment pursuant to SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of". This writedown
was effected even though subsequent to year-end, the Company contributed the
equipment as its capital contribution to a joint venture with the original
equipment manufacturer who in turn will contribute on its part certain
facilities, equipment, customer contracts, licenses and permits and provide
operational and technical expertise.
As a result of the foregoing, the operating loss for fiscal 1997
increased by $3,493,637 to $4,858,500 or 121% of consolidated sales, as compared
to an operating loss of $1,364,864, or 31% of sales for fiscal 1996.
Interest and financing costs increased by $1,826,024 to $2,114,803 due
to increased borrowings related to the issuance of $3,025,000 in convertible
debentures during fiscal 1997. Approximately $843,000 of the increase is
associated with the impact of amortizing the 30% discount from market to be
realized upon conversion of the debentures. The Company also recognized $860,118
of financing expense amortization associated with the Company's efforts to raise
additional capital during fiscal 1997. This expense included approximately
$556,560 of non-cash expense in connection with the issuance of common stock
warrants and options in accordance with SFAS No. 123, "Accounting for
Stock-Based Compensation".
The Company experienced a net loss of $7,006,479, or $1.25 per share for
fiscal 1997 as compared to a net loss of $1,578,321, or $.34 per share for
fiscal 1996.
YEAR ENDED MAY 31,1996 COMPARED TO YEAR ENDED MAY 31,1995
Consolidated net sales for the year ended May 31, 1996 were $4,338,538
as compared to $2,127,745 for the year ended May 31, 1995 ("fiscal 1995"). The
increase in net consolidated sales of $2,210,793 or 104% was due to a 50% or
$1,071,896 increase in contract molding and assembly business and the inclusion
of $1,138,897 of DuraWear sales. During fiscal 1996, approximately 38% and 14%
of consolidated net sales were accounted for by Jacuzzi Brothers Division,
Little Rock, ("Jacuzzi") and Stant Manufacturing Inc. ("Stant") respectively.
During fiscal 1995, approximately 62%, 14% and 10% of net sales were accounted
for by Jacuzzi, Stant and R. G. Sloane & Co., Inc. ("Sloane"), respectively.
Gross profit for fiscal 1996 was $1,108,540 or 26% of consolidated sales
as compared to $312,063 or 15% of sales for fiscal 1995. This improvement in
gross profit was primarily due to the inclusion of DuraWear sales which
generated a 54% gross margin while molding and assembly operations generated a
consistent 15% gross margin for the fiscal 1996 period.
Research and development expenditures were $66,610 for fiscal 1996 as
compared to $223,061 for fiscal 1995. The majority of the 70 % decrease is
attributable to the termination of two product development projects in fiscal
1995. This decrease was offset by the Company's ongoing efforts to identify new
proprietary products and expand the applications of existing product lines.
Selling, general and administrative expenses were $2,406,794 for fiscal
1996, or 55% of consolidated sales as compared to $619,163, or 29% of sales, for
fiscal 1995. The increase of $1,787,631 was primarily attributable to the
inclusion of DuraWear's operating expenses of $817,831, which included $77,778
relating to amortization of the three-year non-competition agreement and $33,232
relating to goodwill amortization. In addition, the Company's expenses increased
due to the addition of new employees, increased corporate development and
marketing activities and increased expenses related to the Company's becoming a
public company in October 1995.
As a result of the foregoing, the operating loss for fiscal 1996
increased by $834,703 to $1,364,864 or 31% of consolidated sales, as compared to
an operating loss of $530,161, or 25% of sales for fiscal 1995.
The Company repaid approximately $1,073,000 of bridge loans in October
1995 from the proceeds of its IPO which contributed to the $235,025 decrease in
interest and financing costs for fiscal 1996 as compared to fiscal 1995. In
addition, the Company recorded additional interest expense in fiscal 1995, in
connection with the March 1995 modification of the note payable to Budra
Management Corporation. These decreases were slightly offset by the inclusion of
DuraWear's interest expense of $28,900 for fiscal 1996.
The Company experienced a net loss of $1,578,321, or $.34 per share for
fiscal 1996 as compared to a net loss of $1,092,006, or $.27 per share for
fiscal 1995.
13
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has satisfied its capital requirements
through the sale of common and preferred stock and debt securities to investors,
loans from affiliated and unaffiliated lenders, the acquisition of machinery and
equipment through capital leases and notes payable, and the issuance of common
stock in lieu of cash for services rendered.
INITIAL PUBLIC OFFERING
On October 10, 1995, the Company raised approximately $5,390,000 from
its IPO, after underwriting commissions and other issuance costs paid at the
closing. The proceeds of the IPO were used to repay outstanding bridge loans,
and past due accounts payable, to acquire DuraWear, to construct a crumb rubber
recovery facility, to expand the injection molding operations, to retain the
underwriter as a financial consultant for a period of three years and for
general working capital needs.
During the period from February 1996 to June 1996 the Company borrowed
$1,700,000 in aggregate from a company that owns a subsidiary whose Chairman is
also a director of the Company. These notes payable bear interest at 10% per
annum with principal and interest due at the earlier of (1) the tenth business
day following the consummation by the Company of a minimum $3,000,000 of
additional financing or (2) $500,000 on September 30, 1996, $700,000 on January
1, 1997 and $500,000 June 1, 1997, respectively. In addition, the Company
granted warrants to purchase 200,000 shares of the Company's common stock at an
exercise price of $3.88 per share and warrants to purchase 100,000 shares of the
Company's common stock at an exercise price of $4.00 per share. In September
1996, the Company repaid approximately $500,000 of the amounts owed the lender.
On December 30, 1996, the Company renegotiated the remaining principal
balance of $1,200,000 due under these 10% notes payable. The outstanding
principal balance was exchanged for a 10% secured convertible note payable (the
"Note"), due July 1, 1997 and convertible into the Company's common stock, at
the holder's option, at a conversion price of $1.00 per share. The Note is
secured by an interest in the Company's cryogenic tire recycling equipment. The
Company also reduced the exercise price the of 300,000 warrants granted in 1996
to $1.13 per share.
On June 30, 1997, the Company received a 90 day extension of the Note
and a waiver allowing it to contribute it's cryogenic tire recycling equipment
into the GreenMan/CRT joint venture in return for granting the holder piggy-back
registration rights for the shares of common stock underlying the Note, accrued
interest and the 300,000 warrants granted in 1996.
CRUMB RUBBER FACILITY
The Company allocated approximately $1,000,000 of the proceeds from its
IPO for the construction of the crumb rubber recycling facility. As of May 31,
1997, the construction had been completed at a total cost of approximately
$902,000.
In October 1995, the Company placed a purchase order for cryogenic
recycling equipment and placed a 50% or $700,000 deposit with the equipment
manufacturer for the first cryogenic recycling equipment line. In March 1996,
the Company paid an additional $1,100,000 deposit towards the purchase of
additional cryogenic recycling equipment lines. As a result of the formation of
a joint venture (the "GMT/CRT joint venture") between the Company and Crumb
Rubber Technologies, Inc. ("CRT") on August 26, 1997, the Company will
contribute the cryogenic recycling equipment previously purchased from CRT and
formerly located in Jackson, Georgia into the venture as its capital
contribution while CRT will contribute on its part certain facilities,
equipment, customer contracts, licenses and permits and provide operational and
technical expertise. CRT will refund $300,000 of the deposits previously made by
the Company towards additional cryogenic recycling equipment lines that were
cancelled.
LOANS FROM OFFICERS
In May 1996, the Company borrowed $325,000 from an officer of the
Company. This unsecured note payable bears interest at prime plus 1.5% per annum
with principal and interest due on the earlier of 120 days after the date of
issuance or the tenth business day following the consummation of a minimum
$3,000,000 of additional financing by the Company. From September 1996 to May
1997 the Company borrowed collectively, an additional $624,300 from this officer
and another officer of the Company and repaid $345,000 in aggregate during
January 1997 and May 1997.
14
On May 30, 1997, the Company refinanced the remaining principle balance
and accrued interest ($18,000) owed to Messrs. Needham and Levangie plus accrued
business expenses ($17,700) by issuing to Messrs. Needham and Levangie a 10%
convertible debentures, due October 30, 1998 in the amount of $555,000 and
$85,000, respectively and warrants to purchase 128,000 shares of common stock at
an exercise price of $.88 per share. The debentures are convertible after a one
hundred and twenty day holding period into shares of common stock at a
conversion price equal to the lower of the average closing bid price on the five
trading days preceding May 30, 1997 or 70% of the average closing bid price on
the five trading days preceding the date of the conversion of such debentures.
15
DEBENTURES OFFERINGS
In January 1997, the Company concluded a $1,525,000 offering of 7%
convertible subordinated debentures ("Debentures") and warrants to purchase
762,500 shares of common stock (the "January Offering") at an exercise price of
$1.25 per share. The Debentures are convertible after a sixty day holding period
into shares of common stock at a conversion price equal to the lower of the
closing bid price on the date of the January Offering closing or 70% of the
closing bid price on the date prior to the conversion of such Debentures. The
Debentures automatically convert into shares of common stock one year after
issuance. The net proceeds from the January Offering were approximately
$1,310,000 after deducting commissions and expenses of approximately $214,000.
As of May 31, 1997, $825,000 of the Debentures had been converted for
approximately 1,249,813 shares of the Company's common stock.
In April 1997, the Company concluded a $1,500,000 offering of
convertible subordinated debentures due eighteen months after closing and
warrants to purchase 300,000 shares of common stock (the "April Offering") at
exercise prices ranging from $.97 to $1.05 per share. The debentures are
convertible after a sixty day holding period into shares of common stock at a
conversion price equal to the lower of the average closing bid price on the five
trading days preceding the date of the closing of the April Offering or 70% of
the average closing bid price on the five trading days preceding the date of the
conversion of such debentures. The debenture holders will receive 4,000 shares
of the Company's common stock upon conversion in lieu of interest for each
$100,000 invested. The net proceeds from the April Offering were approximately
$1,247,000 after deducting commissions and expenses of approximately $253,000.
Approximately $650,000 of the proceeds were paid to BFI as a deposit in
connection with the acquisition of BTM and BTG.
AQUISITION OF BTM AND BTG
On June 30, 1997, GreenMan acquired all of the capital stock of BTM and
BTG which are wholly-owned subsidiaries of BFI for approximately $5,331,000. A
deposit of $650,000 has been paid to BFI at May 31, 1997 and the balance was
financed by a short-term loan from BFI to the Company, which must be repaid by
September 30, 1997. The repayment of such loan is guaranteed by the Company and
is secured by all of the assets and capital stock of the acquired companies. The
Company anticipates refinancing such loans prior to maturity, but has not yet
received any firm commitments. No assurances can be given that such financing
will be concluded prior to the maturity, if at all.
At May 31, 1997, the Company had cash of $104,193, a working capital
deficit of $3,016,098, net capital of $1,123,465 and accumulated losses of
$10,704,933. The working capital deficit includes $1,200,000 of convertible
debentures and approximately $434,000 relating to the reclassification of
certain long term capital lease obligations to current as several leases are in
default. The Company is currently working with the lessor to bring its
obligations current and has not received any written or verbal notice of the
lessor's intention to enforce the default provisons. From June to August 1997,
$700,000 of debentures were converted into 1,243,384 shares of common stock.
Based on the Company's operating plans, Management believes that the
available working capital together with revenues from operations and the
purchase of equipment through lease financing arrangements, and the successful
refinancing of the June 30, 1997 short term loan will be sufficient to meet the
Company's cash requirements through the second quarter of fiscal 1998. The
Company expects that additional financing will be required after this time in
order to fund continued growth. Management has identified and is currently
evaluating several immediate financing alternatives and diligently working to
determine the feasibility of each alternative. No assurances can be given that
such financing will be concluded in the near future on favorable terms, if at
all. If the Company is unable to obtain additional financing, its ability to
maintain its current level of operations could be materially and adversely
affected and the Company may be required to adjust its operating plans
accordingly.
FACTORS AFFECTING FUTURE RESULTS
The Company's revenue and operating results may fluctuate from quarter
to quarter and from year to year due to a combination of factors, including (i)
refacilitation of the Company's crumb rubber plant and production of crumb
rubber in commercial quantities at a price that will be competitive in the
market; (ii) the Company's ability to secure additional customers for its
products, thereby reducing its reliance on a few major customers; (iii) the
Company's ability to refinance the BTM and BTG acquisition related short term
loan and the Company's ability to integrate and manage the operations of BTM and
BTG, its recently acquired subsidiaries; (iv) market acceptance of the Company's
proposed GEM Stock material and GreenMan consumer products; (v) ability to
obtain raw materials from suppliers on terms acceptable to the Company; and (vi)
general economic conditions. The Company's plans and objectives, are based on
assumptions that the Company will be successful in completing its crumb rubber
facility, that it will produce crumb rubber at a price that will be competitive
in the market, that the Company will be successful in receiving additional
financing to fund future growth and that there will be no material adverse
change in the Company's operations or business.
16
Assumptions relating to the foregoing involve judgments with respect to,
among other things, future economic, competitive and market conditions, all of
which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. As a result, there can be no assurance that
the Company will be able to achieve or sustain profitability on a quarterly or
annual basis. In light of the significant uncertainties inherent in the
Company's business, forward-looking statements made in this report should not be
regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
ENVIRONMENTAL LIABILITY
The Company has no known material environmental violations or
assessments.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company intends to adopt Statement of Financial Accounting Standards
("SFAS") NO. 128, "Earnings per Share", in the year ended May 31, 1998. SFAS No.
128 establishes standards for computing and presenting earnings per share, and
is effective for financial statements issued for periods ending after December
15, 1997, earlier application is not permitted. SFAS NO. 128 requires the
restatement of all prior period earnings per share data presented.
The FASB issued SFAS No. 128, "Earnings per Share" in February 1997.
SFAS No. 128 establishes standards for computing and presenting
earnings-per-share, and is effective for financial statements issued for periods
ending after December 15, 1997, earlier application is not permitted . SFAS No.
128 requires the restatement of all prior period earnings-per-share data
presented.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 is effective for fiscal years beginning after Decemver 15,
1997. Accounting principles generally require all recognized revenue,expenses,
gainds and losses to be included in net income. Various FASB statements,
however, require companies to report certain changes in assets and liabilities
as a separate component of the equity section of the balance sheet such as
unrealized gains and losses on available for sale securities, foreign currency
items and minimum pension liability adjustments. These items along with net
income, are components of comprehensive income.
It is requried under SFAS No. 130 that all items of comprehensive income
are to be reported in a "financial statement" that is displayed with the same
prominence as other financial statements. Additionally, SFAS No. 130 requires
the classification of items comprising other comprehensive income by their
nauture, and the accumulated balance of other comprehensive income must be
displayed separately from retained earnings and additional paid in capital in
the equity section of the balance sheet. Management will adopt this new
disclosure requirement beginning in the fiscal year ended May 31, 1999.
Also in June 1997, the FASB isssued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997. SFAS No.
131 establishes standards for the way that public companies report information
about operating segments in annual financial statements and selected information
about operating segments in interim financial reports issued to shareholders. It
also establishes standards for related disclosures about products and services,
geographic areas and major customers. Generally, financial information is
required to be reported on the basis that it is used internally for evaluating
segment performance and deciding how to allocate resources to segments.
SFAS No. 131 also requires companies to report information about the way
that the operating segments were determined, the product and services provided
by the operating segments, differences between the measurements used in
reporting segment information and those used by the Company in its general
purpose financial statements, and changes in the measurement of segment amounts
from period to period. Management has not yet determined the impact that
adoption of SFAS No. 131 will have on its financial statement presentation.
ITEM 7. FINANCIAL STATEMENTS
For information required with respect to this Item 7, see "Consolidated
Financial Statements" on pages F-1 through F-24 of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The Directors and executive officers of the Company are as follows:
Name Age Position
---- ---- --------
Maurice E. Needham ............ 57 Chairman of the Board of Directors
Robert H. Davis ............... 54 Chief Executive Officer, Director
James F. Barker................ 56 President, Director
Joseph E. Levangie............. 52 Chief Financial Officer; Treasurer;
Secretary; Director
Robert D. Maust ............... 59 President of Recycling Operations,
Director
Lew F. Boyd.................... 52 Director
On July 30, 1997, subject to shareholder approval, the Board of
Directors established three classes of directors, each class ordinarily to serve
for three terms. Class I directors will serve until the Annual Meeting of
Stockholders to be held in 1998, Class II directors will serve until the Annual
Meeting of Stockholders to be held in 1999, and Class III directors will serve
until the Annual Meeting of Stockholders to be held in 2000. As adopted, the
staggered board would be comprised of James F. Barker and Robert D. Maust as
Class I directors; Maurice E. Needham and Robert H. Davis as Class II directors;
and Joseph E. Levangie and Lew F. Boyd as Class III directors. The Company's
officers are appointed by the Board of Directors and serve at the discretion of
the Board of Directors. No director receives compensation for services as a
director.
The Company has established an Audit Committee consisting of Messrs.
Levangie and Boyd and a Compensation Committee consisting of Messrs. Needham and
Boyd .
MAURICE E. NEEDHAM has been Chairman of the Company since June 1993.
From June 1993 to July 21, 1997, Mr. Needham also served as Chief Executive
Officer of the Company. He also serves as Chairman of Dynaco Corporation
("Dynaco"), a manufacturer of flexible printed circuit boards which he founded
in 1987. Dynaco filed for an orderly liquidation under bankruptcy protection in
July 1993 and emerged from such protection in February 1994, as a division of
Palomar Medical Technologies, Inc., a Beverly, Massachusetts company engaged in
the development of advanced medical equipment. Prior to 1987, Mr. Needham spent
17 years at Hadco Corporation, a printed circuit board manufacturer, where he
served as President, Chief Operating Officer and Director.
17
ROBERT H. DAVIS has been Chief Executive Officer of the Company since
July 21, 1997 and a Director of the Company since July 30, 1997. Prior to
joining the Company, Mr. Davis served as Vice President of Recycling for
Browning-Ferris Industries, Inc. of Houston, Texas ("BFI") since 1990. As an
early leader of BFI's recycling division, Mr. Davis grew that operation from
startup to $650 million per-year in profitable revenues. A 25-year veteran of
the recycling industry, Mr. Davis has also held executive positions with Fibres
International, Garden State Paper Company, and SCS Engineers, Inc.
JAMES F. BARKER has been President and a Director of the Company since
its inception in September 1992. Mr. Barker has over 15 years experience in the
plastics industry with both manufacturing and OEM sales activities in areas
including injection molding, extrusion, blow molding, machinery rebuilding and
repair services and manufacturing plant operations and design. From 1991 to
September 1992, Mr. Barker was a Sales Engineer with Adams Engineering &
Equipment, a distributor of injection molding machines, extruders and auxiliary
equipment.
JOSEPH E. LEVANGIE has been Chief Financial Officer and a Director of
the Company since its inception and Treasurer and Secretary since June 1993. Mr.
Levangie is the founder and has been since its inception in 1981, the Chief
Executive Officer of JEL & Associates, which specializes in corporate finance
and business strategy. Mr. Levangie also serves as a Director of Nexar, Inc., a
publicly-traded company.
LEW F. BOYD has been a Director of the Company since August 1994. Mr.
Boyd is the founder and has been since 1986 the Chief Executive Officer of
Coastal International, Inc., an international business development and
technology transfer firm.
ROBERT D. MAUST has been President of the Company's Recycling Operation
since December 1996 and a Director of the Company since July 30, 1997. Prior to
joining the Company, Mr. Maust was Vice President for BFI's tire recycling
operations from July 1991 to 1996 and was instrumental in growing that operation
from 5 million tires/year to 22 million tires/year over a five year period. An
entrepreneur/manager with over ten years experience in tire recycling, Mr. Maust
was President of Maust Tire Recycling from 1988 to 1991, when he sold the
business to BFI and joined BFI as Vice President.
KEY EMPLOYEES
CYNTHIA BARKER, 38, is a co-founder and has been director of Corporate
Administration of the Company since its inception in September 1992. Prior
joining GreenMan, she was a Senior Associate with JEL & Associates from 1982 to
1995. She has extensive experience in business planning, marketing, human
resources, administration management and investor relations.
CHARLES E. COPPA, 34, has served as the Company's Corporate Controller
since October, 1995. A CPA, he most recently was CFO and Treasurer of Food
Integrated Technologies of Brookline, MA, a publicly-traded development stage
company from July 1994 to October 1995. Prior to joining Food Integrated
Technologies, Inc., Mr. Coppa served as Corporate Controller for Boston Pacific
Medical, Inc., a manufacturer and distributor of disposable medical products and
Corporate Controller for Avatar Technologies, Inc., a computer networking
company.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES AND EXCHANGE ACT OF 1934
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10% of
the Company's Common Stock ("10% Stockholders"), to file with the Securities and
Exchange Commission ("the SEC") initial reports of ownership of the Company's
Common Stock and other equity securities on Form 3 and reports of changes in
such ownership on Form 4 and Form 5. Officers, directors and 10% Stockholders
are required by SEC regulations to furnish the Company with copies of all
Section 16 (a) forms they file.
18
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company during and with respect to, its most recent
fiscal year, and written representation that no other reports were required, all
Section 16 (a) filing requirements applicable to its officers, directors and 10%
Stockholders were complied with.
ITEM 10. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by the
Company for services rendered during the years indicated to the Company's
Chairman and Chief Executive Officer, and its President. The Company did not
grant any restricted stock awards or stock appreciation rights or make any
long-term plan payouts during the years indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
FISCAL YEAR SECURITIES
NAME AND ENDED OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION MAY 31, SALARY BONUS COMPENSATION OPTIONS COMPENSATION(2)
------------------ ------ ------ ----- ------------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Maurice E. Needham............ 1997 $72,691 -- -- 387,500 (3) $3,600
Chairman 1996 42,924 $ -- $ 18,000 (1) -- --
1995 -- -- 36,000 (1) -- 2,850
James F. Barker............... 1997 $83,600 $25,000 -- 175,000 11,764
President 1996 81,057 -- -- -- 7,804
1995 66,000 -- -- -- 3,383
- ---------
(1) Represents consulting fees paid or accrued.
(2) Represents payments made to or on behalf of Mr. Barker in fiscal 1997 and 1996 for health insurance and auto
allowances. Represents payments in fiscal 1997 to Mr. Needham for auto allowances. In August 1994, the Company
forgave stock subscriptions receivable from Messrs. Needham and Barker for services rendered during the Company's
start-up operations.
(3) Represents options granted in July 1996. These options were repriced in December 1996. Does not include 111,000
warrants to purchase shares of common stock granted to Mr. Needham pursuant to the terms of a loan made to the
Company by Mr. Needham.
</TABLE>
The following table sets forth information concerning the value of
unexercised options as of May 31, 1997 held by the executives named in the
Summary Compensation Table above. No options were exercised by such executive
officers during the fiscal year ended May 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES(1)
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT MAY 31, 1997 AT MAY 31, 1997 (2)
----------------------- -------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----- ----------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Maurice E. Needham.......................... 147,000 411,500 $28,440 $ 18,960
James F. Barker............................. 36,000 199,000 $28,440 $ 18,960
- ---------
(1) There were no options exercised by any of the executive officers named in
the Summary Compensation Table in the twelve months ended May 31, 1997. The
options granted to the executive officers became exercisable commencing June 10,
1994, at an annual rate of 20% of the underlying shares of Common Stock.
(2) Assumes that the value of shares of Common Stock is equal to $.88 per share,
which was the closing bid price of the Company's Common Stock as listed by
NASDAQ on May 31, 1997.
</TABLE>
EMPLOYMENT AGREEMENTS
In October 1995, the Company entered into three-year employment
agreements with each of Messrs. Needham, Barker and Levangie pursuant to which
Messrs. Needham and Levangie each receive a salary of $72,000 per annum and Mr.
Barker receives a salary of $80,000 per annum. Any increases or bonuses are made
at the
19
discretion of the Board of Directors upon the recommendation of the Compensation
Committee. The agreements provide for the payment of six-months salary as a
severance payment for termination without cause. Prior thereto, Messrs. Needham
and Levangie were compensated through consulting fees paid or accrued by the
Company for their services as officers of the Company.
In December 1996, the Company entered into a three-year employment
agreement with Mr. Robert D. Maust pursuant to which Mr. Maust will receive a
salary of $125,000 per annum. Any increases or bonuses are made at the
discretion of the Board of Directors upon the recommendation of the Compensation
Committee. The agreement provides for the payment of twelve-months salary as a
severance payment for termination without cause.
All of the Company's executive employees have executed confidentiality
and non-disclosure agreements concerning the Company's proprietary processes.
STOCK OPTION PLAN
The Company's 1993 Stock Option Plan (the "Plan") was adopted by the
Board of Directors on June 10, 1993 and approved by the stockholders on June 10,
1993.
Options granted under the Plan may be either (i) options intended to
qualify as "incentive stock options" under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code"), or (ii) non-qualified
stock options. Incentive stock options may be granted under the Plan to
employees, including officers and directors who are employees. Non-qualified
options may be granted to employees, directors and consultants of the Company.
The Plan is administered by the Board of Directors. Under the Plan, the
Board has the authority to determine the persons to whom options will be
granted, the number of shares to be covered by each option, whether the options
granted are intended to be incentive stock options, the manner of exercise, and
the time, manner and form of payment upon exercise of an option. On June 7, 1996
a Special Meeting of Stockholders was held and the Company increased the total
number of shares of Common Stock reserved for issuance under the Plan to
1,000,000.
Incentive stock options granted under the Plan may not be granted at a
price less than the fair market value of the Common Stock on the date of grant
(or less than 110% of fair market value in the case of persons holding 10% or
more of the voting stock of the Company). Non-qualified stock options may be
granted at an exercise price established by the Board which may not be less than
85% of fair market value of the shares on the date of grant. Incentive stock
options granted under the Plan must expire no more than ten years from the date
of grant, and no more than five years from the date of grant in the case of
incentive stock options granted to an employee holding 10% or more of the voting
stock of the Company.
As of May 31, 1997, there were 716,700 options granted and outstanding
under the Plan of which 137,500 options were exercisable at prices ranging from
$.09 to $1.00.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
On January 24, 1996, the Board of Directors of the Company adopted the
1996 Non-Employee Director Stock Option Plan ("Director Plan") and the Company's
stockholders' approved the Director Plan on June 7, 1996. The purpose of the
Director Plan is to promote the interests of the Company by providing an
inducement to obtain and retain the services of qualified persons who are not
officers or employees of the Company to serve as members of the Board of
Directors. The Board of Director has reserved 300,000 shares of common stock for
issuance and as of May 31, 1997, options to purchase 30,000 shares of Common
Stock have been granted under the Director Plan.
Each person who was a member of the Board of Directors on January 24,
1996, and was not an officer or employee of the Company, was automatically
granted an option to purchase 10,000 shares of the Company's Common Stock. In
addition, after an individual's initial election to the Board of Directors, any
director who is not an officer or employee of the Company who continues to serve
as a director will automatically be granted on the date of the Annual Meeting of
Stockholders an additional option to purchase 10,000 shares of the Company's
Common Stock. The exercise price per share of options granted under the Director
Plan is 100% of the fair-market value of the Company's Common Stock on the
business day immediately prior to the date of the grant. Each option granted
under the 1996 Director Plan is immediately exercisable for a period of ten
years from the date of the grant.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of May 31, 1997: (i) by each person
who is known by the Company to own beneficially 5% or
20
more of the outstanding shares of Common Stock; (ii) by each director and
officer of the Company (including any "group" as used in Section 13(d)(3) of the
Securities Exchange Act of 1934); and (iii) by all directors and officers of the
Company as a group. Unless otherwise indicated below, to the knowledge of the
Company, all persons listed below have sole voting and investment power with
respect to their shares of Common Stock, except to the extent authority is
shared by spouses under applicable law. As of May 31, 1997, there were issued
and outstanding 6,873,296 shares of Common Stock.
NUMBER OF SHARES PERCENTAGE OF
NAME (1) BENEFICIALLY OWNED(2) CLASS
- -------- --------------------- -----
Palomar Medical Technologies, Inc. (3)...... 1,660,000 16.92%
66 Cherry Hill Road Beverly MA, 01915
Maurice E. Needham (4)...................... 484,000 5.85%
James F. Barker (5)......................... 390,300 4.78%
Joseph E. Levangie (6)...................... 307,500 3.78%
Dhananjay G. Wadekar........................ 539,083 6.64%
Lew F. Boyd (7)............................. 25,000 --
Robert D. Maust............................. -- --
Robert H. Davis............................. -- --
All officers and directors as a group
(6 persons)(4,5,6,7).................. 1,206,800 14.40%
- -----------------------------------------
* Less than 1% of the outstanding Common Stock.
(1) Each person's address is care of GreenMan Technologies, Inc.,7 Kimball
Lane, Building A, Lynnfield, MA 01940 with the exception of Dhananjay
Wadekar, whose address is c/o DynaGen Inc., 99 Erie Street, Cambridge,MA
02139.
(2) Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stock that an individual or group has a right to acquire within 60
days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed to be outstanding for the purpose
of computing the percentage ownership of any other person shown in the
table.
(3) Consists of shares issuable upon conversion of the outstanding principal
and accrued interest on a 10% secured convertible Promissory note and upon
exercise of warrants to purchase Common Stock.
(4) Includes 159,000 shares of Common Stock issuable pursuant to immediately
exercisable stock options and warrants. Also includes 20,000 shares of
Common Stock owned by Mr. Needham's wife. Does not include 399,500 shares
of Common Stock issuable pursuant to outstanding stock options and warrants
that are not currently exercisable and 60,000 shares owned by Mr. Needham's
adult children, as to which he disclaims beneficial ownership.
(5) Includes 48,000 shares of Common Stock issuable pursuant to immediately
exercisable stock options and 4,000 shares of Common Stock issuable
pursuant to immediately exercisable stock options owned by Mr. Barker's
wife. Does not include 1,000 shares of Common Stock issuable pursuant to
stock options owned by Mr. Barker's wife that are not immediately
exercisable, and 137,700 shares owned by Cynthia M. Barker, Mr. Barker's
adult daughter, as to which he disclaims beneficial ownership. Also does
not include 188,000 shares of Common Stock issuable pursuant to outstanding
stock options that are not currently exercisable.
(6) Includes 27,500 shares of Common Stock issuable pursuant to immediately
exercisable stock options and warrants. Does not include 352,000 shares of
Common Stock issuable pursuant to outstanding stock options and warrants
that are not currently exercisable. Does not include 40,000 shares owned by
Mr. Levangie's adult children, as to which he disclaims beneficial
ownership.
(7) Includes 25,000 shares of Common Stock issuable pursuant to immediately
exercisable options. Does not include 85,000 shares of Common Stock
issuable pursuant to outstanding stock options that are not currently
exercisable.
21
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCK ISSUANCES; STOCK OPTIONS; WARRANTS
In connection with its incorporation in 1992, the Company authorized the
issuance at a price of $.01 per share of 338,300 shares of Common Stock to James
F. Barker, the Company's President, 116,700 shares to Cynthia M. Barker, Mr.
Barker's adult daughter and an employee of the Company, 250,000 shares to Joseph
E. Levangie, the Company's Chief Financial Officer, 285,000 shares to Maurice E.
Needham, the Company's Chairman and Chief Executive Officer, and 220,000 shares
to Dhananjay G. Wadekar, a principal stockholder. The Company also issued 44,500
shares to one unaffiliated person. (Hereinafter, these shares are collectively
referred to as "Founders' Shares"). Although stock subscription agreements for
the Founders' Shares were executed, no payment for the Founders' Shares was
received. In August 1994, the Company's Board of Directors voted to forgive the
stock subscriptions receivable in exchange for services rendered by these
persons to the Company during its start-up operations. The Company also issued
140,000 shares of Common Stock to Budra Management Corp. ("Budra"), at the time
a principal stockholder of the Company, in connection with the loans made to the
Company.
In July 1995, Mr. Wadekar purchased an additional 58,333 shares from
previous stockholders of the Company as a condition to the Company's listing on
the NASDAQ SmallCap Market.
In July 1994, the Company granted to Mr. Wadekar five-year,
non-qualified stock options to purchase 125,000 shares of the Company's Common
Stock exercisable at $.29 per share in consideration for services rendered to
the Company which included advice on business and joint venture strategies, as
well as advice for integration of the operations of DuraWear and the Company. In
February 1996, Mr. Wadekar exercised these non-qualified stock options using a
net exercise feature, in exchange for 117,750 shares of Common Stock.
On October 10, 1995, the Company acquired all of the outstanding common
stock of DuraWear Corporation, a company owed solely by Mr. Wadekar, a principal
stockholder of the Company. The purchase price consisted of $400,000 in cash and
75,000 shares of the Company's Common Stock, valued in the aggregate at $375,000
or $5.00 per share. In connection with the acquisition, the Company entered into
a three-year non-competition agreement with Mr. Wadekar, under which the Company
issued 70,000 shares of the Company's Common Stock valued in the aggregate at
$350,000 or $5.00 per share. The Company also entered into a one-year consulting
agreement with Mr. Wadekar in consideration for which the Company paid $20,000.
On May 30, 1997, the Company issued Mr. Needham and Mr. Levangie, two
officers of the Company, options to purchase 111,000 and 17,000 shares of common
stock, respectively, pursuant to the terms of loans made to the Company. The
warrants have an exercise price of $.88 per share.
22
LOANS; PERSONAL GUARANTEES
During the period from September to December 1992, Budra Management made
loans to the Company in the aggregate principal amount of $233,000. The original
terms of the loans provided for payment of interest at the rate of 10% per
annum, the repayment of the loans at the closing of the Company's Initial Public
Offering ("IPO") and the payment of an additional $250,000 in cash one year from
the IPO. In March 1995, the Company and Budra modified the terms of the note to
provide for the issuance to Budra of 100,000 shares of Common Stock, valued in
the aggregate at $500,000 (or $5.00 per share), at the closing of the IPO in
lieu of the $250,000 cash payment. The 100,000 shares of Common Stock are
subject to a lock-up agreement limiting the transfer of the shares to no more
than 15,000 shares per quarter commencing 90 days after the IPO. In October
1995, the Company repaid the $233,000 notes payable plus interest to Budra and
issued the 100,000 shares of Common Stock. Pursuant to the terms of the DuraWear
stock purchase agreement, the Company succeeded to the obligations of DuraWear
relating to the repayment of an amount ($78,897 as of May 31, 1997) which is
evidenced by a promissory note representing amounts due for advances to DuraWear
by Mr. Wadekar who is also a principal stockholder of the Company. The note is
being repaid in 36 equal monthly installments of principal plus accrued interest
at prime plus 1.5% (10.0% at May 31, 1997), adjusted annually.
Mr. Wadekar has guaranteed payment of DuraWear's remaining loan from a
bank, which has an outstanding principal balance of $450,654 at May 31, 1997 and
is secured by a mortgage on real estate owned by DuraWear, as well as a lien on
substantially all of DuraWear's assets, bears interest at the rate of prime plus
1% ( 9.5% at May 31, 1997) per annum and is due in July 2000.
During the period from February 1996 to June 1996 the Company borrowed
$1,700,000 in aggregate from a company that owns a subsidiary whose Chairman is
also a director of the Company. These notes payable bear interest at 10% per
annum with principal and interest due at the earlier of: (1) the tenth business
day following the consummation by the Company of a minimum $3,000,000 of
additional financing; or (2) $500,000 on September 30, 1996, $700,000 on January
1, 1997 and $500,000 June 1, 1997, respectively. In addition, the Company
granted warrants to purchase 200,000 shares of the Company's common stock at an
exercise price of $3.88 per share and warrants to purchase 100,000 shares of the
Company's common stock at an exercise price of $4.00 per share. In September
1997, the Company repaid approximately $500,000 of the amounts owed the lender.
On December 30,1996, the Company renegotiated the remaining principal balance of
$1,200,000 due under these 10% notes payable. The outstanding principal balance
was exchanged for a 10% secured convertible note payable (the "Note"), due July
1, 1997 and convertible into the Company's common stock, at the holder's option,
at a conversion price of $1.00 per share. The Note is secured by an interest in
the Company's cryogenic tire recycling equipment. The Company also reduced the
exercise price of the 300,000 warrants granted in 1996 to $1.13 which was the
closing bid price of the Company's common stock on December 30, 1996. On June
30, 1997, the Company received a 90-day extension of the Note and a waiver
allowing it to contribute it's cryogenic tire recycling equipment into the
GreenMan/CRT joint venture in return for granting the holder piggy-back
registration rights for the shares of common stock underlying the Note, accrued
interest and the 300,000 warrants granted in 1996.
In May 1996, the Company borrowed $325,000 from Mr. Needham. This
unsecured note payable bears interest at a rate of prime plus 1.5% per annum
with principal and interest due the earlier of 120 days after issuance or the
tenth business day following the consummation of a minimum $3,000,000 of
additional financing. The proceeds of the note were used towards equipment
deposits, licensing fees and the issuance of notes receivable.
From September 1996 to May 1997 the Company borrowed an additional
$624,300 from Mr. Needham and Mr. Levangie, collectively. During January 1997
and May 1997 the Company repaid $345,000 of the amounts owed.
On May 30, 1997, the Company refinanced the remaining principal and
accrued interest ($18,000) owed to Messrs. Needham and Levangie plus accrued
business expenses ($17,000) by issuing to Messrs. Needham and Levangie a 10%
convertible debenture, due October 30, 1998 in the principal amount of $555,000
and $85,000, respectively and warrants to purchase 111,000 shares and 17,000
shares of common stock, respectively, at an exercise price of $.88 per share.
The debentures are convertible after a one-hundred-and-twenty-day holding period
(the "holding period") into shares of common stock at a conversion price equal
to the lower of the average closing bid price on the five trading days preceding
May 30, 1997 or 70% of the average closing bid price on the five trading days
preceding the date of the conversion of such debentures.
23
During June and July 1997, the Company borrowed an additional $386,000
from Messrs. Needham, Levangie and two other officers of the Company under
similar terms to the May 30, 1997 debentures and issued warrants to purchase
77,200 shares of common stock at exercise prices ranging from $.72 to $.97 per
share.
From time to time since its inception, the Company has entered into
third party equipment leases with respect to certain equipment used by the
Company in its operations. Mr. Barker has personally guaranteed the lease
payments on equipment leases totaling approximately $1,200,000.
All transactions, including loans, between the Company and its officers,
directors, principal stockholders, and their affiliates are approved by a
majority of the independent and disinterested outside directors on the Board of
Directors, and will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits required by Item 601 of Regulation S-B are filed
as part of this Annual Report on Form 10-KSB. Exhibit numbers, where
applicable, in the left column correspond to these of Item 601 of Regulation SB.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
*3.1 -- Certificate of Incorporation of GreenMan Technologies, Inc.
*3.2 -- Articles of Incorporation of J.W. DuraWear, Inc. (Name changed to DuraWear Corporation in
Certificate of Merger of DuraWear Corporation into J.W. DuraWear, Inc. dated November 29, 1990).
*3.3 -- Certificate of Stock Designation of GreenMan Technologies, Inc. dated August 10, 1995.
*3.4 -- By-laws of GreenMan Technologies, Inc.
***3.5 -- Certificate of Amendment to the Certificate of Incorporation of GreenMan Technologies, Inc.
*4.1 -- Specimen certificate for Common Stock of the Company.
*4.2 -- Specimen certificate for Class A Redeemable Common Stock Purchase Warrant.
*4.3 -- Form of Warrant Agreement between the Company and OTC Corporate Transfer Services Co.
*4.4 -- Form of Warrant issued to Landmark International Equities, Inc.
*10.5 -- 1993 Stock Option Plan.
*10.6 -- Stock Option Letter dated June 10, 1993 issued to James F. Barker.
*10.7 -- Stock Option Letter dated June 10, 1993 issued to Maurice E. Needham.
*10.8 -- Stock Option Letter dated June 10, 1993 issued to Joseph E. Levangie.
*10.9 -- Stock Option Letter dated April 25, 1994 issued to Lew F. Boyd.
*10.10 -- Intentionally Omitted.
*10.11 -- Stock Option Letter dated April 26, 1995 issued to Joseph E. Levangie.
*10.12 -- Stock Option Letter dated July 1, 1994 issued to Dhananjay G. Wadekar.
*10.13 -- Form of confidentiality and non-disclosure agreement for executive employees.
*10.14 -- Form of Employment Agreement with James F. Barker.
*10.15 -- Form of Employment Agreement with Maurice E. Needham.
*10.16 -- Form of Employment Agreement with Joseph E. Levangie.
*10.17 -- Form of Consulting Agreement with Dhananjay G. Wadekar.
24
*10.18 -- Form of 10% Convertible Promissory Note issued between November 1993 and April 1994
(the "First Bridge") to 17 unaffiliated lenders of GreenMan Technologies, Inc.
representing, in the aggregate, $575,000.
*10.19 -- Form of 10% Convertible Promissory Note issued in September and October 1994 (the "Second
Bridge") to unaffiliated lenders of GreenMan Technologies, Inc. representing, in the aggregate,
$300,000.
*10.20 -- Promissory Notes of GreenMan Technologies, Inc. issued from September to December 1992 to Budra
Management Corp. representing, in the aggregate principal amount, $233,000 and bearing an
effective rate of interest of 53% per annum.
*10.21 -- Letter Agreement dated March 20, 1995 amending the terms of the Promissory Notes issued by
GreenMan Technologies, Inc. to Budra Management Corp.
*10.22 -- Stock Purchase agreement by and among GreenMan Technologies, Inc., DuraWear Corporation and
Dhananjay G. Wadekar for the acquisition by GreenMan Technologies, Inc. of all of the
outstanding capital stock of DuraWear Corporation.
*10.23 -- Letter Agreement dated March 10, 1995 amending the terms of the Stock Purchase Agreement by and
among GreenMan Technologies, Inc., DuraWear Corporation and Dhananjay G. Wadekar.
*10.24 -- Form of Non-Competition Agreement with Dhananjay G. Wadekar.
*10.25 -- Agreement dated August 16, 1994 between GreenMan Technologies, Inc. and Crumb Rubber
Technology, Inc.
*10.26 -- Exclusivity Agreement dated September 14, 1994 between GreenMan Technologies, Inc. and Crumb
Rubber Technology, Inc.
*10.27 -- Agreement dated September 20, 1994 whereby MC Machinery Systems, Inc. (Lessor) and MAC Funding Corporation
(Assignee) surrendered default rights under certain capital equipment leases of the Company.
*10.28 -- Form of Subscription Agreement executed by investors in connection with April 1995 Private
Placement of Class A Convertible Preferred Stock.
*10.29 -- Form of Registration Rights Agreement executed by investors in connection with April 1995
Private Placement of Class A Convertible Preferred Stock.
*10.30 -- Promissory Note issued in April 1995 by GreenMan Technologies, Inc. to Maurice E. Needham.
*10.31 -- Promissory Notes issued by DuraWear Corp. to GreenMan Technologies, Inc. in connection with
certain loans by the Company to DuraWear Corporation.
*10.32 -- Form of Stock Purchase Agreement between Salvatore Mazzeo, Custodian for Mathew J. Mazzeo,
UGMA, and Dhananjay G. Wadekar.
**10.33 -- Tire Material Put-or-Pay/Take-or-Pay Agreement dated December 14, 1995 between GreenMan
Technologies, Inc. and BFI Tire Recyclers of Georgia, Inc.
**10.34 -- Facility Lease dated December 14, 1995 between GreenMan Technologies,Inc. and BFI Tire Recyclers of Georgia, Inc.
**10.35 -- Amended and Restated Term Note dated October 1, 1995 between DuraWearCorporation and SouthTrust Bank of Alabama,
National Association.
**10.36 -- Loan Modification and Consent Agreement dated October 1, 1995 between DuraWear Corporation and SouthTrust Bank of
Alabama, National Association.
**10.37 -- Commercial Lease dated October 13, 1995 between GreenMan Technologies, Inc. and Kimball
Realty Trust.
**10.38 -- Amendment to Agreement described in Exhibit 10.33.
**10.39 -- Promissory Note issued in May 1996 by GreenMan Technologies, Inc. to Maurice E. Needham.
**10.40 -- Promissory Note issued in February 1996 by GreenMan Technologies, Inc. to Palomar Medical
Technologies, Inc.
25
**10.41 -- Promissory Note issued in May 1996 by GreenMan Technologies, Inc. to Palomar Medical
Technologies, Inc.
(1) 10.42 -- Promissory Note issued in June 1996 by GreenMan Technologies, Inc. to Palomar Medical
Technologies, Inc
(1) 10.43 -- Common Stock Purchase Warrant issued in June 1996 to Palomar Medical Technologies, Inc
(1) 10.44 -- Form of Offshore Stock Subscription Agreement dated September 16, 1996 between GreenMan
Technologies, Inc. and certain foreign investors.
(2) 10.45 -- Promissory Note issued September 2,1996 by GreenMan Technologies, Inc. to Maurice E. Needham.
(2) 10.46 -- Promissory Note issued September 25, 1996 by GreenMan Technologies, Inc. to Maurice E. Needham.
(2) 10.47 -- Promissory Note issued October 25, 1996 by GreenMan Technologies, Inc to Joseph E. Levangie.
(2) 10.48 -- Promissory Note issued November 27, 1996 by GreenMan Technologies, Inc. to Maurice E. Needham
(4) 10.49 -- 10% Secured Convertible Promissory Note, issued December 31, 1996, by GreenMan Technologies, Inc. to
Palomar Medical Technologies, Inc.
(4) 10.50 -- Security Interest, dated December 31, 1996, issued by GreenMan Technologies, Inc. to Palomar
Medical Technologies, Inc.
(3) 10.51 -- Form of Subscription Agreement, dated January 1997, issued by GreenMan Technologies, Inc. to
various investors.
(3) 10.52 -- Form of 7% Convertible Debenture, dated January 1997, issued by GreenMan Technologies, Inc.
to various investors.
(3) 10.53 -- Form of Common Stock Purchase Warrant, dated January 1997, issued by GreenMan Technologies, Inc.
to various investors.
***(5)10.54 -- Employment Agreement between the Company and Robert D. Maust.
(5) 10.55 -- Form of Securities Purchase Agreement between the Company and various investors in connection with
the April 1997 Offering of Convertible Notes due October 1998 and Warrants.
(5) 10.56 -- Form of Registration Rights Agreement between the Company and various investors in connection with
the April 1997 Offering of Convertible Notes due October 1998 and Warrants.
(5) 10.57 -- Form of Convertible Note due October 1998.
(5) 10.58 -- Form of Common Stock Purchase Warrant.
*** 10.59 -- Letter from Palomar Medical Technologies, Inc. to the Company extending the maturity date of
the December 1996 Note.
*** 10.60 -- Form of Securities Purchase Agreement between the Company and Messrs. Needham and
Levangie dated May 30, 1997.
*** 10.61 -- Form of Convertible Note due October 1998 issued by the Company to Messrs. Needham and
Levangie on May 30, 1997.
*** 10.62 -- Form of Warrant issued by the Company to Messrs. Needham and Levangie on May 30, 1997.
*** 11.1 -- Statement Regarding Computation of Earnings Per Share.
*** 23.1 -- Consent of Wolf & Company, P.C. dated September 15, 1997.
*** 27.1 -- Financial Data Schedule
</TABLE>
- --------
* Filed as an Exhibit to the Company's Registration Statement on Form SB-2
No. 33-86138 and incorporated herein by reference.
** Filed as an Exhibit to the Company's Form 10-QSB for the Quarter Ended
November 30, 1995 or the Form 10-KSB for the Year Ended May 31, 1996 and
incorporated herein by reference.
*** Filed herewith.
(1) Filed as an Exhibit to the Company's Form 10-QSB for the Quarter Ended
August 31,1996 and incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Form 10-QSB for the Quarter Ended
November 30, 1996, and incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Form 8-K dated January 29, 1997 and
incorporated herein by reference.
(4) Filed as an Exhibit to the Company's Form 10-QSB for the Quarter Ended
February 28, 1997, and incorporated herein by reference.
(5) Filed as an Exhibit to the Company's Form 8-K dated May 5, 1997 and
incorporated herein by reference.
(b) Report on Form 8-K
A report on Form 8-K was filed on May 5, 1997 describing the execution
of a letter of intent between the Company and Browning Ferris Industries, Inc.
("BFI") to (1) purchase all of the issued and outstanding common stock of BFI
Tire Recyclers of Minnesota, Inc. and BFI Tire Recyclers of Georgia, Inc. (2) to
purchase certain tire processing related assets located at BFI's Asuza,
California facility and (3) the granting to the Company of an exclusive option
to purchase certain assets and agreements of BFI's Ford Heights, Illinois tire
recycling subsidiary.
The filing also described the sale of $1,500,000 of Convertible
Subordinated Debentures in April 1997.
26
GREENMAN TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-2
Consolidated Balance Sheets as of May 31, 1996 and 1997 F-3
Consolidated Statements of Loss for the Years Ended
May 31, 1995, 1996 and 1997 F-4
Consolidated Statements of Changes in Stockholders'
Equity (Deficit) for the Years Ended May 31, 1995,
1996 and 1997 F-5
Consolidated Statements of Cash Flows for the Years
Ended May 31, 1995, 1996 and 1997 F-6
Notes to Consolidated Financial Statements F-8
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
GreenMan Technologies, Inc.
Lynnfield, Massachusetts
We have audited the accompanying consolidated balance sheets of GreenMan
Technologies, Inc. and subsidiary as of May 31, 1996 and 1997 and the related
consolidated statements of loss, changes in stockholders' equity (deficit) and
cash flows for the years ended May 31, 1995, 1996 and 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of GreenMan
Technologies, Inc. and subsidiary at May 31, 1996 and 1997 and the results of
their operations and cash flows for the years ended May 31, 1995, 1996 and 1997
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 discussed in Note 3 to the
consolidated financial statements, the Company has suffered losses from
operations, is in default on certain capital leases and has a working capital
deficiency that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 3. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
WOLF & COMPANY, P.C.
Boston, Massachusetts
August 26, 1997
F-2
GREENMAN TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, MAY 31,
1996 1997
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................................ $ 153,172 $ 104,193
Accounts receivable, trade, less allowance for doubtful accounts
of $31,751 and $23,772 as of May 31, 1996 and 1997 ..................................... 605,255 550,644
Inventory (Note 4) ....................................................................... 525,279 553,688
Loan receivable, related party (Note 5) .................................................. 500,000 --
Other current assets ..................................................................... 242,607 204,155
--------- ---------
Total current assets ............................................................... 2,026,313 1,412,680
--------- ---------
Property and equipment, at cost (Notes 11 and 12):
Land .................................................................................. 223,785 223,785
Buildings ............................................................................. 910,400 910,400
Machinery and equipment ............................................................... 2,026,131 3,545,573
Furniture and fixtures ................................................................ 88,276 89,792
Motor vehicles ........................................................................ 33,932 64,822
Leasehold Improvements ................................................................ 895,958 975,116
--------- ---------
4,178,482 5,809,488
Less accumulated depreciation and amortization ...................................... (507,991) (888,445)
--------- ---------
3,670,491 4,921,043
--------- ---------
Other assets:
Equipment deposits (Notes 6 and 10) ...................................................... 1,883,400 862,711
Acquisition deposit (Note 20) ........................................................... -- 650,000
Deferred financing costs (Notes 9 and 10) ................................................ -- 1,198,899
Goodwill, net (Note 2) ................................................................... 465,246 415,398
Non-competition agreement, net (Note 2) .................................................. 272,222 155,557
Note receivable (Note 7) ................................................................. 150,000 --
Licensing fee (Note 8) .................................................................. 100,000 91,667
Other .................................................................................... 71,311 77,575
--------- ---------
2,942,179 3,451,807
--------- ---------
$ 8,638,983 $ 9,785,530
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Convertible notes payable, related party (Note 10) ....................................... $ -- $ 1,200,000
Notes payable, related parties (Note 10) ................................................. 1,378,253 58,829
Notes payable, bank, current portion (Note 11) ........................................... 140,289 37,910
Accounts payable ......................................................................... 718,770 815,631
Accrued expenses, other .................................................................. 680,318 1,270,682
Obligations under capital leases, current (Note 12) ..................................... 311,679 1,045,726
--------- ---------
Total current liabilities .............................................................. 3,229,309 4,428,778
Convertible notes payable (Note 9) ......................................................... -- 2,200,000
Convertible notes payable, related parties, non-current portion (Note 10) .................. -- 640,000
Notes payable, related parties, non-current portion (Note 10) .............................. 578,897 24,371
Notes payable, bank, non-current portion (Note 11) ......................................... 475,008 474,678
Obligations under capital leases (Note 12) ................................................. 819,943 894,238
--------- ---------
Total liabilities ...................................................................... 5,103,157 8,662,065
--------- ---------
Commitments and contingencies (Notes 6, 13 and 20)
Stockholders' equity (Notes 9,10 and 14):
Preferred stock, $1.00 par value, 1,000,000 shares authorized, no shares issued
and outstanding at May 31, 1996 and 1997 ............................................... -- --
Common stock, $.01 par value, 10,000,000 shares authorized at May 31, 1996 and
20,000,000 shares authorized at May 31, 1997; 5,076,083 and 6,873,296 shares
issued and outstanding at May 31, 1996 and 1997 ...................................... 50,761 68,733
Additional paid-in capital ............................................................... 7,183,519 11,759,665
Accumulated deficit ...................................................................... (3,698,454) (10,704,933)
--------- ---------
Total stockholders' equity ......................................................... 3,535,826 1,123,465
--------- ---------
$ 8,638,983 $ 9,785,530
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
GREENMAN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF LOSS
<TABLE>
<CAPTION>
Years Ended May 31,
------------------------------------
1995 1996 1997
------ ----- ----
<S> <C> <C> <C>
Net sales (Note 16) ................................................. $ 2,127,745 $ 4,338,538 $ 4,020,670
Cost of sales ....................................................... 1,815,682 3,229,998 3,399,310
---------- ---------- ----------
Gross profit ........................................................ 312,063 1,108,540 621,360
---------- ---------- ----------
Operating expenses:
Research and development (Note 13) ............................. 223,061 66,610 353,250
Selling, general and administrative (Notes 7,13,14 and 17) ...... 619,163 2,406,794 4,126,611
Impairment loss (Note 6) ....................................... -- -- 1,000,000
---------- --------- -----------
Total operating expenses .................................... 842,224 2,473,404 5,479,861
----------- ---------- -----------
Operating loss ...................................................... (530,161) (1,364,864) (4,858,501)
----------- ----------- -----------
Other income (expense):
Interest and financing costs (Notes 9, 10, 11 and 12) .......... (523,804) (288,779) (2,114,803)
Other, net ...................................................... (38,041) 75,322 (33,175)
----------- ----------- -----------
Other income (expense), net ................................. (561,845) (213,457) (2,147,978)
----------- ----------- -----------
Net loss ............................................................ $(1,092,006) $(1,578,321) $(7,006,479)
=========== =========== ===========
Net loss per share (Note 1) ......................................... $ (.27) $ (.34) $ (1.25)
=========== =========== ===========
Shares used in calculation of net loss per share .................... 4,097,333 4,684,260 5,613,942
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
GREENMAN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED MAY 31, 1995, 1996 AND 1997
(NOTES 2,9,10 AND 14)
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional Stock Notes
--------------- -------------- Paid-in Accumulated Subscriptions Receivable
Shares Amount Shares Amount Capital Deficit Receivable Common Stock Total
------ ------ ------ ------ ---------- ----------- ------------- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1994 ....... -- $ -- 2,588,500 $ 25,885 $210,660 $(1,028,127) $(87,545) $(125,000) $(1,004,127)
Stock subscription payments
received ................... -- -- -- -- -- -- 75,000 -- 75,000
Stock subscriptions forgiven
for services................ -- -- -- -- -- -- 12,545 -- 12,545
Shares purchased and retired -- -- (463,167) (4,632) (138,569) -- -- 87,317 (55,884)
Shares issued for services
rendered and accrued
expenses ................ -- -- 178,000 1,780 176,220 -- -- -- 178,000
Shares issued on conversion
of note payable ......... -- -- 40,000 400 39,600 -- -- -- 40,000
Notes receivable, common
stock payment received .. -- -- -- -- -- -- -- 37,683 37,683
Sale of preferred stock ..... 500,000 500,000 -- -- (23,001) -- -- -- 476,999
Net loss for year ended May
31, 1995 ................ -- -- -- -- -- (1,092,006) -- -- (1,092,006)
-------- ------- --------- ------ ------- ---------- -------- ------ ---------
Balance, May 31, 1995 ..... 500,000 500,000 2,343,333 23,433 264,910 (2,120,133) -- -- (1,331,790)
Sale of preferred stock ..... 300,000 600,000 -- -- -- -- -- -- 600,000
Shares issued at initial
public offering ......... -- -- 1,265,000 12,650 4,570,087 -- -- -- 4,582,737
Shares issued on
conversion of notes
payable ................. -- -- 259,000 2,590 32,410 -- -- -- 35,000
Shares issued on
conversion of interest
payable ................. -- -- 100,000 1,000 499,000 -- -- -- 500,000
Shares issued for purchase
of DuraWear Corporation -- -- 75,000 750 374,250 -- -- -- 375,000
Shares issued for non-
competition agreement .. -- -- 70,000 700 349,300 -- -- -- 350,000
Conversion of preferred
stock ................... (800,000)(1,100,000) 800,000 8,000 1,092,000 -- -- -- --
Shares issued on exercise
of stock options ....... -- -- 167,750 1,678 12,522 -- -- -- 14,200
Shares purchased and retired -- -- (4,000) (40) (10,960) -- -- -- (11,000)
Net loss for year ended May
31, 1996 ................ -- -- -- -- -- (1,578,321) -- -- (1,578,321)
-------- ------- --------- ------ ------- ---------- -------- ------ ---------
Balance, May 31, 1996 .... -- -- 5,076,083 50,761 7,183,519 (3,698,454) -- -- 3,535,826
Compensation expense
related to warrants
issued to non-employees
under SFAS 123 .......... -- -- -- -- 646,203 -- -- -- 646,203
Sale of common stock ....... -- -- 545,000 5,450 701,010 -- -- -- 706,460
Shares issued on exercise
of stock options ....... -- -- 2,400 24 312 -- -- -- 336
Compensation expense
related to warrants
issued in January
1997 convertible debt
offering under SFAS 123 . -- -- -- -- 770,000 -- -- -- 770,000
Fair value of conversion
discount on convertible
notes payable issued
in January 1997 ......... -- -- -- -- 654,000 -- -- -- 654,000
Shares issued on
conversion of notes
payable ................. -- -- 1,249,813 12,498 811,521 -- -- -- 824,019
Compensation expense
related to warrants
issued in April 1997
convertivble debt
offering under SFAS 123 . -- -- -- -- 64,600 -- -- -- 64,600
Fair value of conversion
discount on
convertible notes
payable issued
in April 1997 .......... -- -- -- -- 643,000 -- -- -- 643,000
Compensation expense
related to warrants
issued in May 1997
to investors under SFAS
123 ..................... -- -- -- -- 11,500 -- -- -- 11,500
Fair value of conversion
discount on convertible
notes payable issued
in May 1997 ........... -- -- -- -- 274,000 -- -- -- 274,000
Net loss for year ended
May 31, 1997 ............ -- -- -- -- -- (7,006,479) -- -- (7,006,479)
-------- ------- --------- ------ ------- ------------- ------ ------ ---------
Balance, May 31, 1997 .... -- $ -- 6,873,296 $68,733 $11,759,665 $(10,704,933) $ -- $ -- $ 1,123,465
======== ====== ========= ======= =========== ============ ====== ======= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
GREENMAN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
---------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .......................................................................... $(1,092,006) $(1,578,321) $(7,006,479)
Adjustments to reconcile net loss to net cash used for operating activities:
Impairment loss ............................................................... -- -- 1,000,000
Amortization of deferred financing costs ...................................... -- -- 1,685,201
Allowance for uncollectible note receivable ................................... -- -- 150,000
Depreciation and amortization ................................................. 136,617 331,920 555,300
Common stock warrants and options issued for services ......................... -- -- 646,203
Loss on disposal of property and equipment .................................... 3,557 -- --
Issuance of common stock for services ......................................... 46,045 -- --
(Increase) decrease in assets:
Accounts receivable ........................................................ (136,729) (26,363) 54,611
Inventory .................................................................. (58,306) (198,033) (28,409)
Loan receivable, related party ............................................. -- (500,000) 500,000
Other current assets ....................................................... (60,710) (161,747) 38,452
Deferred offering costs .................................................... (365,028) (391,595) --
Increase (decrease) in liabilities:
Accounts payable ........................................................... 220,192 (12,784) 96,861
Accrued expenses ........................................................... 842,195 (151,911) 590,364
----------- ----------- -----------
Net cash used for operating activities ................................. (464,173) (2,688,834) (1,717,896)
----------- ----------- -----------
Cash flows from investing activities:
Acquisition deposit ............................................................... -- -- (650,000)
Increase in notes receivable ...................................................... (39,000) (207,094) --
Purchase of property and equipment ................................................ (36,880) (1,081,862) (637,944)
Increase (decrease) in equipment deposits ......................................... -- (1,883,400) 20,689
Acquisition of DuraWear, net of cash acquired .................................... -- (370,027) --
(Increase)decrease in other assets ................................................ 250 (163,147) (6,264)
----------- ----------- -----------
Net cash used for investing activities ................................. (75,630) (3,705,530) (1,273,519)
----------- ----------- -----------
Cash flows from financing activities:
Net proceeds from convertible notes payable ....................................... -- -- 2,557,019
Proceeds from notes payable ....................................................... 390,054 33,932 46,550
Repayment of notes payable ........................................................ (39,537) (1,176,453) (149,259)
Proceeds from notes payable, related parties ...................................... -- 1,825,000 860,000
Repayment of notes payable, related parties ....................................... -- (4,233) (893,950)
Principal payments on obligations under capital leases ............................ (279,921) (233,048) (184,720)
Net proceeds on sale of preferred stock ........................................... 454,499 600,000 --
Payments received on stock subscriptions .......................................... 112,683 -- --
Common stock purchased and retired ................................................ (55,884) (11,000) --
Net proceeds on exercise of common stock options .................................. -- 14,200 336
Net proceeds from the sale of common stock ........................................ -- -- 706,460
Net proceeds from initial public offering ......................................... -- 5,389,360 --
----------- ----------- -----------
Net cash provided by financing activities ....................................... 581,894 6,437,758 2,942,436
----------- ----------- -----------
Net increase (decease) in cash ........................................................ 42,091 43,394 (48,979)
Cash and cash equivalents at beginning of year ........................................ 67,687 109,778 153,172
----------- ----------- -----------
Cash and cash equivalents at end of year .............................................. $ 109,778 $ 153,172 $ 104,193
=========== =========== ===========
Supplemental cash flow information:
Machinery and equipment acquired under capital leases ............................. $ -- $ 453,643 $ 993,062
Common stock issued on conversion of accrued expenses ............................. 144,500 500,000 --
Class A preferred stock issued on conversion of accrued expenses .................. 22,500 -- --
Common stock issued on conversion of notes payable ................................ 40,000 35,000 825,000
Cancellation of notes receivable, common stock .................................... 87,317 -- --
Common stock issued for non-competition agreement ................................. -- 350,000 --
Common stock issued upon conversion of preferred stock ............................ -- 1,100,000 --
Value of conversion discounts and warrants issued in connection with convertible
notes payable ................................................................. -- -- 2,417,100
Interest paid ..................................................................... 145,470 314,973 232,987
</TABLE>
(CONTINUED)
See accompanying notes to consolidated financial statements.
F-6
GREENMAN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(CONCLUDED)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
On October 10, 1995, Company purchased all of the capital stock of
DuraWear Corporation as follows:
Fair value of assets acquired $ 1,704,603
Fair value of liabilities assumed 1,428,081
---------
Fair value of net assets acquired 276,522
Common stock issued (375,000)
Cash paid (400,000)
--------
Excess of cost over fair value of net assets $ 498,478
===========
See accompanying notes to consolidated financial statements.
F-7
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Company develops, manufactures and markets custom molded plastic
parts. The Company is also developing low-cost sources of crumb rubber recovered
from discarded automobile and truck tires and the consumer products to be
manufactured from these recycled materials.
On October 10, 1995, the Company acquired all of the outstanding common
stock of DuraWear Corporation ("DuraWear"). DuraWear manufactures, installs and
markets a diverse range of high quality ceramic, polymer composite, and alloy
steel materials engineered to resist severe abrasive and corrosive conditions
typically encountered in bulk material handling systems. (See Note 2).
Basis of Presentation
The consolidated financial statements include the results of the Company
and its wholly-owned subsidiary, DuraWear. All significant intercompany accounts
and transactions are eliminated in consolidation.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the amounts of revenues and expenses recorded during the
reporting period. Actual results could differ from those estimates. Such
estimates relate primarily to the estimated lives of property and equipment, the
value of goodwill and other intangible assets and the value of equity
instruments issued. The amount that the Company may ultimately realize from
equipment deposits and notes receivable could differ materially from the value
of these investments recorded in the accompanying financial statements as of May
31, 1997.
Cash Equivalents
Cash equivalents include short-term investments with original maturities
of three months or less.
Inventory
Inventory is valued at the lower of cost or market on a first-in
first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
expense is provided on the straight-line method. Depreciation and amortization
expense for the years ended May 31, 1995, 1996 and 1997 was $136,617, $220,053
and $380,454 respectively. A summary of the estimated useful lives follows:
Buildings................................... 25 years
Machinery and equipment..................... 5-15 years
Furniture and fixtures...................... 3-10 years
Motor vehicles.............................. 5 years
Leasehold improvements...................... 10-20 years
Expenditures for maintenance, repairs and minor renewals are charged to
expense as incurred. Significant improvements and major renewals are
capitalized.
Deferred Financing Costs
Deferred financing costs represent costs incurred in connection with
raising capital through the issuance of convertible debentures. The amount is
amortized to expense over the estimated life of the debenture.
F-8
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Deferred Offering Costs
Deferred offering costs represent costs incurred in connection with
raising capital. Upon completion of an offering, the amount of proceeds credited
to additional paid-in capital is reduced by the deferred offering costs.
Revenue Recognition
Revenues from product sales are recognized when the products are
shipped.
Income Taxes
Deferred tax assets and liabilities are recorded for temporary
differences between the financial statement and tax bases of assets and
liabilities using the currently enacted income tax rates expected to be in
effect when the taxes are actually paid or recovered. A deferred tax asset is
also recorded for net operating loss and tax credit carryforwards to the extent
their realization is more likely than not. The deferred tax expense for the
period represents the change in the deferred tax asset or liability from the
beginning to the end of the period.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation. This statement encourages all entities to adopt a
fair value based method of accounting for employee stock compensation plans,
whereby compensation cost is measured at the grant date based on the value of
the award and is recognized over the service period, which is usually the
vesting period. However, it also allows an entity to continue to measure
compensation cost of those plans using the intrinsic value based method of
accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees", whereby compensation cost is the
excess, if any, of the quoted market price of the stock at the grant date (or
other measurement date) over the amount an employee must pay to acquire the
stock. Stock options issued under the Company's stock option plans generally
have no intrinsic value at the grant date, and under APB Opinion No. 25, no
compensation cost is recognized for them. The Company has elected to continue to
apply the accounting in APB Opinion No. 25 and, as a result , must make pro
forma disclosures of net income and earnings per share and other disclosures, as
if the fair, value-based method of accounting had been applied. The disclosure
requirements of this Statement are effective for the Company's consolidated
financial statements for the year ended May 31, 1997. The pro forma disclosures
include the effects of all awards granted after May 31, 1995. (See Note 14).
Net Loss Per Share
Net loss per share is based on the weighted average number of common
shares outstanding during the period.
A staff accounting bulletin issued by the Securities and Exchange
Commission requires that common stock, options, warrants and other potentially
dilutive instruments issued within one year prior to the initial filing of a
registration statement for an initial public offering be treated as outstanding
for all periods prior to the effective date of the registration for purposes of
the net loss per share computation.
New Accounting Pronouncements
The FASB issued SFAS No. 128, "Earnings per Share" in February 1997.
SFAS No. 128 establishes standards for computing and presenting
earnings-per-share, and is effective for financial statements issued for periods
ending after December 15, 1997, earlier application is not permitted . SFAS No.
128 requires the restatement of all prior period earnings-per-share data
presented.
F-9
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 is effective for fiscal years beginning after Decemver 15,
1997. Accounting principles generally require all recognized revenue,expenses,
gainds and losses to be included in net income. Various FASB statements,
however, require companies to report certain changes in assets and liabilities
as a separate component of the equity section of the balance sheet such as
unrealized gains and losses on available for sale securities, foreign currency
items and minimum pension liability adjustments. These items along with net
income, are components of comprehensive income.
It is requried under SFAS No. 130 that all items of comprehensive income
are to be reported in a "financial statement" that is displayed with the same
prominence as other financial statements. Additionally, SFAS No. 130 requires
the classification of items comprising other comprehensive income by their
nauture, and the accumulated balance of other comprehensive income must be
displayed separately from retained earnings and additional paid in capital in
the equity section of the balance sheet. Management will adopt this new
disclosure requirement beginning in the fiscal year ended May 31, 1999.
Also in June 1997, the FASB isssued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997. SFAS No.
131 establishes standards for the way that public companies report information
about operating segments in annual financial statements and selected information
about operating segments in interim financial reports issued to shareholders. It
also establishes standards for related disclosures about products and services,
geographic areas and major customers. Generally, financial information is
required to be reported on the basis that it is used internally for evaluating
segment performance and deciding how to allocate resources to segments.
SFAS No. 131 also requires companies to report information about the way
that the operating segments were determined, the product and services provided
by the operating segments, differences between the measurements used in
reporting segment information and those used by the Company in its general
purpose financial statements, and changes in the measurement of segment amounts
from period to period. Management has not yet determined the impact that
adoption of SFAS No. 131 will have on its financial statement presentation.
2. ACQUISITION OF SUBSIDIARY
On October 10, 1995, the Company acquired all of the outstanding common
stock of DuraWear Corporation. The purchase price consisted of $400,000 in cash
from the proceeds of the Company's initial public offering (IPO") and 75,000
shares of the Company's common stock, valued in the aggregate at $375,000 or
$5.00 per share. The acquisition has been accounted for as a purchase and
accordingly, the results of operations of DuraWear are included in the
consolidated financial statements since the date of acquisition. Goodwill was
recorded as the total consideration paid by the Company exceeded the fair value
of the net assets of DuraWear by approximately $498,000. Goodwill is being
amortized over 10 years on a straight line basis. Amortization expense for the
years ended May 31, 1996 and 1997 was $33,232 and $49,848, respectively.
F-10
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. ACQUISITION OF SUBSIDIARY - (CONTINUED)
In connection with the acquisition, the Company also entered into a
three-year non-competition agreement with the former sole stockholder of
DuraWear, under which the Company issued 70,000 shares of the Company's common
stock valued in the aggregate at $350,000 or $5.00 per share. The amount is
being amortized over the term of the agreement on a straight line basis.
Amortization expense for the years ended May 31, 1996 and 1997 was $77,778 and
$116,667, respectively.The Company also entered into a one-year consulting
agreement with the former sole stockholder of DuraWear in consideration for
which the Company has paid a total of $20,000.
The following unaudited proforma financial information summarizes the
consolidated results of operations of the Company and DuraWear as if the
acquisition had occurred at the beginning of the year ended May 31, 1995. The
unaudited proforma information is not necessarily indicative either of the
results of operations that would have occurred had the purchase been made at the
beginning of the fiscal year or of future results of operations of the combined
companies.
Years Ended
----------------------------
May 31, 1995 May 31, 1996
------------ ------------
Revenue $ 3,869,984 $ 5,068,247
Net loss (1,221,333) (1,774,410)
Net loss per weighted average share $ (.30) $ (.38)
3. NEED FOR ADDITIONAL CAPITAL
The Company has incurred losses since its inception aggregating
$10,704,933, and has a working capital deficiency of $3,016,098 at May 31, 1997.
The working capital deficit includes $1,200,000 of convertible debentures and
approximately $434,000 relating to the reclassification of certain long term
capital lease obligations to current as several leases are in default. The
Company is currently working with the lessor to bring its obligations current
and has not received any written or verbal notice of the lessors intention to
enforce the default provisons. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. The Company's continued
existence is dependent on its ability to achieve profitable operations and raise
additional financing. Management plans to resolve the doubt by raising capital
through additional equity financing. The Company is currently evaluating several
equity financing alternatives that may provide sufficient capital resources to
sustain operations. As a result, management believes that no further adjustments
or reclassifications of recorded assets and liabilities is necessary at this
time.
4. INVENTORY
Inventory consists of the following at May 31:
1996 1997
-------------- ---------
Raw materials............................... $ 181,157 $ 164,589
Work in process............................. 5,847 15,670
Finished goods.............................. 338,275 373,429
----------- ---------
$ 525,279 $ 553,688
=========== =========
5. LOAN RECEIVABLE, RELATED PARTY
In January 1996, the Company made a $500,000 advance under a
non-interest bearing loan agreement to a company owned by one of its former
directors. On June 26, 1996, this advance was returned to the Company in its
entirety.
F-11
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. EQUIPMENT DEPOSITS
In October 1995, the Company placed a purchase order for cryogenic
recycling equipment and placed a 50% or $700,000 deposit with the equipment
manufacturer for cryogenic recycling equipment line. From March 1996 to May
1996, the first cryogenic recycling equipment line was delivered and installed
and the Company paid an additional $1,100,000 towards the purchase of the first
line and additional cryogenic recycling equipment lines.
During the first half of fiscal 1997, the company refined the production
process of the cryogenic recycling equipment and evaluated the production
capabilities of the facility. Based upon the cryogenic recycling equipment's
capacity to produce ultra-fine mesh crumb rubber, the Company decided to
redeploy the equipment into a joint venture with the original equipment
manufacturer.
As a result of the Company's decision to refocus its resources on the
opportunities for "high-value-added" crumb rubber, the limitations of the
Company's existing cryogenic recycling equipment to produce sufficient
quantities of fine mesh crumb rubber, the risks associated with a startup joint
venture, and the Company's minority interest in the joint venture, the Company
wrote down the carrying value of the equipment to the equipment's estimated
liquidation value. Accordingly, the Company recorded a $1,000,000 impairment
loss in fiscal 1997 against the Company's deposit on the cryogenic recycling
equipment pursuant to SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of". This write-down was
effected at May 31, 1997 even though the Company subsequently contributed the
equipment as its capital contribution to a joint venture with the original
equipment manufacturer. The manufacturer has agreed to contribute certain
facilities, equipment, customer contracts, licenses and permits and provide
operational and technical expertise to the joint venture The original equipment
manufacturer has also agreed to refund $300,000 of the equipment deposits during
the fiscal year ended May 31, 1998.
The Company also has $62,711 on deposit towards the purchase of a
material handling system which has a total cost of $72,711.
7. NOTE RECEIVABLE
In May 1996, the Company loaned $150,000 to Air Fenders, LTD ("Air
Fenders") in the form of a three- year, unsecured loan, bearing interest at
prime (8.5% at May 31, 1997). Based upon a significant delay in Air Fenders
securing sufficient capital and customer orders and the costs associated with
Air Fenders decision to transition from in-house manufacturing capabilities to
utilizing contract molding vendors, the Company has provided a $150,000
allowance for the potential future uncollectibility of the Air Fenders loan.
8. LICENSING FEE
In April 1996, the Company signed a perpetual license agreement with a
private R&D company under which it acquired the exclusive world-wide rights and
license to use a proprietary additive technology for co-mingling (mixing or
blending) of dissimilar plastics and rubber. The Company paid a one-time,
$100,000 licensing fee at signing of the agreement and no additional fees are
due for the manufacture of the Company's own products. The Company may be
required to pay a 3% royalty fee on the sale of blended material for use as a
raw material. The Company is amortizing the license fee over an estimated
ten-year useful life of the technology. Amortization expense for the year ended
May 31, 1997 was $8,333.
9. NOTES PAYABLE
Bridge Financing
The Company borrowed $233,000 during the period September 1992 to
December 1992 from Budra Management Corp. ("Budra"). The unsecured notes payable
required interest at a stated annual rate of 10% with principal and interest due
on the closing of the Company's IPO and in addition granted Budra 100,000 shares
of common stock on the closing of the IPO. The 100,000 shares issued upon the
closing of the IPO were valued in the aggregate at $500,000 or $5.00 per share,
which was the IPO price of the common stock. Interest expense for the years
ended May 31,1995 and 1996 amounted to $295,445 and $94,419 respectively.
F-12
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. NOTES PAYABLE - (CONTINUED)
The Company borrowed $875,000 in two transactions through a placement
agent (the "Placement Agent") during the period November 1993 to October 1994
from certain investors. These unsecured notes payable bear interest at 10% per
annum with principal and interest due on the closing of the Company's IPO. In
addition, on completion of the IPO, $35,000 of the notes payable were converted
into 259,000 shares of common stock. Interest expense for the years ended May
31, 1995 and 1996 amounted to $76,960 and $31,644 respectively. In connection
with these notes, the Company paid fees to the Placement Agent of $112,250 and
legal fees of $35,000.
Convertible Notes Payable
In January 1997, the Company concluded a $1,525,000 offering of 7%
convertible subordinated debentures ("Debentures") and immediately exercisable
one year warrants to purchase 762,500 shares of common stock (the "January
Offering") at an exercise price of $1.25 per share. The Debentures are
convertible after a sixty day holding period into shares of common stock at a
conversion price equal to the lower of the closing bid price on the date of the
January Offering closing or 70% of the closing bid price on the date prior to
the conversion of such Debentures. The Debentures automatically convert into
shares of common stock one year after issuance. The Company recorded non-cash
deferred financing costs of $75,000 in connection with the issuance of the
warrants to purchase 762,500 shares. The net proceeds from the January Offering
were approximately $1,310,000 after deducting commissions and expenses of
approximately $214,000. The Company has recorded a deferred charge of
approximately $654,000 associated with the 30% discount from market to be
realized upon conversion. The Company also recorded non-cash deferred financing
costs of $695,000 in connection with the issuance of warrants to purchase
1,050,000 shares of common stock to the placement agents in accordance with SFAS
No. 123. These warrants are immediately exercisable at prices ranging from $.05
to $1.25 per share with 600,000 warrants expiring in December 1999 and 450,000
expiring in January 1998. The deferred charges are being amortized to expense
over the estimated life of the convertible notes. Amortization and interest
expense on the debentures for the year ended May 31, 1997 was $1,396,953.
As of May 31, 1997, $825,000 of the Debentures had been converted for
1,249,813 shares of the Company's common stock. During the period of June
through July 1997, the remaining $700,000 of the January 1997 convertible
debentures were converted for 1,243,384 shares of the Company's common stock.
These shares were registered on Form S-3 which was declared effective in March
1997.
In April 1997, the Company concluded a $1,500,000 offering of
convertible subordinated debentures due eighteen months after closing and
immediately exercisable two year warrants to purchase 300,000 shares of common
stock (the "April Offering") at exercise prices ranging from $.97 to $1.05. The
debentures are convertible after a sixty day holding period into shares of
common stock at a conversion price equal to the lower of the closing of the
average closing bid price on the five trading days preceding the date of the
April Offering or 70% of the average closing bid price on the five trading days
preceding the date of the conversion of such debentures. The debenture holders
will receive 4,000 shares of the Company's common stock upon conversion in lieu
of interest for each $100,000 invested. The net proceeds from the April Offering
were approximately $1,247,000 after deducting commissions and expenses of
approximately $253,000. The Company also issued immediately exercisable two year
warrants to purchase 154,839 shares of Common Stock at an exercise price of $.97
per share to the placement agents. The Company has recorded a deferred charge of
approximately $643,000 associated with the impact of the 30% discount from
market to be realized upon conversion. The Company also recorded non-cash
deferred financing costs of $64,600 in connection with the issuance of warrants
to purchase 454,839 shares of common stock to the investors and placement agents
in accordance with SFAS No. 123. These deferred charges are being amortized to
expense over the estimated life of the convertible notes. As of May 31, 1997, no
debentures had been converted. Amortization expense and interest expense on the
debentures for the year ended May 31, 1997 was $323,742. Pursuant to the terms
of the debentures, the Company filed a Registration Statement on Form S-3 in May
1997 to register the shares of common stock underlying the potential conversion
of the debentures, the payment of interest and the warrants to purchase 454,839
shares of common stock. If the Form S-3 is not declared effective by the
Securities and Exchange Commission ("SEC") within sixty days after the April
Offering closing the Company is required to pay the investors .25% of their
principal investment per month as a penalty for each month or portion thereof
prior to the date the Form S-3 is declared effective. The Form S-3 has not yet
been declared effective by the SEC.
F-13
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. RELATED PARTY DEBT AGREEMENTS
Convertible Notes Payable, Related Parties
During the period from February 1996 to June 1996 the Company borrowed
$1,700,000 in aggregate from a company that owns a subsidiary whose chairman is
also a director of the Company. These notes payable bear interest at 10% per
annum with principal and interest due at the earlier of: (1) the tenth business
day following the consummation by the Company of a minimum $3,000,000 of
additional financing; or (2) $500,000 on September 30, 1996, $700,000 on January
1, 1997 and $500,000 on June 1, 1997, respectively. In addition, the Company
granted warrants to purchase 200,000 shares of the Company's common stock at an
exercise price of $3.88 per share and warrants to purchase 100,000 shares of the
Company's common stock at an exercise price of $4.00 per share. In September
1996, the Company repaid $500,000 of the amounts owed the lender. Interest
expense for the years ended May 31, 1996 and 1997 were $32,050 and $135,890,
respectively.
On December 30, 1996, the Company renegotiated the remaining principal
balance of $1,200,000 due under these 10% notes payable. The outstanding
principal balance was exchanged for a 10% secured convertible note payable due
July 1, 1997 and convertible into the Company's common stock, at the holder's
option, at a conversion price of $1.00 per share. The Note is secured by an
interest in the Company's cryogenic tire recycling equipment. The Company also
reduced the exercise price of the 300,000 warrants granted in 1996 to $1.13 per
share. The Company recorded a non cash expense of $36,000 in connection with the
reduction in exercise price in accordance with SFAS No. 123.
On June 30, 1997, the Company received a 90 day extension of the note
and a waiver allowing it to contribute it's cryogenic tire recycling equipment
into the joint venture (See Note 6) in return for granting the holder
registration rights for the shares of common stock underlying the note, accrued
interest and the 300,000 warrants granted in 1996.
In May 1996, the Company borrowed $325,000 from an officer of the
Company. This unsecured note payable bears interest at prime plus 1.5% per annum
with principal and interest due on the earlier of 120 days after the date of
issuance or the tenth business day following the consummation of a minimum
$3,000,000 of additional financing by the Company. From September 1996 to May
1997 the Company borrowed an additional $624,300 from this officer and another
officer of the Company. During January 1997 and May 1997 the Company repaid
$345,000 to these officers.
On May 30, 1997, the Company refinanced the remaining principal balance
and accrued interest plus accrued business expenses owed to these officers and
issued each officer a 10% convertible debenture, due October 30, 1998 in the
amount of $555,000 and $85,000, respectively and warrants to purchase 128,000
shares of common stock at an exercise price of $.88 per share. The debentures
are convertible after a one hundred and twenty day holding period into shares of
common stock at a conversion price equal to the lower of the average closing bid
price on the five trading days preceding May 30, 1997 or 70% of the average
closing bid price on the five trading days preceding the date of the conversion
of such debentures. The Company has recorded a deferred charge of approximately
$274,000 associated with the 30% discount from market to be realized upon
conversion. The Company also recorded non-cash deferred financing costs of
$11,500 in connection with the issuance of the warrants to purchase 128,000
shares of common stock to the officers in accordance with SFAS No. 123. These
deferred charges are being amortized to expense over the estimated life of the
convertible notes. Interest expense for the years ended May 31, 1996 and 1997
was $1,600 and $54,304, respectively.
During June and July 1997, the Company borrowed an additional $386,000
from four officers of the Company under similar terms to the May 30, 1997
convertible notes and issued warrants to purchase 77,200 shares of common stock
at exercise prices ranging from $.72 to $.97 per share. The Company recognized a
deferred charge of approximately $166,000 associated with the 30% discount from
market to be realized upon conversion and $7,800 of non-cash deferred financing
costs in connection with the issuance of the warrants to purchase 77,200 shares
of common stock to the officers in accordance with SFAS No. 123.
F-14
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. RELATED PARTY DEBT AGREEMENTS - (CONTINUED)
Notes Payable, Related Parties
Pursuant to the terms of the DuraWear stock purchase agreement, the
Company succeeded to the obligations of DuraWear relating to the repayment of a
promissory note payable to DuraWear's former sole stockholder who is also a
stockholder of the Company. The note is to be repaid in 36 equal monthly
installments of principal plus accrued interest at prime plus 1.5% (10.0% at May
31, 1997), adjusted annually.
At May 31, 1996 and 1997, the note had a balance of $132,150 and
$83,200, respectively. The maturities of the note during the years ended May 31,
1998 and 1999 amount to $58,829 and $24,371, respectively. Interest expense for
the years ended May 31, 1996 and 1997 was $8,777 and $11,012 respectively.
11. NOTES PAYABLE, BANK
<TABLE>
<CAPTION>
Notes payable, bank consists of the following: May 31, May 31,
1996 1997
------ ------
<S> <C> <C>
Term note payable, secured by a mortgage on real estate and a lien on
substantially all other assets of DuraWear, guaranteed by the Company,
due in monthly installments of $5,098 including interest at prime plus
1% (9.5% at May 31, 1997) and a final installment of the remaining
unpaid principal balance due July 2000 $ 468,412 $ 450,654
$700,000 SBA note payable, due March 1997, secured by a second lien on
substantially all assets of DuraWear, guaranteed by the Company, due in
monthly installments of $12,171 including interest at prime plus 1% 110,731 --
Term notes payable, secured by equipment and requiring monthly
installments 36,154 61,934
--------- ---------
615,297 512,588
Less current portion of notes payable,banks (140,289) (37,910)
-------- -------
Notes payable, banks, non-current portion $ 475,008 $ 474,678
========== ==========
</TABLE>
The following is a summary of maturities of notes payable, bank at May
31, 1997:
YEARS ENDING
MAY 31,
1998........................................... $ 37,910
1999........................................... 41,772
2000........................................... 36,586
2001........................................... 396,320
---------
$ 512,588
=========
Interest expense for the years ended May 31, 1995, 1996 and 1997 was
$1,033, $40,416 and $56,195, respectively.
F-15
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. CAPITAL LEASES
The Company leases machinery and equipment with a cost of $1,705,234 and
$2,698,336 under capital lease agreements at May 31, 1996 and 1997,
respectively. Accumulated amortization amounted to $414,232 and $615,504, at May
31, 1996 and 1997, respectively. Amortization expense on assets under capital
leases for the years ended May 31, 1995, 1996 and 1997 was $123,288, $143,048
and $201,272 respectively.
At May 31, 1997, the Company is five months past due on several
injection molding equipment leases and pursuant to the terms of the lease is in
default. Past due principal payments at May 31, 1997 amounted to $138,740.
Accordingly, the lessor has the right demand the payment of all amounts due
under the past due lease agreements. The Company is currently working with the
lessor to payoff the past due amounts and has not received any notification of
the lessor's intent to exercise any of the default remedies available. As a
result of the default, the Company has classified all payments due under the
affected leases as current liabilities at May 31, 1997.
The following is a schedule of the future minimum lease payments under
the capital leases together with the present value of net minimum lease payments
at May 31, 1997:
<TABLE>
<CAPTION>
YEARS ENDING
MAY 31,
-------
<S> <C>
1998............................................................. $ 1,235,961
1999............................................................. 290,983
2000............................................................. 263,311
2001............................................................. 254,832
2002............................................................. 266,164
--------------
Total minimum lease payments....................................... 2,311,251
Less amount representing interest.................................. (371,287)
------------
Present value of minimum lease payments $ 1,939,964
===========
</TABLE>
Interest expense for the years ended May 31, 1995, 1996 and 1997 was
$73,246, $79,873 and $99,103 respectively. The Company's President has
personally guaranteed the payments due under capital leases for assets with a
cost of $1,234,777.
13. COMMITMENTS AND CONTINGENCIES
Crumb Rubber Recycling Facility
On December 14, 1995, the Company entered into a five-year lease
agreement with BFI Tire Recyclers of Georgia, Inc. ("BTG") whereby the Company
leased for $1 per year, approximately 15,000 square feet of land. The Company
has built a tire recycling facility on the leased land at a cost of $902,000 as
of May 31, 1997. The Company is responsible for all improvements and operating
costs relating to the leased premises. This agreement was terminated as a result
of the Company's acquisition of BTG. (See Note 20).
Shredded Tire Supply Agreement
On December 14, 1995, the Company also entered into a five-year supply
agreement with BTG whereby the Company was obligated to accept, on a
"take-or-pay" basis, a minimum of approximately 32,000 tons of shredded waste
tire material per year starting October 1, 1996 at a base price of $37.50 per
ton. Due to the delay in crumb rubber production at the Company's Georgia tire
recycling facility, BTG agreed to: (1) reduce the per ton obligation to 7,050
tons of tire material for the period of March 1, 1996 to September 30, 1996; and
(2) reduce the per ton charge by 50% from October 1, 1996 through June 30, 1997.
The Company is obligated to pay for the higher of : (1) the number of tons of
crumb rubber produced at the Company's recycling facility; or (2) 75% of the
amount of material accepted, as determined on a monthly basis. This agreement
was terminated as a result of the Company's acquisition of BTG. (See Note 20).
F-16
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
Product Development Agreement
In July 1994, the Company entered into an agreement with an unrelated
corporation to jointly test, research and develop a product. During the year
ended May 31, 1995, research and development expense related to this agreement
amounted to $180,000. The Company has terminated the agreement and made the
final payment of $110,000 in January 1996.
Employment Agreements
On September 29, 1995, the Company entered into three-year employment
agreements with its Chairman, President and Chief Financial Officer,
respectively. Any increases or bonuses will be made at the discretion of the
Board of Directors upon the recommendation of the Compensation Committee.
In December 1996, the Company entered into a three-year employment
agreement with its President of Tire/Rubber Operations at $125,000 per annum.
Any increases or bonuses will be made at the discretion of the Board of
Directors upon the recommendation of the Compensation Committee. The agreement
provides for the payment of twelve months salary as a severance payment for
termination without cause.
Rental Agreements
On September 30, 1994, the Company extended its lease for its Arkansas
manufacturing and office space to May 31, 1997 at a monthly rental of $5,325.
Rent expense was approximately $64,000 for each the years ended May 31, 1995,
1996 and 1997, respectively. The lease expired on May 31, 1997 and the Company
is in the process of re-negotiating the lease and is currently a tenant at will
In October 1995, the Company entered into a three year lease for
approximately 2,700 square feet of corporate administrative office space at a
monthly rental of $3,238. Rent expense was $16,190 and $38,856 for the years
ended May 31, 1996 and 1997, respectively.
Contingencies
On October 27, 1994, the Company was served with a lawsuit by a former
consultant seeking, among other things, additional consulting fees, as well as
royalties relating to the Company's alleged use of a cryogenic process for
recovering crumb rubber that the consultant alleges he developed. The Company is
contesting the lawsuit vigorously. Management believes that even if the
consultant were to prevail in this suit, it would not have a material effect on
the Company's financial statements or its business.
14. STOCKHOLDERS' EQUITY
Increase in Authorized Shares of Common Stock
On June 7, 1996, the stockholders of the Company approved an amendment
to the Company's Certificate of Incorporation to increase the number of
authorized shares of Common Stock from 10,000,000 to 20,000,000.
Preferred Stock
In April and May 1995, the Company completed a private placement of
500,000 shares of non-voting Class A convertible preferred stock at $1.00 per
share. Each share is convertible into one share of common stock and two
redeemable common stock purchase warrants and has a liquidation preference of
$1.00 per share.
In August 1995, the Company concluded a private placement of 300,000
shares of non-voting Class B convertible preferred stock at $2.00 per share.
Each share is convertible into one share of common stock and one redeemable
common stock purchase warrant and has a liquidation preference of $2.00 per
share.
In October 1995 with the consent of the Company, all outstanding
preferred stock including, 500,000 shares of the Company's non-voting Class A
convertible preferred stock and 300,000 shares of the Company's non-voting Class
B convertible preferred stock were converted into an aggregate of 800,000 shares
of common stock and 1,300,000 redeemable common stock purchase warrants. The
terms of the warrants are the same as the IPO warrants. The Company registered
the common stock and warrants issued on conversion of the preferred stock and
the common stock issuable upon exercise of the warrants in its IPO.
F-17
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. STOCKHOLDERS' EQUITY - (CONTINUED)
Common Stock Transactions
On September 16, 1992, the Company issued 1,254,500 shares of common
stock to six individuals for a purchase price of $.01 per share. At May 31,
1994, the balance due from the stockholders, amounting to $12,545, was included
in stock subscriptions receivable. In August 1994, the Company's Board of
Directors voted to forgive these stock subscriptions receivable for services
rendered to the Company.
In October 1993, the Company sold 774,000 shares of common stock to nine
investors for a total purchase price of $200,000. The investors were affiliates
or principals of the Placement Agent. (See Note 9) The purchase price required
$75,000 in cash and notes receivable in the amount of $125,000. At May 31, 1994,
the $75,000 was included in stock subscriptions receivable and was paid in cash
on June 29, 1994. The notes receivable bear interest at 8% per annum commencing
on May 31, 1994 and both principal and accrued interest were due on October 31,
1995. In January 1995, the Company purchased and retired 463,167 shares of the
common stock in exchange for $55,884 in cash and the cancellation of $87,317 of
the notes receivable. In April 1995, the Company received payment on the notes
receivable in the amount of $37,683. Interest income on the notes receivable for
the year ended May 31, 1995 amounted to $5,754.
In April 1995, the Company issued 46,000 shares of common stock at a
value of $1.00 per share in consideration for employee services rendered, legal
and consulting fees and as payment for accrued expenses. The Company also issued
132,000 shares of common stock in satisfaction of $132,000 in consulting fees
due through May 31, 1995, payable to its non-salaried chief financial officer
and non-salaried chief executive officer. (See Note 17). Also in April 1995, the
non-salaried chief executive officer loaned the Company $75,000 for working
capital purposes and subsequently agreed to convert $40,000 in loan principal
into 40,000 shares of common stock.
In October 1995, the Company sold in its initial public offering
("IPO"), 1,265,000 shares of common stock at $5.00 per share and 1,265,000
redeemable Class A common stock purchase warrants ("the Warrants") at $.10 per
warrant and received net proceeds, after underwriter's commissions and
discounts, of approximately $5,390,000. Each Warrant expires on September 28,
2000 and entitles the holder, commencing on September 29, 1996 to purchase one
share of common stock at a price of $5.00 per share, subject to adjustment. The
Company also issued to the underwriter of its IPO, warrants ("Underwriter
Warrants") to purchase 110,000 shares of common stock and 110,000 warrants, each
Underwriter warrant is exercisable at a price of $8.25 per share of common stock
and $.165 per Warrant for a period of four years, commencing September 29, 1996.
The Warrants issuable upon exercise of the Underwriter Warrants have an exercise
price of $8.25 per share of common stock.
In October 1995, the Company completed the acquisition of DuraWear
Corporation (See Note 2). In addition, the Company issued 259,000 shares of
common stock upon the conversion of $35,000 of convertible notes payable and
100,000 shares of common stock in lieu of $500,000 of interest payable on a
bridge financing. (See Note 9).
On September 26, 1996, the Company sold 545,000 shares of common stock
to three foreign investors at $1.51 per share. Net proceeds were $706,460 after
deducting commissions and expenses of $116,490.
As of May 31, 1997, $825,000 of the January Offering debentures were
converted for approximately 1,249,813 shares of the Company's common stock. (See
Note 10).
F-18
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. STOCKHOLDERS' EQUITY - (CONTINUED)
Stock Option Plan
The Board of Directors adopted the 1993 Stock Option Plan (the "Plan")
and the Company's stockholders approved the Plan on June 10, 1993. The Board of
Directors initially reserved 410,000 shares of common stock for issuance to
employees, officers, directors and consultants. On June 7, 1996, the Company's
stockholders voted to increase the number of shares authorized under the Plan to
1,000,000 shares.
Under the Plan, the Board of Directors will grant options and establish
the terms of the grant in accordance with the provisions of the Plan. Stock
options under the Plan are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
---------------------------------------------------------------
1995 1996 1997
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 224,000 $ .14 279,000 $ .19 377,500 $1.29
Granted 60,000 .41 170,000 3.38 669,800 1.60
Canceled (5,000) .27 (46,500) 2.65 (328,200) 2.98
Exercised -- -- (25,000) .28 (2,400) .14
-------- ------- -------
Outstanding at end of year 279,000 .19 377,500 1.29 716,700 .81
======= ======= =======
Exercisable at end of year 58,300 .14 91,500 .16 137,500 .17
======= ======= =======
Reserved for future grants at end of year 131,000 597,500 255,900
======= ======= =======
Weighted average fair value of options N/A $.83 $.27
granted during the period
</TABLE>
Information pertaining to options outstanding under the Plan at May 31,
1997 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------ ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ .09 166,200 4.0 $ .09 99,000 $ .09
$ .27 - $.29 64,000 7.0 .28 34,000 .28
$ 1.00 7,500 7.6 1.00 4,500 1.00
$ 1.13 479,000 9.6 1.13 -- 1.13
------- -------
716,700 8.0 .81 137,500 .17
======= =======
</TABLE>
Non -Employee Director Stock Option Plan
On January 24, 1996, the Board of Directors of the Company adopted the
1996 Non-Employee Director Stock Option Plan ("Director Plan") and the Company's
stockholders approved the Director Plan on June 7, 1996. The Board of Directors
has reserved 300,000 shares of common stock for issuance and as of May 31, 1996,
options to purchase 30,000 shares of common stock, at prices ranging from $3.38
to $4.50 per share, have been granted under the Director Plan.
F-19
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. STOCKHOLDERS' EQUITY - (CONTINUED)
Each non-employee director on January 24, 1996, was automatically
granted an option to purchase 10,000 shares of common stock. In addition, on a
non-employee director's initial election to the Board of Directors, they are
automatically granted an option to purchase 10,000 shares of the common stock.
Each non-employee director will automatically be granted on the date of the
Annual Meeting of Stockholders an additional option to purchase 10,000 shares of
common stock. The exercise price per share of options granted under the Director
Plan is 100% of the fair-market value of the common stock on the business day
immediately prior to the date of the grant. Each option granted under the
Director Plan is immediately exercisable for a period of ten years from the date
of the grant.
Other Stock Options
In July 1994, the Company granted non-qualified stock options to
purchase 240,000 shares of common stock at an exercise price of $.29 per share
through July 1999. Subsequently 35,000 options were canceled. In October 1995,
an individual exercised non-qualified stock options to purchase 25,000 shares of
common stock at an exercise price of $.29 per share. In January 1996, the former
sole stockholder of DuraWear exercised 125,000 non-qualified stock options using
a net exercise feature, in exchange for 117,750 shares of Common Stock. As of
May 31 ,1997, 55,000 of these options were outstanding and exercisable.
In February 1995, the Company granted non-qualified stock options to
purchase 15,000 shares of common stock at an exercise price of $1.00 per share
through February 2000. In April 1995, the Company granted non-qualified stock
options to purchase 56,000 shares of common stock at an exercise price of $1.00
per share through April 2005. Subsequently 36,000 options were canceled. As of
May 31, 1997, 35,000 of these options were outstanding and exercisable.
In January 1996, the Company granted non-qualified stock options to
purchase 250,000 shares of common stock which are exercisable at exercise prices
ranging from $3.75 to $6.75. As of May 31, 1997, 150,000 have expired and
100,000 of these options were exercisable at prices ranging from $3.75 to $4.75
per share.
On July 11,1996, the Company granted options to purchase 600,000 shares
of common stock at an exercise price of $2.75 per share through July 2006 to
certain officers and directors. These options vest over a five year period. On
December 30, 1996, the Company cancelled 75,000 of the options, repriced 525,000
options to $1.13 and granted options to purchase 1,012,500 shares of common
stock at an exercise price of $1.13 to certain officers, directors and outside
individuals. The weighted average fair value of the repriced options under SFAS
No. 123 on the date of grant was $.28 per share.
Other Warrants
In April 1995, the Company granted warrants to purchase 175,000 shares
of common stock at an exercise price of $1.00 per share through April 2005.
Subsequently 50,000 of the warrants were canceled and at May 31, 1997, 125,000
of these warrants were exercisable. In January 1996, the Company granted
warrants to purchase 67,000 shares of common stock for services rendered. The
exercise price is $3.38 per share through January 2006. On December 30, 1996,
these warrants were repriced to $1.13 which was the closing bid price of the
Company's common stock on December 30,1996. The weighted average fair value of
the repriced warrants under SFAS No. 123 on the date of grant was $.28 per share
During the period of February 1996 to June 1996, the Company granted
300,000 warrants in connection with certain borrowings (See Note 10). During
June 1996, the Company granted warrants to purchase 981,233 shares of common
stock at an exercise prices ranging from $3.00 to $3.88 per share through June
2001. On December 30, 1996, 681,233 of the original 981,233 warrants were
repriced to $1.13 per share. The weighted average fair value of the repriced
warrants under SFAS No. 123 on the date of grant was $.28 per share.
On December 30, 1996, the Company granted 400,000 three year warrants to
one of its investment bankers at an exercise price of $.05 per share. The
Company recorded a non-cash expense of $400,000 in accordance with SFAS No. 123.
F-20
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. STOCKHOLDERS' EQUITY - (CONTINUED)
Stock-Based Compensation
At May 31, 1997, the Company has two stock-based compensation plans and
stock options issued outside of the plans, which are described above. The
Company applies APB Opinion No. 25 and related interpretations in accounting for
stock options issued to employees and directors. Had the compensation cost for
the Company's stock options issued to employees and directors been determined
based on the fair value at the grant dates consistent with SFAS No. 123, the
Company's net loss and net loss per share would have been adjusted to the pro
forma amounts indicated below:
Years Ended May 31,
-------------------
1996 1997
---- ----
Net Loss:
As reported $1,578,321 7,006,479
Pro forma $1,589,321 7,091,400
Net Loss per share:
As reported $ (.34) (1.25)
Pro forma $ (.34) (1.26)
Common stock equivalents have been excluded form all calculations of net
loss per share because the effect of including them would be anti-dilutive.
The fair value of each option grant under the Plan is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants during the years ended May 31, 1996
and 1997,respectively; dividend yield of 0%; risk-free interest rate of 5.5% and
5.5%; expected volatility of 20% and expected lives of 5 years.
Weighted average assumptions used in valuing stock options issued
outside of the plans during the year ended May 31, 1996 and 1997,respectively
were dividend yield of 0%; risk-free interest rate of 5.5% and 5.5%; expected
volatility of 20% and 20%; expected lives of 5 years.
Common Stock Reserved
The Company has 20,000,000 authorized shares of common stock of which
6,873,296 shares are outstanding and 13,126,704 are available for issuance.
The Company has reserved common stock at May 31, 1997 as follows:
Initial public offering warrants....................... 1,265,000
Underwriters initial public offering warrants.......... 220,000
Warrants issued on conversion of preferred stock....... 1,300,000
Convertible Debentures ................................ 5,832,000
Stock option plans..................................... 1,272,600
Other stock options.................................... 1,727,500
Other warrants......................................... 4,268,572
---------
15,885,672
==========
The number of shares of common stock reserved in connection with the
convertible notes payable are subject to adjustment. (See Notes 9 and 10).
Approximately 3,765,000 of the shares of common stock reserved above are
not issuable at May 31, 1997 pursuant to the terms of certain of the convertible
notes, warranst and options referred to in the above table.
F-21
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. SEGMENT INFORMATION
The Company has three principal operating groups: the injection molding
group, the rubber recycling group and the industrial materials group. The
injection molding group provides injection molding services to customers'
specifications in the production of plastic and thermoplastic rubber parts.
These customers are primarily located in the State of Arkansas. The rubber
recycling group was established to identify processing techniques and
alternative lower-cost sources of supply of crumb rubber and plastic waste for
recycling and to develop rubber and plastic based end-products. The industrial
materials group manufactures and markets ceramic, polymer composite and alloy
steel materials engineered to resist highly abrasive conditions experienced in
material handling systems. During the year ended May 31, 1995, the Company
operated solely in the injection molding industry. Information with respect to
industry segments as of or for the years ended is as follows:
<TABLE>
<CAPTION>
May 31, 1997
-----------------------------------------------------------------------------
Injection Molding Rubber Recycling Industrial Materials
Group Group Group Total
----------------- ---------------- -------------------- -------------
<S> <C> <C> <C> <C>
Operating Revenues $ 1,936,450 $ 38,201 $ 2,046,019 $ 4,020,670
Operating Loss (462,522) (1,995,047) (20,481) (2,478,050)
Identifiable Assets 3,411,979 1,825,595 2,325,785 7,563,359
Depreciation/Amortization 216,235 69,176 253,684 539,095
Capital Expenditures 1,513,015 53,067 10,765 1,576,847
May 31, 1997
-----------------------------------------------------------------------------
Injection Molding Rubber Recycling Industrial Materials
Group Group Group Total
----------------- ---------------- -------------------- -------------
Operating Revenues $ 3,199,641 $ - $ 1,138,897 $ 4,338,538
Operating Loss (227,927) (172,080) (198,538) (598,545)
Identifiable Assets 2,122,786 2,830,832 2,514,181 7,467,799
Depreciation/Amortization 157,702 7,760 163,178 328,640
Capital Expenditures 499,653 909,114 2,723,082 4,131,849
</TABLE>
Operating loss represents net sales less operating expenses for each
segment, and excludes general corporate expenses and other income and expenses
of a general corporate nature. Identifiable assets by segment are those assets
that are used in the Company's operations within that industry. General
corporate assets consist principally of cash, deposits, office furniture and
equipment and license fees.
16. MAJOR CUSTOMERS
At May 31, 1996, 24%, 16%, 15% and 11% of consolidated accounts
receivable were from four customers and at May 31, 1997, 29%, 16% and 12% of
consolidated accounts receivable were from three customers.
During the year ended May 31, 1995, approximately 62% ,14% and 10% of
net sales were from three major customers; during the year ended May 31, 1996,
approximately 38% and 14% of consolidated net sales were from two major
customers and during the year ended May 31, 1997, approximately 29% of
consolidated net sales were from one customer.
F-22
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. RELATED PARTY TRANSACTIONS
During the years ended May 31, 1994 and 1995, the Company accrued
consulting fees relating to consulting agreements with its non-salaried chief
financial officer and non-salaried chief executive officer amounting to $60,000
and $72,000, respectively. In April 1995, the Company issued common stock in
payment of the accrued consulting fees.
During the year ended May 31, 1996, the Company paid consulting fees
relating to consulting agreements with its non-salaried chief financial officer
and non-salaried chief executive officer amounting to $18,000 each. Effective
with the Company's IPO, the Company executed three-year employment agreements
with its Chairman, President and Chief Financial Officer.
18. INCOME TAXES
There was no provision for income taxes for the years ended May 31,
1995, 1996 and 1997 due to the Company's net operating losses and its valuation
reserve against deferred tax assets. The difference between the statutory
federal income tax rate of 34% and the Company's effective tax rates is
primarily due to net operating losses incurred by the Company and the valuation
reserve against the Company's deferred tax assets.
<TABLE>
<CAPTION>
The components of the net deferred tax asset are as follows at May 31:
1996 1997
---- ----
Deferred tax asset:
<S> <C> <C>
Federal...................................$ 1,151,000 $ 2,646,000
State..................................... 232,000 538,000
------------- ----------
1,383,000 3,184,000
Valuation reserve............................ (1,383,000) (3,184,000)
-------------- -----------
Net deferred tax asset.......................$ -- $ --
============== ===========
The following differences give rise to deferred income taxes:
YEARS ENDED MAY 31,
-------------------
1996 1997
---- ----
Net operating loss carryforward.............. $ 1,326,000 $2,666,000
Research tax credit carryforward............. 17,000 17,000
Other........................................ 40,000 501,000
------------- ----------
1,383,000 3,184,000
Valuation reserve............................ (1,383,000) (3,184,000)
------------- ----------
Net deferred tax asset....................... $ -- $ --
============== ============
</TABLE>
The change in the valuation reserve is as follows:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-------------------
1995 1996 1997
----- ---- ----
<S> <C> <C> <C>
Balance at beginning of year................. $ 379,000 $ 801,000 $1,383,000
Increase due to current year
net operating loss........................ 422,000 582,000 1,801,000
--------- ----------- ----------
Balance at end of year....................... $ 801,000 $ 1,383,000 $3,184,000
========= =========== ==========
</TABLE>
As of May 31, 1997, the Company has net operating loss carryforwards of
approximately $6,960,000. The Federal and state net operating loss carryforwards
expire in varying amounts beginning in 2008 and 1998, respectively. In addition,
the Company has Federal tax credit carryforwards of approximately $17,000
available to reduce future tax liabilities. The Federal tax credit carryforwards
expire beginning in 2008.
Use of net operating loss and tax credit carryforwards is subject to
annual limitations based on ownership changes in the Company's common stock as
defined by the Internal Revenue Code.
F-23
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
19. FAIR VALUE OF FINANCIAL INSTRUMENTS.
At May 31, 1996, the Company's financial instruments included the loan
receivable, related party (see Note 5), a note receivable (see Note 7) and notes
payable (see Notes 10 and 11). The carrying amounts of the loan receivable,
related party approximates its fair value based on its collection in full on
June 26, 1996. The carrying amount of the note receivable and the notes payable
approximate their fair values as these instruments bear interest at market
rates.
At May 31, 1997, the Company's financial instruments consist of notes
payable to related parties and banks and convertible notes payable to related
parties and other investors. Notes payable to banks and related parties
approximate their fair values as these instruments bear interest at market
rates. The fair value of the $4,040,000 in convertible notes payable outstanding
is approximately $5,103,000 based on the fair value of the common stock issuable
on conversion of the notes.
20. SUBSEQUENT EVENTS
On June 30, 1997, GreenMan Acquisition Corporation ("GAC"), a
wholly-owned subsidiary of the Company acquired all of the capital stock of each
of BFI Tire Recyclers of Minnesota, Inc. ("BTM"), a wholly-owned subsidiary of
Browning-Ferris Industries of Minnesota, Inc. ("BFIM") and BFI Tire Recyclers of
Georgia, Inc. ("BTG"), a wholly-owned subsidiary of Browning -Ferris Industries
of Georgia, Inc. ("BFIG") (the "Acquisition"). The Company was also granted an
exclusive option to purchase certain assets (including certain contract rights)
of BFI's Ford Heights, Illinois tire recycling operation. BFIG and BFIM are both
wholly-owned subsidiaries of Browning Ferris Industries, Inc. BTM and BTG have
been renamed GreenMan Technologies of Minnesota, Inc. and GreenMan Technologies
of Georgia, Inc., respectively and, together with the Company's existing rubber
recycling group will constitute the Company's Recycling division. As a result of
the Acquisition, the Company's obligations under the Take or Pay Agreement were
eliminated. (See Note 13).
The Company paid approximately $5,331,000 for the acquisition of which
$650,000 has been paid to BFI at May 31, 1997 as a deposit and the balance was
financed by a short-term loan , at an interest rate of prime plus 2% (10.5% at
June 30, 1997) from BFI to GAC, which loan must be repaid by September 30, 1997.
The repayment of such loan is guaranteed by the Company and is secured by all of
the assets acquired and by a pledge by GAC of all of the capital stock of BTG
and BTM. The Company anticipates refinancing such loans prior to maturity but
has not yet received any commitments. No assurances can be given that such
financing will be concluded prior to the maturity, if at all.
F-24
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934 , the
Registrant certifies that it has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
By: GreenMan Technologies, Inc.
/s/ Maurice E. Needham
----------------------------
Maurice E. Needham
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1934 ,
this report has been signed by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
/s/ Maurice E. Needham Chairman of the Board September 15, 1997
----------------------
Maurice E. Needham
/s/ Robert H. Davis Chief Executive Officer and Director September 15, 1997
-------------------
Robert H. Davis
/s/ James F. Barker President and Director September 15, 1997
-------------------
James F. Barker
/s/ Joseph E. Levangie Chief Financial Officer and Director September 15, 1997
---------------------- (Principal Financial Officer and
Joseph E. Levangie Principal Accounting Officer)
/s/ Robert D. Maust Vice President of Operations and Director September 15, 1997
--------------------
Robert D. Maust
/s/ Lew F. Boyd Director September 15, 1997
----------------
Lew F. Boyd
</TABLE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
GREENMAN TECHNOLOGIES, INC.
GreenMan Technologies, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), pursuant to the
provisions of the General Corporation Law of the State of Delaware (the "DGCL"),
DOES HEREBY CERTIFY as follows:
FIRST: The Certificate of Incorporation of the Corporation is hereby
amended by deleting the first paragraph of Section 4 of the Certificate of
Incorporation in its present form and substituting therefor new first and second
paragraphs of Section 4 in the following form:
A. This corporation is authorized to issue two classes of
stock, to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares this corporation is authorized to
issue is Twenty-One Million (21,000,000) shares of capital stock.
B. Of such authorized shares, Twenty Million (20,000,000)
shares shall be designated "Common Stock" and have a par value of $0.01
per share. One Million (1,000,000) shares shall be designated
"Preferred Stock" and have a par value of $0.01 per share.
SECOND: The amendment to the Certificate of Incorporation of the
Corporation set forth in this Certificate of Amendment has been duly adopted in
accordance with the provisions of Section 242 of the DGCL by (a) the Board of
Directors of the Corporation having duly adopted a resolution setting forth such
amendment and declaring its advisability and submitting it to the stockholders
of the Corporation for their approval, and (b) the stockholders of the
Corporation having duly adopted such amendment by vote of the holders of a
majority of the outstanding stock entitled to vote thereon at a special meeting
of stockholders called and held upon notice in accordance with Section 222 of
the DGCL.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Certificate of Amendment to be signed by Maurice E.
Needham, its Chief Executive Officer, and attested to by Joseph E. Lenagie, its
Secretary, this 6th day of June, 1996.
GreenMan Technologies, Inc.
By: /s/ Maurice E. Needham
-------------------------
Maurice E. Needham
Chief Executive Officer
ATTEST:
/s/ Joseph E. Levangie
Joseph E. Levangie
Secretary
GREENMAN TECHNOLOGIES, INC.
EMPLOYMENT AGREEMENT
THIS IS AN AGREEMENT, effective as of December 1, 1996, by and between
GreenMan Technologies, Inc., a Delaware corporation (the "Company"), and Robert
D. Maust (the "Employee").
WHEREAS, the Company desires to employ the Employee and the Employee
desires to be employed by the Company;
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which consideration are hereby acknowledged, the parties agree as
follows:
1. Employment
The Company hereby employs the Employee, and the Employee
hereby accepts employment with the Company, upon the terms and conditions
hereinafter set forth.
2. Duties
The Employee shall serve as President of the Company's Tire
Recycling Division. In such capacity, the Employee will report to the Chief
Executive Officer of the Company and will perform such duties on behalf of the
Company consistent with such office as may be assigned to him from time to time
by the Chief Executive Officer of the Company. The Employee agrees to abide by
the rules, regulations, instructions, personnel practices and policies of the
Company and any changes therein which may be adopted from time to time by the
Board of Directors of the Company.
3. Term
Unless sooner terminated as provided below, the term of the
Employee's employment under this Agreement will be three years from the date
first above written (such period, as it may be extended, is referred to in this
Agreement as the "Employment Period"). Unless notice of non-renewal is given by
either party at least thirty (30) days prior to the end of such period, the
Employment Period will continue thereafter for successive 12-month periods. Upon
the Company's giving thirty (30) days notice as herein described, the Employee
may seek alternative employment during such notice period; provided, however,
that the Employee shall be required to continue to perform such duties on behalf
of the Company as are specified in this Agreement.
4. Extent of Services
During the term of his employment, the Employee will devote
his full time and best efforts to the performance of his duties under this
Agreement. Under no circumstances will the Employee knowingly take any action
contrary to the best interests of the Company.
5. Compensation
In consideration of employment and the services rendered by
the Employee under this Agreement, the Company will pay the Employee
compensation as follows:
5.1 Base Salary. A base salary ("Base Salary") of One Hundred
and Twenty Five Thousand ($125,000.00) per year for the term of this Agreement,
payable in accordance with the Company's ordinary payroll practices. Any
increases in Base Salary shall be in the sole discretion of the Board of
Directors.
5.2 Incentive Compensation. The Employee will be entitled to
participate, on the same basis as the other executive officers of the Company,
in any incentive compensation plan that may be established by the Company (the
"Plan"). The terms of the Plan, together with the extent and terms of the
Employee's participation in the Plan, will be established by the Company's Board
of Directors, in its sole discretion.
6. Other Benefits
6.1 Additional Compensation and Benefits. The Employee shall
be entitled to receive the same health, disability and other benefits as are
offered by the Company to all full-time employees from time to time. The
Employee will be entitled to such additional compensation, bonuses or benefits
as the Company's Board of Directors, in its sole discretion, may decide.
6.2 Expenses. The Company will, upon substantiation thereof,
reimburse the Employee for all reasonable expenses of types authorized by the
Board of Directors of the Company in the ordinary course of business and
incurred by the Employee in connection with the Company's business affairs. The
Employee must regularly submit, for approval to the Chief Financial Officer of
the Company, a statement of these expenses and will comply with such other
accounting and reporting requirements as the Company may from time to time
establish. Approved and substantiated expenses shall be reimbursed by the
Company within 30 days of submittal for payment.
6.2 Life Insurance. The Company shall provide the Employee
with life insurance coverage equal to three (3) times his annual salary, or,
shall reimburse the Employee for the premium cost of such life insurance
coverage should it be purchased by the Employee independently.
7. Termination
7.1 By the Company. The Company may terminate the Employee's
employment with the Company (a) upon the expiration of the Employment Period in
accordance with the terms of this Agreement, (b) at any time without notice for
"cause", as defined below, (c) at any time without cause upon thirty (30) days'
advance notice, subject to Section 7.4 below and subject to the requirement that
the company pay to the Employee the amount set forth in Section 7.4 herein, (d)
upon the death of the Employee, or (e) in the event of the Employee's disability
preventing him from rendering services to the Company consistent with his duties
hereunder for a period of six (6) consecutive months.
7.2 By the Employee. The employee may terminate his employment
with the Company upon the expiration of the Employment Period in accordance with
the terms of this Agreement or at any time upon thirty (30) days' advance
notice.
7.3 Cause. For the purposes of this Section 7, "cause" means:
(a) engaging in any crime or offense involving money or
other property of the Company, or
(b) conviction of a felony, or
(c) continuing, repeated willful failure or refusal to
perform specific written directives of the Company's
Board of Directors consistent with the Employee's
duties after notice that such failure will be deemed
to constitute cause for termination and a reasonable
opportunity to cure such failure or refusal, or
(d) excessive absenteeism, or
(e) owning, engaging in, conducting, managing, operating,
participating in, being employed by, being connected
in any manner whatsoever with, or rendering services
or advice to (whether for compensation or without
compensation), any other person or business entity
which is engaged in the same business as conducted by
the Company at the time, provided that nothing shall
restrict the Employee's right to invest in the
securities (not to exceed 1% of the outstanding
securities of any class) of any publicly-held
corporation in the management of which the Employee
does not participate.
7.4 Amounts Payable Upon Termination. Upon termination of the
Employee's employment with the Company in accordance with clause (a), (b), (d)
or (e) of Section 7.1, all compensation and benefits under this Agreement will
cease, effective the date of termination. Upon termination of the Employee's
employment with the Company in accordance with clause (c) of Section 7.1, the
Employee shall be paid twelve (12) months' Base Salary. Other than as
specifically set forth in Section 7.1 and this Section 7.4, the Employee will
not be entitled to receive any compensation or benefits after termination of his
employment with the Company.
8. Non-Disclosure; Non-Competition
8.1 Proprietary Information.
(a) The Employee agrees that all information and
know-how, whether or not in writing, of a private, secret or confidential nature
concerning the Company's business or financial affairs (collectively,
"Proprietary Information") is and will be the exclusive property of the Company.
By way of illustration, but not limitation, Proprietary Information includes
contemplated or planned advertising or public relations plans, methods or
techniques; inventions, products, projects, developments, compositions, plans,
research data, financial data, manufacturing processes or techniques, trade
secrets, personnel data, computer programs, designs, and client and supplier
lists, whether or not copyrightable, trademarkable or licensable. The Employee
will not disclose any Proprietary Information to others outside the Company or
use the Proprietary Information for any unauthorized purposes without written
approval by an officer of the Company, either during or after his employment,
unless and until such Proprietary Information has become public knowledge
without the fault of the Employee.
(b) The Employee agrees that all files, letters,
memoranda, reports, records, data sketches, drawings, notebooks, notes,
specifications, programs, computer program listings, or other written,
photographic, or other tangible material containing Proprietary Information,
whether created by the Employee or others, which comes into his custody or
possession, is the exclusive property of the Company, to be used by the Employee
only in the performance of his duties for the Company.
(c) The Employee agrees that his obligation not to
disclose or use information, know-how and records of the types set forth in
Paragraphs (a) and (b) above also extends to such types of information,
know-how, records and tangible property of customers of the Company or suppliers
to the Company or other third parties who may have disclosed or entrusted the
same to the Company or to the Employee in the course of the Company's business.
8.2 Developments
(a) The Employee will make full and prompt disclosure
to the Company of all inventions, improvements, ideas, concepts, approaches,
discoveries, methods, developments, software, and works of authorship, whether
or not copyrightable, trademarkable or licensable, which are created, made,
conceived or reduced to practice by the Employee or under his direction or
jointly with others in connection with his employment by the Company, whether or
not during normal working hours or on the premises of the Company (all of which
are collectively referred to in this Agreement as "Developments").
(b) The Employee agrees to cooperate fully with the
Company, both during and after his employment with the Company, with respect to
the procurement, maintenance and enforcement of copyrights and trademarks (both
in the United States and foreign countries) relating to Development. The
Employee will sign all papers, including, without limitation, copyright
applications, trademark applications, patent applications, declarations, oaths,
formal assignments, assignments of priority rights and powers of attorney, which
the Company may deem necessary or desirable in order to protect its rights and
interest in any Developments.
8.3 Non-Competition.
(a) During the term of the Employee's employment with
the Company and for a period of six (6) months after that employment is
terminated, for any reason, by the Company or the Employee, the Employee will
not, without the Company's prior written approval, directly or indirectly:
(i) recruit, solicit or knowingly induce, or
attempt to induce, any employee or consultant of the company to terminate his or
her employment or consulting relationship with, or otherwise cease his
relationship with, the Company; or
(ii) solicit, divert or take away, or
attempt to divert or to take away, the business or patronage of any of the
clients, customers or accounts, or prospective clients, customers or accounts of
the Company. For purposes of this Agreement, a prospective client, customer or
account is any individual or entity whose business is solicited by the Company,
proposed to be solicited by the Company, or who approaches the Company, with
respect to possibly becoming a client, customer or account during the Employment
Period; or
(iii) engage (whether for compensation or
without compensation) as an individual proprietor, partner, stockholder,
officer, employee, director, joint venture, investor, lender, or in any other
capacity whatsoever (otherwise than as the holder of not more than one percent
(1%) of the total outstanding stock of a publicly-held company), in any business
activity which competes with any business then being conducted by the Company or
any business proposed to be conducted by the Company at the time of the
termination of the Employee's employment with the Company.
(b) If any restriction set forth in this Subsection
8.3 is found by any court of competent jurisdiction to be unenforceable because
it extends for too long a period of time or over too great a range of activities
or in too broad a geographic area, it shall be interpreted to the extent only
over the maximum period of time, range of activities or geographic areas to
which it may be enforceable.
(c) The restrictions contained in this Subsection 8.3
are necessary for the protection of the business and goodwill of the Company and
are considered by the Employee to be reasonable for this purposes. The Employee
agrees that any breach of this Subsection 8.3 will cause the Company substantial
and irrevocable damage and, therefore, in the event of any such breach, in
addition to such other remedies which may be available, the Company will have
the right to seek specific performance and injunctive relief.
8.4 Survival of Obligations. The obligations of the Employee
under this Section 8 will survive the termination of this Agreement.
9. Notices.
All notices under this Agreement must be in writing and must
be delivered by hand or mailed by certified or registered mail, postage prepaid,
return receipt requested, to the parties as follows:
If to the Company: GreenMan Technologies, Inc.
7 Kimball Lane, Building A.
Lynnfield, Massachusetts 01940
Attention: Maurice E. Needham
with a copy to: John A. Piccione, Esq.
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
If to the Employee: To the address set forth below the signature
of the Employee;
or to such other address as is specified in a notice complying with this Section
9. Any such notice is deemed given on the date delivered by hand or three days
after the date of mailing.
10. Other Agreements.
The Employee hereby represents that he is not bound by the
terms of any agreement with any previous employer or other party to refrain from
competing, directly or indirectly, with the business of such previous employer
or any other party. The Employee further represents that his performance of all
the terms of this Agreement and as an employee of the Company does not and will
not breach any agreement to keep in confidence proprietary information,
knowledge or data acquired by him in confidence or in trust prior to his
employment with the Company.
11. Miscellaneous.
11.1 Modification. This Agreement constitutes the entire
Agreement between the parties with regard to the subject matter hereof,
superseding all prior understandings and agreements, whether written or oral.
This Agreement may not be amended or revised except by a writing signed by the
parties.
11.2 Successors and Assigns. This Agreement is binding upon
the inures to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business, although the obligations
of the Employee are personal and may be performed only by him.
11.3 Captions. Captions have been inserted in this Agreement
solely for convenience of reference, and in no way define, limit or affect the
scope or substance of any provision of this Agreement.
11.4 Severability. The provisions of this Agreement are
severable, and invalidity of any provision does not affect the validity of any
other provision. In the even that any court of competent jurisdiction determines
that any provision of this Agreement or the application thereof is unenforceable
because of its duration or scope, the parties agree that the court in making
such determination will have the power to reduce the duration and scope of such
provision to the extent necessary to make it enforceable, and that the Agreement
in its reduced form is valid and enforceable to the full extent permitted by
law.
11.5 Governing Law. This Agreement is to be construed under
and governed by the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and
year first above written.
GREENMAN TECHNOLOGIES, INC.
By: /s/ Maurice E. Needham
----------------------------------
Maurice E. Needham, Chairman
EMPLOYEE
/s/ Robert D. Maust
--------------------------------------
Robert D. Maust
Address: 800 Oak Drive
Preston, Minnesota 55965
June 30, 1997
Mr. Joseph Caruso
Chief Financial Officer
Palomar Medical Technologies, Inc.
66 Cherry Hill Road
Beverly, MA 01915
Dear Mr. Caruso:
This letter shall serve as acknowledgment of discussions regarding GreenMan's
request of Palomar to extend the maturity of the $1,200,000 July 1, 1997
convertible note to September 30, 1997. In return for the extension, GreenMan
will agree to amend the Form S-3 registration statement that is currently with
the SEC to include the shares of Common Stock underlying the $1,200,000 Note,
the accrued interest and the 300,000 Warrants previously granted to Palomar.
Palomar also agrees to allow GreenMan to contribute the CRT-1 system into the
proposed joint venture in New York State, but will retain it's secured interest
in the equipment until such time as the Note has been satisfied.
If you are in agreement with the above, please sign both copies and return one
to the attention of Chuck Coppa.
Sincerely,
Maurice E. Needham
Chief Executive Officer /s/ Joseph P. Caruso
--------------------
agreed, Joseph P. Caruso, CFO
Palomar Medical Technologies, Inc.
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement"), dated as of _______, 1997,
is entered into by and between___________, (the "Purchaser") and GREENMAN
TECHNOLOGIES, INC., (the "Company").
The parties hereto agree as follows:
1. Purchase and Sale of Convertible Notes. Upon the basis of
the representations and warranties, and subject to the terms and conditions, set
forth in this Agreement, the Company covenants and agrees to sell to the
Purchaser, at a purchase price of $______ (the "Purchase Price"), (i) a
convertible note in registered form in a principal amount of $______ and
substantially in the form of Exhibit A hereto (the "Note"), such Note
convertible at the option of the holder thereof into a number of Note Shares
determined pursuant to Article 3 of the Note according to the terms and
conditions set forth in the Note, and (ii) a warrant to purchase ______ shares
of the Company's Common Stock, $.01 par value per share (the "Common Stock") in
substantially the form of Exhibit B hereto (the "Warrant"), and upon the basis
of the representations and warranties, and subject to the terms and conditions
set forth in this Agreement, the Purchaser covenants and agrees to purchase from
the Company, the Note and the Warrant at the Purchase Price. All capitalized
terms not otherwise defined herein shall have the meanings attributed to them in
the Note and the Warrant.
2. Representations. Warranties and Covenants of the Purchaser.
The Purchaser understands, and represents and warrants to, and agrees with, the
Company, that:
(a) The Note, the Note Shares, the Warrant and the
shares issuable upon exercise of the Warrant (the "Warrant Shares")
(hereinafter, the Note, the Note Shares, the Warrant and the Warrant Shares are
collectively referred to as the "Securities") have not been and, unless
registered under the Securities Act of 1933, as amended (the "Securities Act"),
will not be registered under the Securities Act, or any other applicable
securities law, and, accordingly, may not be offered, sold, transferred,
pledged, hypothecated or otherwise disposed of ("Transferred") unless registered
under the Securities Act or Transferred in a transaction exempt from
registration under the Securities Act and any other applicable securities law;
(b) The Purchaser is an "accredited investor" within
the meaning of Rule 501(a) under the Securities Act (an "Accredited Investor"),
and is acquiring or will acquire the Securities for its own account. The
Purchaser has such knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risks of an investment in the
Securities. The Purchaser is aware that it may be required to bear the economic
risk of an investment in the Securities for an indefinite period, and it is able
to bear such risk for an indefinite period;
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(c) The Purchaser is acquiring or will acquire the
Securities for its own account for investment purposes and not with a view to,
or for offer or sale in connection with, any distribution thereof. The Purchaser
agrees to offer, sell or otherwise transfer the Securities only (i) in
accordance with the terms of this Agreement, the Note and the Warrant, as
applicable, and (ii) pursuant to registration under the Securities Act or an
exemption from registration under the Securities Act and any other applicable
securities law; and
(d) The Purchaser acknowledges that the Company and
others will rely upon the truth and accuracy of the foregoing acknowledgments,
representations and agreements and further agrees that if any of the
acknowledgments, representations and agreements deemed to have been made by the
Purchaser by its acquisition of the Securities are no longer accurate, it shall
promptly notify the Company.
(e) The Company has furnished or made available to
the Purchaser a full and complete set of its Annual Report on Form 10-KSB for
its most recently completed fiscal year, its Form 10-QSB's for each of its
fiscal quarters since the end of its most recently completed fiscal year and any
Form 8-K's filed during its current fiscal year (collectively, the "SEC
Documents"), which the Company has filed pursuant to the Securities Exchange Act
of 1934, as amended.
3. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Purchaser that:
(a) The Company has been duly incorporated and is
validly existing as a corporation under the laws of Delaware.
(b) This Agreement has been duly authorized, executed
and delivered by the Company and is a valid and binding agreement, enforceable
in accordance with its terms, and the Company has full corporate power and
authority necessary to enter into this Agreement and to perform its obligations
hereunder.
(c) No consent, approval, authorization or order of
any court, governmental agency or body or arbitrator having jurisdiction over
the Company or any of its affiliates is required for execution of this Agreement
and the performance of its obligations hereunder, including without limitation,
the issuance and sale of the Securities.
(d) The Note and Warrant, when issued and delivered
pursuant to this Agreement, will have been duly authorized, executed, issued and
delivered and will constitute a legal, valid, binding and enforceable obligation
of the Company.
4. Covenants of the Company. The Company covenants and agrees
with the Purchaser:
(a) to cause the Note Shares and Warrant Shares to
be, when converted and exercised in accordance with the terms of the Note and
the Warrant, upon
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delivery, fully paid, nonassessable, free of preemptive rights and free from all
taxes, liens, charges, security interests or other encumbrances; and
(b) have at all times authorized and reserved for
issuance, free from preemptive rights, a sufficient number of shares of Common
Stock to yield a number of Note Shares and Warrant Shares sufficient to satisfy
the conversion rights of the Purchaser pursuant to the terms and conditions of
the Note and the Warrant.
5. Transfer of Securities.
(a) Securities Act Legend. Each certificate
evidencing the Note, the Note Shares, the Warrant, the Warrant Shares and any
certificates issued upon transfer or exchange of the Note, the Note Shares, the
Warrant or the Warrant Shares shall be stamped or imprinted with a legend
substantially as follows:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE
SECURITIES LAWS OF ANY STATE; AND MAY NOT BE SOLD,
ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF
EXCEPT IN COMPLIANCE WITH, OR PURSUANT TO AN EXEMPTION
FROM, THE REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
(b) Securities Act Compliance. Each holder (a
"Holder") of a certificate evidencing the Note, the Note Shares, the Warrant or
the Warrant Shares which bears the restrictive legend set forth in Section 8(a)
above (the "Restricted Securities"), and who proposes to Transfer (as defined in
Section 3(a) of this Agreement) any Restricted Securities, shall give written
notice to the Company of such Holder's intention to effect such Transfer. Each
such notice shall describe the manner and circumstances of the proposed sale or
other disposition in sufficient detail and may be accompanied by an opinion of
legal counsel to the Holder. Promptly upon receipt of such notice, the Company
shall present a copy thereof (together with any accompanying opinion of legal
counsel to the Holder) to its legal counsel, and the following provisions shall
apply:
(i) If, in the opinion of legal counsel to
such Holder, satisfactory in form and substance to the Company and its legal
counsel, or if such notice was not accompanied by an opinion of legal counsel to
the Holder, then, if, in the opinion of legal counsel to the Company, the
proposed sale or other disposition may be effected without registering the
Restricted Securities involved under the Securities Act or under state
securities laws, such Holder shall be entitled to Transfer such Restricted
Securities in accordance with the terms of the notice delivered to the Company.
The Company will advise the Holder, within five (5) business days after
submission of such notice, whether such Holder is entitled to so Transfer the
Restricted Securities. If the Holder is entitled to so Transfer, he shall submit
the stock certificate or certificates evidencing the Restricted Securities to be
Transferred to the Company in proper form for Transfer and accompanied by
appropriate instruments of Transfer. Restricted Securities thus
-3-
Transferred (and each of the certificates evidencing any untransferred balance
of the Securities not so transferred) shall bear the restrictive legend set
forth in Section 8(a), unless, in the opinion of both such legal counsel (or
legal counsel to the Company if the Holder did not present an opinion of its
legal counsel), such legend is not required by the applicable provisions of the
Securities Act or state securities laws; and
(ii) If in the reasonable opinion of either
of such legal counsel (or legal counsel to the Company if the Holder did not
present an opinion of its legal counsel), the proposed Transfer cannot be
effected without registering the Securities involved under the Securities Act or
state securities laws, such Holder shall not offer to Transfer or Transfer such
Restricted Securities unless and until such Restricted Securities have been
registered under the Securities Act or state securities laws for such purpose or
an exemption from such registration becomes available pursuant to Section
8(b)(i) above.
6. Piggy-Back Registration Rights. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the Company shall
file with the Securities and Exchange Commission (the "SEC") a registration
statement (the "Registration Statement") under the Securities Act of 1933 (the
"1933 Act") relating to (i) a firm underwritten offering for its own account or
the account of others under the 1933 Act of any of its equity securities or (ii)
any other offering for its own account or the account of others under the 1933
Act of any of its equity securities (other than on Form S-4 or Form S-8 or their
then equivalents relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans) the Company shall
send to the Purchaser written notice of such determination and, if within
fifteen (15) days after the effective date of such notice, the Purchaser shall
so request in writing, the Company shall include in such Registration Statement
all or any part of the Note Shares or Warrant Shares the Purchaser requests to
be registered, except that if, in connection with any underwritten public
offering for the account of the Company the managing underwriter(s) thereof
shall impose a limitation on the number of shares of Common Stock that may be
included in the Registration Statement because, in such underwriter(s)'
judgment, marketing or other factors dictate such limitation is necessary to
facilitate public distribution, then the Company shall be obligated to include
in such Registration Statement only such limited portion of the Note Shares or
Warrant Shares with respect to which the Purchaser has requested inclusion
hereunder as the underwriter shall permit. Any exclusion of Note Shares or
Warrant Shares shall be made pro rata among the Purchasers seeking to include
Note Shares or Warrant Shares, in proportion to the number of Note Shares or
Warrant Shares sought to be included by such Purchaser; provided, however, that
the Company shall not exclude any Note Shares or Warrant Shares unless the
Company has first excluded all outstanding securities, the holders of which are
not entitled to inclusion of such securities in such Registration Statement or
are not entitled to pro rata inclusion with the Note Shares or Warrant Shares;
and provided, further, however, that, after giving effect to the immediately
preceding proviso, any exclusion of Note Shares or Warrant Shares shall be made
pro rata with holders of other securities having the right to include such
securities in the Registration Statement other than holders of securities
entitled to inclusion of their securities in such Registration Statement by
reason of demand registration rights. If an offering in connection with
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which an Investor is entitled to registration under this Section is an
underwritten offering, then each Purchaser whose Note Shares and Warrant Shares
are included in such Registration Statement shall, unless otherwise agreed by
the Company, offer and sell such Note Shares or Warrant Shares in an
underwritten offering using the same underwriter or underwriters and, subject to
the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering. All reasonable
expenses, other than underwriting discounts and commissions, included in
connection with the registration of the Note Shares and Warrant Shares pursuant
to the foregoing provision, shall be borne by the Company.
7. Survival of the Representations. Warranties. etc. The
respective agreements, representations, warranties, indemnities and other
statements made by or on behalf of the Company and the Purchaser, respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation made by or on behalf of the other party to this Agreement or
any officer, director or employee of, or person controlling or under common
control with, such party and will survive delivery of any payment for the
Securities.
8. Notices. All notices, requests and other communications
hereunder must be in writing and delivered to the parties at the following
addresses or facsimile numbers:
If to the Purchaser, to: [Name & Address]
Telecopy:
If to the Company, to:
GreenMan Technologies Inc.
7 Kimball Lane
Building A
Lynnfield, MA 01940
Attention: Charles E. Coppa
Telecopy: (617) 224-0114
with copy to:
Sullivan & Worcester LLP
One Post Office Square
Boston, MA 02109
Attn.: John A. Piccione, Esq.
Telecopy: (617) 338-2880
-5-
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail or reputable courier service in the manner described above to the
address as provided in this Section, be deemed given upon receipt (in each case
regardless of whether such notice, request or other communication is received by
any other Person to whom a copy of such notice is to be delivered pursuant to
this Section). Any party from time to time may change its address, facsimile
number or other information for the purpose of notices to that party by giving
notice specifying such change to the other parties hereto.
9. Third Party Beneficiary. Any permitted transferee of any
part of the Securities shall be a third party beneficiary of the Company's
obligations under this Agreement, the Note and the Warrant. Such person shall
have all the rights of a third party beneficiary with respect to the enforcement
against the Company of any provision of this Agreement, the Note and the
Warrant.
10. Miscellaneous.
(a) This Agreement may be executed in one or more
counterparts and it is not necessary that signatures of all parties appear on
the same counterpart, but such counterparts together shall constitute but one
and the same agreement.
(b) This Agreement shall inure to the benefit of and
be binding upon the parties hereto, their respective successors and permitted
assigns.
(c) This agreement shall be governed by, and
construed in accordance with, the laws of the State of New York (without giving
effect to conflicts of laws principles). With respect to any suit, action or
proceedings relating to this Agreement, each of the Company and the Purchaser
irrevocably submits to the exclusive jurisdiction of the courts of the State of
New York and the United States District Court located in the Borough of
Manhattan in the City of New York and hereby waives to the fullest extent
permitted by applicable law any claim that any such suit, action or proceeding
has been brought in an inconvenient forum. Subject to applicable law, the
Company agrees that final judgment against it in any legal action or proceeding
arising out of or relating to this Agreement, the Note or the Warrant shall be
conclusive and may be enforced in any other jurisdiction within or outside the
United States by suit on the judgment, a certified copy of which judgment shall
be conclusive evidence thereof and the amount of its indebtedness, or by such
other means provided by law.
(d) The headings of the sections of this document
have been inserted for convenience of reference only and shall not be deemed to
be a part of this Agreement.
(e) The provisions of this Agreement are severable,
and if any clause or provision shall be held invalid, illegal or unenforceable
in whole or in part in
-6-
any jurisdiction, then such invalidity or unenforceability shall affect in that
jurisdiction only such clause or provision, or part thereof, and shall not in
any manner affect such clause or provision in any other jurisdiction or any
other clause or provision of this Agreement in any jurisdiction.
(f) This Agreement, including the schedules and
exhibits hereto, constitutes the sole and entire agreement of the parties with
respect to the subject matter hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officer(s) of each party hereto as of the date
first above written.
GREENMAN TECHNOLOGIES, INC.
By:
-------------------------
Maurice E. Needham
Chief Executive Officer
-------------------------
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THE NOTE REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE;
AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF
EXCEPT IN COMPLIANCE WITH, OR PURSUANT TO AN EXEMPTION FROM, THE REQUIREMENTS OF
SUCH ACT OR SUCH LAWS.
--------------------
CONVERTIBLE NOTE
DUE OCTOBER 30, 1998
______, 1997 $______
GREENMAN TECHNOLOGIES, INC., a Delaware corporation (hereinafter called
the "Issuer"), for value received, hereby promises to pay to the Holder (as
defined below) on October 30, 1998 the principal amount of $______ in such coin
or currency of the United States of America as at the time of payment shall be
legal tender for public and private debts, at the principal office of the
Issuer. Interest on the principal amount of this Note shall be paid at the rate
of ten percent (10%) per annum accrued during the period that the principal
amount of this Note is outstanding, payable at the option of the Company in
cash, by check, or in shares of Common Stock of the Company using the Conversion
Price set forth in Section 3 hereof, quarterly on the first day of June,
September, December and March, commencing on December 1, 1997.
This Note is issued by the Company pursuant to a Purchase Agreement (as
defined below) dated of even date herewith, between the Company and the Payee, a
copy of which agreement is available for inspection at the Company's principal
office. Notwithstanding any provision to the contrary contained herein, this
Note is subject and entitled to certain terms, conditions, covenants and
agreements contained in the Purchase Agreement. Any transferee or transferees of
the Note, by their acceptance hereof, assume the obligations of the Payee in the
Purchase Agreement with respect to the conditions and procedures for transfer of
the Note. Reference to the Purchase Agreement shall in no way impair the
absolute and unconditional obligation of the Company to pay both principal and
interest hereon as provided herein.
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The terms defined in this Article whenever
used in this Note shall have the respective meanings hereinafter specified.
(a) "Additional Capital Shares" shall have the meaning set
forth in Section 3. l(c).
(b) "Business Day" shall mean a day other than Saturday,
Sunday or any day on which banks located in the state of New York are authorized
or obligated to close.
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(c) "Capital Shares" shall mean the Common Shares and any
other shares of any other class of common stock, whether now or hereafter
authorized, which have the right to participate in the distribution of earnings
and assets of the Issuer.
(d) "Closing Date" shall mean _______, 1997.
(e) "Common Shares" shall mean shares of the common stock, par
value $.01, of the Issuer.
(f) "Conversion Date" shall mean any day on which all or some
part of the principal amount of this Note is converted into Note Shares in
accordance with the terms of this Note, provided that a Conversion Date must be
a Business Day.
(g) "Conversion Notice" shall have the meaning set forth in
Section 3.2.
(h) "Conversion Price" shall have the meaning set forth in
Section 3.1.
(i) "Conversion Ratio" shall have the meaning set forth in
Section 3.1.
(j) "Current Market Price" per Common Share on any date herein
specified shall be deemed to be the last trade price on such day on the National
Association of Securities Dealers Automated Quotations Small Capitalization
system ("NASDAQ").
(k) "Default Interest Rate" shall be equal to 14% per annum.
(1) "Event of Default" shall have the meaning set forth in
Section 6.1.
(m) "Holder" shall mean________________ or any person to which
this Note is subsequently transferred in accordance with the terms provided
herein.
(n) "Issuer" shall mean GREENMAN TECHNOLOGIES, INC., a
Delaware corporation, and any successor corporation by merger, consolidation,
sale or exchange of all or substantially all of the Issuer's assets, or
otherwise.
(o) "Market Disruption Event" shall mean any event that
results in a material suspension or limitation of trading of Common Shares on
the NASDAQ (or, if the Common Shares are not listed for trading on the NASDAQ,
the principal trading market for the Common Shares as determined by the Holder
in its reasonable discretion).
(p) "Maximum Rate" shall have the meaning set forth in Section
6.3.
(q) "Note" shall mean this Convertible Note or such other
Convertible Note or Notes exchanged therefor as provided in Section 2.1.
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(r) "Notes" shall mean the Convertible Note issued pursuant to
the Purchase Agreement and such other Convertible Note or Notes exchanged
therefor as provided in Section 2.1.
(s) "Note Shares" when used with reference to the securities
issuable upon conversion of this Note, shall mean all Common Shares now or
hereafter Outstanding and securities of any other class into which the Note
Shares shall hereafter have been changed, whether now or hereafter created.
(t) "Outstanding" when used with reference to Common Shares or
Capital Shares (collectively, "Shares"), shall mean, at any date as of which the
number of such Shares is to be determined, all issued and outstanding Shares,
and shall include all such Shares issuable in respect of outstanding scrip or
any certificates representing fractional interests in such Shares; provided,
however, that "Outstanding" shall not mean any such Shares then directly or
indirectly owned or held by or for the account of the Issuer or any Subsidiary.
(u) "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
(v) "Purchase Agreement" means the Securities Purchase
Agreement, dated May 30, 1997, between the Issuer and _______________.
(w) "SEC" shall mean the United States Securities and Exchange
Commission.
(x) "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the SEC thereunder, all as in effect
at the time.
(y) "Subsidiary" shall mean any entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are owned
directly or indirectly by the Issuer.
(z) "Trading Day" shall mean any day on which trades of
securities listed thereon are reported by the NASDAQ (or, if the Common Shares
are not listed for trading on the NASDAQ, the principal trading market for the
Common Shares) and on which no Market Disruption Event has occurred.
(aa) "Valuation Event" shall have the meaning set forth in
Section 3.1.
(bb) "Valuation Period" shall have the meaning set forth in
Section 3.1. All references to "cash" or "$" herein shall mean currency of the
United States of America.
(cc) "Warrant" shall mean the Common Stock Purchase Warrant
issued pursuant to the Purchase Agreement and any other Common Stock Purchase
Warrant exchanged therefor.
-3-
ARTICLE 2
EXCHANGES AND TRANSFER; REDEMPTION
SECTION 2.1 Exchange and Registration of Transfer of Notes. The Holder
may, at its option, surrender this Note at the office of the Issuer and receive
in exchange therefor a Note or Notes, each in the denomination of $10,000.00 or
an integral multiple of $10,000.00 in excess thereof, dated as of the date of
this Note, and, subject to Section 4.1, payable to such Person, or order, as may
be designated by such Holder. The aggregate principal amount of such Note or
Notes exchanged in accordance with this Section 2.1 shall equal the aggregate
unpaid principal amount of this Note as of the date of such surrender; provided,
however, that upon such exchange there shall be filed with the Issuer the name
and address for all purposes hereof of the Holder or Holders of the Note or
Notes delivered in such exchange. This Note, when presented for registration of
transfer or for exchange, conversion or payment, shall (if so required by the
Issuer) be duly endorsed by, or be accompanied by a written instrument of
transfer in form reasonably satisfactory to the Issuer duly executed by, the
Holder or its attorney duly authorized in writing.
SECTION 2.2 Loss, Theft, or Destruction of Note. Upon receipt of
evidence satisfactory to the Issuer of the loss, theft, destruction or
mutilation of this Note and, in the case of any such loss, theft or destruction,
upon receipt of indemnity or security reasonably satisfactory to the Issuer, or,
in the case of any such mutilation, upon surrender and cancellation of this
Note, the Issuer will make and deliver, in lieu of such lost, stolen, destroyed
or mutilated Note, a new Note of like tenor and unpaid principal amount dated as
of the date hereof. This Note shall be held and owned upon the express condition
that the provisions of this Section 2.2 are exclusive with respect to the
replacement of a mutilated, destroyed, lost or stolen Note and shall preclude
any and all other rights and remedies notwithstanding any law or statute
existing or hereafter enacted to the contrary with respect to the replacement of
negotiable instruments or other securities without their surrender.
SECTION 2.3 Who Deemed Absolute Owner. The Issuer may deem the person
in whose name this Note shall be registered upon the registry books of the
Issuer to be, and may treat it as, the absolute owner of this Note (whether or
not this Note shall be overdue) for the purpose of receiving payment of or on
account of the principal of this Note, for the conversion of this Note and for
all other purposes, and the Issuer shall not be affected by any notice to the
contrary. All such payments and such conversion shall be valid and effectual to
satisfy and discharge the liability upon this Note to the extent of the sum or
sums so paid or the conversion so made.
ARTICLE 3
CONVERSION OF NOTE
SECTION 3.1 Conversion; Conversion Price. At the option of the Holder,
at any time commencing one hundred and twenty (120) days following the date of
issuance of this Note until this Note is paid in full, this Note may be
converted, either in whole or in part up to the principal amount hereof (or in
case some portion of this Note shall have been called for
-4-
redemption prior to such date, then at the portion that is not so called), at
the conversion price the ("Conversion Price") equal to seventy percent (70%)
(the "Conversion Ratio") of the average closing bid price of the Common Stock on
the five Trading Days immediately preceding the relevant Conversion Date (the
"Valuation Period"), (but in no event shall such amount be in excess of seventy
percent (70%) of the average closing bid price of the Common Stock on the five
Trading Days immediately preceding the issuance date of this Note).
SECTION 3.2 Exercise of Conversion Privilege. In order to exercise the
conversion privilege, either in whole or in part, the Holder shall surrender
this Note to the Issuer during usual business hours at its principal office and
shall give written notice to the Issuer in the form attached hereto in Annex I
(the "Conversion Notice") at said office that the Holder elects to convert this
Note. The Holder may exercise its right to convert this Note by telecopying an
executed and completed Conversion Notice. The Issuer shall convert the Note and
issue the Note Shares effective as of the time requested by the Holder in the
Conversion Notice so long as such time is after the date on which the Conversion
Notice is given. The Conversion Notice shall also state the name or names (with
address) of the persons who are to become the holders of the Note Shares in
connection with such conversion. Upon surrender for conversion, this Note shall
be accompanied by a proper assignment hereof to the Issuer or in blank. As
promptly as practicable after the receipt of the original Conversion Notice and
this Note as aforesaid, but in any event no more than three (3) Business Days
after the Issuer's receipt of such Conversion Notice and this Note, the Issuer
shall (i) issue the Note Shares issuable upon such conversion in accordance with
the provisions of this Article 3, and (ii) deliver to the Holder (X) a
certificate or certificate(s) representing the number of Note Shares to which
the Holder is entitled by virtue of such conversion, and (Y) cash, as provided
in Section 3.3, in respect of any fraction of a Note Share issuable upon such
conversion. Such conversion shall be deemed to have been effected at the time at
which the Conversion Notice indicates so long as this Note shall have been
surrendered as aforesaid at such time, and at such time the rights of the Holder
as holder of this Note shall cease and the person and persons in whose name or
names the Note Shares shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the Note Shares represented
thereby. The Conversion Notice shall constitute a contract between the Holder
and the Issuer, whereby the Holder shall be deemed to subscribe for the number
of Note Shares that it will be entitled to receive upon such conversion and, in
payment and satisfaction of such subscription (and for any cash adjustment to
which it is entitled pursuant to Section 3.4), to surrender this Note and to
release the Issuer from all liability thereon.
SECTION 3.3 Fractional Shares. No fractional Note Shares or scrip
representing fractional Note Shares shall be issued upon conversion of this
Note. Instead of any fractional Note Shares that would otherwise be issuable
upon conversion of this Note, the Issuer shall pay a cash adjustment in respect
of such fraction in an amount equal to the same fraction of the greater of the
Current Market Price per Common Share at the close of business on the Business
Day that next precedes the day of conversion or the Conversion Price in effect
at the time of conversion. No payment or adjustment shall be made upon any
conversion on account of any distribution on the Note Shares issued upon such
conversion.
-5-
SECTION 3.4 Reclassification, Consolidation, Merger or Mandatory Share
Exchange. At any time while this Note remains outstanding and unexpired, in case
of any reclassification or change of Outstanding Common Shares issuable upon
conversion of this Note (other than a change in par value, or from par value to
no par value per share, or from no par value per share to par value or as a
result of a subdivision or combination of outstanding securities issuable upon
conversion of this Note) or in case of any consolidation, merger or mandatory
share exchange of the Issuer with or into another corporation (other than a
merger or mandatory share exchange with another corporation in which the Issuer
is a continuing corporation and which does not result in any reclassification or
change, other than a change in par value, or from par value to no par value per
share, or from no par value per share to par value, or as a result of a
subdivision or combination of Outstanding Common Shares upon conversion of this
Note), or in the case of any sale or transfer to another corporation of the
property of the Issuer as an entirety or substantially as an entirety, the
Issuer, or such successor or purchasing corporation, as the case may be, shall,
without payment of any additional consideration therefore, execute a new Note
providing that the Holder shall have the right to convert such new Note (upon
terms and conditions not less favorable to the Holder than those then applicable
to this Note) and to receive upon such exercise, in lieu of each Common Share
theretofore issuable upon conversion of this Note, the kind and amount of shares
of stock, other securities, money or property receivable upon such
reclassification, change, consolidation, merger, mandatory share exchange, sale
or transfer by the holder of one Common Share issuable upon conversion of this
Note had this Note been converted immediately prior to such reclassification,
change, consolidation, merger, mandatory share exchange or sale or transfer. The
provisions of this Section 3.4 shall similarly apply to successive
reclassifications, changes, consolidations, mergers, mandatory share exchanges
and sales and transfers.
ARTICLE 4
STATUS; RESTRICTIONS ON TRANSFER
SECTION 4.1 Status of Note. Subject to Section 4.2 below, this Note is
a direct, general and unconditional obligation of the Issuer ranking pari passu
with all other unsecured indebtedness of the Issuer, and constitutes a valid and
legally binding obligation of the Issuer, enforceable in accordance with its
terms subject, as to enforcement, to bankruptcy, insolvency, reorganization and
other similar laws of general applicability relating to or affecting creditors'
rights and to general principals of equity.
SECTION 4.2 Restrictions on Transfer. This Note, and any Note Shares
issued according to the terms hereof, have not been and will not be registered
under the United States Securities Act. This Note and any Note Shares may not be
offered or sold, directly or indirectly, except pursuant to registration under
the Act, an available exemption therefrom, or pursuant to Regulation S.
ARTICLE 5
COVENANTS
The Issuer covenants and agrees that so long as this Note shall be
outstanding:
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SECTION 5.1 Payment of Note. The Issuer will punctually, according to
the terms hereof, (a) pay or cause to be paid the principal of this Note and (b)
issue Note Shares upon conversion.
SECTION 5.2 Notice of Default. If any one or more events occur that
constitute or, with the giving of notice or the lapse of time or both, would
constitute an Event of Default or if the Holder shall demand payment or take any
other action permitted upon the occurrence of any such Event of Default, the
Issuer will forthwith give notice to the Holder, specifying the nature and
status of the Event of Default or other event or of such demand or action, as
the case may be.
SECTION 5.3 Sufficient Authorized Common Shares. (a) So long as the
Current Market Price of the Common Shares is greater than or equal to ninety
percent (90%) of the Current Market Price on the date hereof, the Issuer shall
at all times have authorized and reserved for issuance, free from preemptive
rights, a sufficient number of Common Shares to yield a number of Note Shares
sufficient to satisfy the conversion rights of the Purchaser pursuant to the
terms and conditions hereof; and
(b) at any time when the Current Market Price of the Common
Shares is less than ninety percent (90%) of such Current Market Price on the
date hereof, the Issuer shall continue to reserve the number of shares of Common
Stock required by clause (a) above and in addition (including, without
limitation, by authorizing increases in its capital) to have at all times
authorized and reserved for issuance, free from preemptive rights, a sufficient
number of Common Shares that will yield a number of Note Shares sufficient to
satisfy the conversion rights of the Purchaser pursuant to the terms and
conditions hereof and required by the drop in the market price of the Common
Stock below ninety percent (90%) of such market price on the date hereof.
SECTION 5.4 Insurance. The Issuer will carry and maintain in full force
and effect at all times with insurers the Issuer reasonably believes to be
financially sound and reputable such insurance in such amounts as is customary
in the respective industries of the Issuer and its Subsidiaries.
SECTION 5.5 Payment of Obligations. The Issuer will pay and discharge
at or before maturity, all its respective material obligations and liabilities,
including, without limitation, tax liabilities, except where the same may be
contested in good faith by appropriate proceedings, and will maintain in
accordance with generally accepted accounting principles, appropriate reserves
for the accrual of any of the same.
SECTION 5.6 Compliance with Laws. The Issuer will comply in all
material respects with all applicable laws, ordinances, rules, regulations, and
requirements of governmental authorities except where the necessity of
compliance therewith is contested in good faith by appropriate proceedings.
SECTION 5.7 Inspection of Property, Books and Records. The Issuer will
keep proper books of record and account in which full, true and correct entries
shall be made of all
-7-
dealings and transactions in relation to its business and activities and will
permit representatives of the Holder at the Holder's expense to visit and
inspect any of its respective properties, to examine and make abstracts from any
of its respective books and records and to discuss its respective affairs,
finances and accounts with its respective officers, employees and independent
public accountants, all at such reasonable times and as often as may reasonably
be desired.
ARTICLE 6
REMEDIES
SECTION 6.1 Events of Default. "Event of Default" wherever used herein
means any one of the following events:
(a) default in the due and punctual payment of the principal
of on, or any other amount owing in respect of, this Note when and as the same
shall become due and payable, and continuance of such default for a period of
thirty (30) calendar days; or
(b) substantial failure in the performance or observance of
Section 5.5 of this Note and the continuance of such default for a period of
thirty (30) calendar days; or
(c) default in the performance or observance of any covenant
or agreement of the Issuer in this Note (other than a covenant or agreement a
default in the performance of which is specifically provided for elsewhere in
this Section), and the continuance of such default for a period of thirty (30)
calendar days after there has been given to the Issuer by a Holder a written
notice specifying such default and requiring it to be remedied; or
(d) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Issuer or any Subsidiary a bankrupt
or insolvent, or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Issuer under the
Bankruptcy Code or any other applicable Federal or state law, or appointing a
receiver, liquidator, assignee, trustee or sequestrator (or other similar
official) of the Issuer or of any substantial part of its property, or ordering
the winding-up or liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of thirty (30) calendar
days; or
(e) the institution by the Issuer or any Subsidiary of
proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to
the institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief
under the Federal Bankruptcy Code or any other applicable Federal or state law,
or the consent by it to the filing of any such petition or to the appointment of
a receiver, liquidator, assignee, trustee or sequestrator (or other similar
official) of the Issuer or of any substantial part of its property, or
(f) the Issuer shall fail to issue and deliver the Note Shares
within three (3) Business Days of its receipt of the original Note and the
original Conversion Notice in accordance with Section 3.2; or
-8-
(g) any principal of other indebtedness of the Issuer or any
Subsidiary, exceeding $500,000 is not repaid on its original maturity date or
becomes due and payable by reason of default before its original maturity date;
or
(h) (i) the Issuer or any Subsidiary is unable to pay its
debts as they fall due, stops, suspends, or threatens in writing to stop or
suspend payment of all or any material part of its debts (other than debts
contested in good faith by appropriate proceedings), begins negotiations or
takes any proceeding or other step with a view to readjustment, rescheduling or
deferral of all of its indebtedness (or any material part thereof) that it will
or might otherwise be unable to pay when due or seeks the appointment of a
statutory manager or proposes in writing or makes a general assignment or an
arrangement or composition with or for the benefit of its creditors or any group
or class thereof or a moratorium or statutory management is agreed or declared
in respect of or affecting all or any material part of the indebtedness of the
Issuer or any of its wholly owned subsidiaries, or (ii) the Issuer ceases or
threatens in writing to cease to carry on all or any material part of the
business carried on by the Issuer and its Subsidiaries taken as a whole and as a
result of such cessation or threat of cessation, the Issuer will not be able to
perform or comply with its payment obligations under this Note; or
(i) on or after the date hereof, a final judgment or final
judgments for the payment of money shall have been entered by any court or
courts of competent jurisdiction against the Issuer and remains undischarged for
a period (during which execution shall be effectively stayed) of thirty (30)
days, provided that the aggregate amount of all such judgments at any time
outstanding (to the extent not paid or to be paid, as evidenced by a written
communication to that effect from the applicable insurer, by insurance) exceeds
$500,000; or
(j) it becomes unlawful for the Issuer to perform or comply
with its obligations under this Note, the Purchase Agreement, or the Warrant.
SECTION 6.2 Acceleration of Maturity; Rescission and Annulment. If an
Event of Default occurs and is continuing, then and in every such case any
Holder may declare the principal of this Note to be due and payable immediately,
by a notice in writing to the Issuer, and upon any such declaration the
principal of this Note shall become immediately due and payable.
SECTION 6.3 Default Interest Rate.
(a) If any portion of the principal of the Note shall not be
paid when due (whether at the stated maturity, by acceleration or otherwise)
such principal of the Note that is due and owing but not paid shall, without
limiting the Holder's rights under this Note or under the Purchase Agreement,
bear interest at the Default Interest Rate until paid in full.
(b) Notwithstanding anything herein or in the Purchase
Agreement to the contrary, if at any time the applicable interest rate as
provided for herein shall exceed the maximum lawful rate which may be contracted
for, charged, taken or received by the Lender in accordance with applicable laws
of the State of New York (the "Maximum Rate"), the rate of interest applicable
to the Note shall be limited to the Maximum Rate.
-9-
SECTION 6.4 Remedies Not Waived. No course of dealing between the
Issuer and the Holder or any delay in exercising any rights hereunder shall
operate as a waiver by the Holder.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 Register.
(a) The Issuer shall keep at its principal office a register in which
the Issuer shall provide for the registration of this Note. Upon any transfer of
this Note in accordance with Article 2 and 4 hereof, the Issuer shall register
such transfer on the Note register.
(b) The Issuer may deem the person in whose name this Note shall be
registered upon the registry books of the Issuer to be, and may treat it as, the
absolute owner of this Note (whether or not this Note shall be overdue) for the
purpose of receiving payment of principal of this Note, for the conversion of
this Note and for all other purposes, and the Issuer shall not be affected by
any notice to the contrary. All such payments and such conversions shall be
valid and effective to satisfy and discharge the liability upon this Note to the
extent of the sum or sums so paid or the conversion or conversions so made.
SECTION 7.2 Withholding. To the extent required by applicable law, the
Issuer may withhold amounts for or on account of any taxes imposed or levied by
or on behalf of any taxing authority in the United States having jurisdiction
over the Issuer from any payments made pursuant to this Note.
SECTION 7.3 Governing Law. THIS NOTE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING
EFFECT TO CONFLICTS OF LAWS PRINCIPLES). WITH RESPECT TO ANY SUIT, ACTION OR
PROCEEDINGS RELATING TO THIS NOTE, THE ISSUER IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED
STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW
YORK AND HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. SUBJECT TO APPLICABLE LAW, THE ISSUER AGREES THAT FINAL
JUDGMENT AGAINST IT IN ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS NOTE SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION
WITHIN OR OUTSIDE THE UNITED STATES BY SUIT ON THE JUDGMENT, A CERTIFIED COPY OF
WHICH JUDGMENT SHALL BE CONCLUSIVE EVIDENCE THEREOF AND THE AMOUNT OF ITS
INDEBTEDNESS, OR BY SUCH OTHER MEANS PROVIDED BY LAW.
SECTION 7.4 Headings. The headings of the Articles and Sections of this
Note are inserted for convenience only and do not constitute a part of this
Note.
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IN WITNESS WHEREOF, the Issuer has caused this Note to be signed by its
duly authorized officer under its corporate seal, attested by its duly
authorized officer, on the date of this Note.
GREENMAN TECHNOLOGIES, INC.
By:
---------------------------
Name: Maurice E. Needham
Title: Chief Executive Officer
Attest
By:
------------------------
Name: Cynthia M. Barker
Title: Assistant Secretary
[Corporate Seal]
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ANNEX I TO THE NOTE
[FORM OF CONVERSION NOTICE]
TO _____________________:
The undersigned owner of the Convertible Note, dated ______, 1997,
issued by GREENMAN TECHNOLOGIES, INC. (the "Note") hereby irrevocably exercises
the option to convert $______________ of the principal amount of the Note into
Common Shares, par value $.01, of GREENMAN TECHNOLOGIES, INC. (the "Note
Shares"), in accordance with the terms of the Note. The undersigned directs that
the Note Shares issuable and certificates therefor (to the extent that
certificates evidencing Common Shares are then being issued by GREENMAN
TECHNOLOGIES, INC. deliverable upon the conversion, together with any check in
payment for fractional Note Shares, be issued in the name of and delivered, if
appropriate, to the undersigned unless a different name has been indicated
below.
Dated:_______________ ________________________________
Signature
Fill in for registration of Note Shares:
-------------
- -----------------------------------------------------
- -----------------------------------------------------
Please print name and address
(including zip code number)
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THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE; AND MAY NOT
BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OR EXCEPT IN
COMPLIANCE WITH, OR PURSUANT TO AN EXEMPTION FROM, THE REQUIREMENTS OF SUCH ACT
OR SUCH LAWS.
Warrant No.: 97/__ Right to Purchase ______
Shares of Common Stock of
_______, 1997 GreenMan Technologies, Inc.
VOID UNLESS EXERCISED BEFORE 5:00 P.M., EASTERN TIME ON _______, 1999.
GREENMAN TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
GREENMAN TECHNOLOGIES, INC., a Delaware corporation (the "Company"),
hereby certifies that, for value received, ______________ or assigns, is
entitled, subject to the terms set forth below, to purchase from the Company,
commencing _______, 1997, at any time or from time to time before 5:00 p.m.,
Eastern Time, on or before _______, 1999, ______ fully paid and nonassessable
shares of Common Stock, $.01 par value, of the Company, at an exercise price per
share equal to $___. Such exercise price per share as adjusted from time to time
as herein provided is referred to herein as the "Exercise Price." The number and
character of such shares of Common Stock and the Exercise Price are subject to
adjustment as provided herein. This Warrant is issued pursuant to the terms of a
Securities Purchase Agreement of even date herewith between the Company and the
Holder (the "Purchase Agreement"). Notwithstanding any provision to the contrary
herein, this Warrant is subject and entitled to certain terms, conditions,
covenants and agreements contained in the Purchase Agreement. Any transferee or
transferees of the Warrant, by their acceptance hereof, assume the obligations
of the Holder in the Purchase Agreement with respect to the conditions and
procedures for transfer of the Warrant.
As used herein, the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include GreenMan Technologies, Inc., a
Delaware corporation, and any corporation which shall succeed or assume
the obligations of the Company hereunder.
(b) The term "Common Stock" includes (i) the Company's Common Stock,
$.01 par value per share, as authorized, (ii) any other capital stock
of any class or classes
-1-
(however designated) of the Company, authorized on or after such date,
the holders of which shall have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends
and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of
which shall ordinarily, in the absence of contingencies, be entitled to
vote for the election of a majority of directors of the Company (even
though the right so to vote has been suspended by the happening of such
a contingency), (iii) any other securities into which or for which any
of the securities described in (i) or (ii) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization,
merger, sale of assets or otherwise, or the conversion of promissory
notes or other obligations of the Company.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person
(corporate or otherwise) which the holder of this Warrant at any time
shall be entitled to receive, or shall have received, on the exercise
of the Warrant, in lieu of or in addition to Common Stock, or which at
any time shall be issuable or shall have been issued in exchange for or
in replacement of Other Securities pursuant to Sections 3 or 4 or
otherwise.
1. EXERCISE OF WARRANT.
1.1. FULL EXERCISE. This Warrant may be exercised in full by
the holder hereof by surrender of this Warrant, with the form of subscription at
the end hereof duly executed by such holder, to the Company at its principal
office, accompanied by payment, in cash, by certified or official bank check
payable to the order of the Company or by wire transfer to the Company, in the
amount obtained by multiplying (a) the number of shares of Common Stock for
which this Warrant is then exercisable by (b) the Exercise Price then in effect.
1.2 PARTIAL EXERCISE. This Warrant may be exercised in part by
surrender of this Warrant in the manner and at the place provided in Section 1.1
except that the amount payable by the holder on such partial exercise shall be
the amount obtained by multiplying (a) the number of shares of Common Stock
designated by the holder in the subscription at the end hereof by (b) the
Exercise Price then in effect. On any such partial exercise, the Company at its
expense will forthwith issue and deliver to or upon the order of the holder
hereof a new Warrant or Warrants of like tenor, in the name of the holder hereof
or as such holder (upon payment by such holder of any applicable transfer taxes)
may request, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock for which such Warrant or Warrants may still be
exercised.
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable
after the exercise of this Warrant in full or in part, and in any event within
three (3) business days after receipt of the original Notice of Exercise and the
Warrant, together with immediately available funds for that portion of the
Warrant being exercised , the Company at its expense (including the payment by
it of any applicable issue taxes) will cause to be issued in the name of and
delivered to the holder hereof, or as such holder (upon payment by such holder
of any applicable
-2-
transfer taxes) may direct, a certificate or certificates for the number of
fully paid and nonassessable shares of Common Stock (or Other Securities) to
which such holder shall be entitled on such exercise, plus, in lieu of any
fractional share to which such holder would otherwise be entitled, cash equal to
such fraction multiplied by the then current market value of one full share,
together with any other stock or other securities and property (including cash,
where applicable) to which such holder is entitled upon such exercise pursuant
to Section 1 or otherwise.
3. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION OR MERGER.
3.1 REORGANIZATION, CONSOLIDATION OR MERGER. In case at any
time or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person or entity, or (c) transfer all
or substantially all of its properties or assets to any other person under any
plan or arrangement contemplating the dissolution of the Company, then, in each
such case, the holder of the Warrant, on the exercise hereof as provided in
Section 1 at any time after the consummation of such reorganization,
consolidation or merger or the effective date of such dissolution, as the case
may be, shall receive, in lieu of the Common Stock (or Other Securities)
issuable on such exercise prior to such consummation or such effective date, the
Common Stock and Other Securities and property (including cash) to which such
holder would have been entitled upon such consummation or in connection with
such dissolution, as the case may be, if such holder had so exercised this
Warrant, immediately prior thereto, all subject to further adjustment thereafter
as provided in Sections 4 and 5.
3.2 CONTINUATION OF TERMS. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 3, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the Common Stock and Other
Securities and property receivable on the exercise of the Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such Common Stock or Other Securities,
including, in the case of any such transfer, the person acquiring all or
substantially all of the properties or assets of the Company, whether or not
such person shall have expressly assumed the terms of this Warrant.
4. ADJUSTMENTS FOR STOCK DIVIDENDS AND STOCK SPLITS. In the event that
the Company shall (a) issue additional shares of Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Exercise Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then prevailing Exercise Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such event (calculated assuming the conversion
or exchange of all outstanding shares of convertible or exchangeable securities
of the Company that are convertible or exchangeable into, or exercisable for,
shares of Common Stock) and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such event
-3-
(calculated assuming the conversion or exchange of all outstanding shares of
convertible or exchangeable securities of the Company that are convertible or
exchangeable into, or exercisable for, shares of Common Stock), and the product
so obtained shall thereafter be the Exercise Price then in effect. The Exercise
Price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described herein in this Section 4. The holder
of this Warrant shall thereafter, on the exercise hereof as provided in Section
1, be entitled to receive that number of shares of Common Stock determined by
multiplying the number of shares of Common Stock that would otherwise (but for
the provisions of this Section 4) be issuable on such exercise, by a fraction of
which (i) the numerator is the Exercise Price that would otherwise (but for the
provisions of this Section 4) be in effect, and (ii) the denominator is the
Exercise Price in effect on the date of such exercise.
5. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY AND
RECLASSIFICATIONS. In case at any time or from time to time, the holders of
Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of stockholders eligible to receive)
shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or property (other
than cash) by way of dividend, or (b) other or additional stock or
other securities or property (including cash) by way of spin-off,
split-up, reclassification, recapitalization, combination of shares or
similar corporate rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which, in the case
of Common Stock, are provided for in Section 4), then and in each such case the
holder of this Warrant, on the exercise hereof as provided in Section 1, shall
be entitled to receive the amount of other or additional stock and other
securities and property (including cash in the cases referred to in subdivision
(b) of this Section 5) that such holder would hold on the date of such exercise
if on the date of distribution of such other or additional stock or other
securities and property, or on the record date fixed for determining the
shareholders entitled to receive such other or additional stock or other
securities and property, such holder had been the holder of record of the number
of shares of Common Stock called for on the face of this Warrant and had
thereafter, during the period from the date thereof to and including the date of
such exercise, retained such shares and all such other or additional stock and
other securities and property (including cash in the cases referred to in
subdivision (b) of this Section 5) receivable by such holder as aforesaid during
such period, giving effect to all adjustments called for during such period by
Sections 3 and 4.
6. NOTICES OF RECORD DATE. In the event of
(a) any taking by the Company of a record of the holders of any class
or securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of
stock of any class or any other securities or property, or to receive
any other right, or
-4-
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of
all or substantially all the assets of the Company to or consolidation
or merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
then and in each such event the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, and
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or Other Securities) shall be entitled to
exchange their shares of Common Stock (or Other Securities) for securities or
other property deliverable on such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up. Such notice shall be mailed at least twenty (20) days prior to the
date specified in such notice on which any such action is to be taken.
7. RESERVATION OF STOCK ISSUABLE ON EXERCISE ON WARRANT. The Company
will at all times reserve and keep available, solely for issuance and delivery
on the exercise of the Warrant, all shares of Common Stock (or Other Securities)
from time to time issuable on the exercise of the Warrant; the shares of Common
Stock which the holder of this Warrant shall receive upon exercise of the
Warrant will be duly authorized, validly issued, fully paid and non-assessable.
8. EXCHANGE OF WARRANT. On surrender for exchange of this Warrant,
properly endorsed, to the Company, the Company at its expense will issue and
deliver to or on the order of the holder thereof a new Warrant or Warrants of
like tenor, in the name of such holder or as such holder (on payment by such
holder of any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant or Warrants so surrendered.
9. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
10. WARRANTHOLDER NOT DEEMED STOCKHOLDER; RESTRICTIONS ON TRANSFER.
This Warrant is issued upon the following terms, to all of which each holder or
owner hereof by the taking hereof consents and agrees:
-5-
(a) No holder of this Warrant shall, as such, be deemed the holder of
Common Stock that may at any time be issuable upon exercise of this
Warrant for any purpose whatsoever, nor shall anything contained herein
be construed to confer upon such holder, as such, any of the rights of
a stockholder of the Company until such holder shall have exercised the
Warrant and been issued shares of Common Stock in accordance with the
provisions hereof.
(b) The transfer of this Warrant and any shares of Common Stock
purchased pursuant to this Warrant shall be subject to the provisions
of Sections of the Purchase Agreement.
11. NOTICES. All notices, requests and other communications hereunder
must be in writing and delivered to the parties at the following addresses or
facsimile numbers:
If to the Purchaser, to:
If to the Company, to:
GreenMan Technologies Inc.
7 Kimball Lane
Building A
Lynnfield, MA 01940
Attention: Charles E. Coppa
Telecopy: (617) 224-0114
with copy to:
Sullivan & Worcester, LLP
One Post Office Square
Boston, MA 02109
Attn.: John A. Piccione, Esq.
Telecopy: (617) 338-2880
All such notices, requests and other communications will (a) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (b) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (c) if delivered by
mail or reputable courier service in the manner described above to the
-6-
address as provided in this Section, be deemed given upon receipt (in each case
regardless of whether such notice, request or other communication is received by
any other Person to whom a copy of such notice is to be delivered pursuant to
this Section). Any party from time to time may change its address, facsimile
number or other information for the purpose of notices to that party by giving
notice specifying such change to the other parties hereto.
12. LOCK-UP AGREEMENT FOR PUBLIC OFFERING. In connection with any
public offering of equity securities of the Company, the Warrantholder agrees
not to sell, pledge, transfer or otherwise dispose of, or grant any option or
purchase right with respect to, any shares of Common Stock issuable upon
exercise of this Warrant, or engage in any short sale, hedging transaction or
other derivative security transaction involving such Common Stock, for such
period of time commencing thirty (30) days prior to the proposed effective date
of such public offering until such period of time following the offering as the
Company and the managing underwriter of such public offering deem necessary in
order to ensure a stable and orderly trading market.
13. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant and the shares of Common Stock underlying this Warrant
shall be construed and enforced in accordance with and governed by the laws of
the State of Delaware. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
14. EXPIRATION. The right to exercise this Warrant shall expire at 5:00
p.m., Eastern Standard Time, on _________, 1999.
Dated: _______, 1997
ATTEST: GREENMAN TECHNOLOGIES, INC.
By:__________________________ By:________________________________
Title: Secretary Title: Chief Executive Officer
-7-
NOTICE OF EXERCISE
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
To GreenMan Technologies, Inc.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, ____________
shares of Common Stock of GreenMan Technologies, Inc., a Delaware corporation,
and herewith makes payment of $____________ therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to
_________________________, whose address is -------------------------.
Dated:
------------------------------------------------------
(Signature must conform to name of holder as specified
on the face of the Warrant)
------------------------------------------------------
------------------------------------------------------
(Address)
-8-
FORM OF ASSIGNMENT
(TO BE SIGNED ONLY ON TRANSFER OF WARRANT)
For value received, the undersigned hereby sells, assigns, and
transfers unto _________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of GreenMan
Technologies, Inc., a Delaware corporation, to which the within Warrant relates,
and appoints _________________________ Attorney to transfer such right on the
books of GreenMan Technologies, Inc., a Delaware corporation, with full power of
substitution in the premises.
Dated:
------------------------------------------------------
(Signature must conform to name of holder as specified
on the face of the Warrant)
------------------------------------------------------
------------------------------------------------------
(Address)
Signed in the presence of:
- --------------------------
-9-
Exhibit 11.1
GREENMAN TECHNOLOGIES, INC.
STATEMENT REGARDING NET LOSS PER SHARE
MAY 31, 1997
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 1995 MAY 31, 1996 MAY 31, 1997
<S> <C> <C> <C>
Net loss.......................................... $ (1,092,006) $ (1,578,321) $ (7,006,479)
============= ============= =============
Shares used in calculation of loss per share:
Common shares outstanding (1)................. 2,343,333 -- --
Common equivalent shares (2).................. 1,754,000 -- --
Weighted Common shares outstanding pre - IPO (1 and 2) -- 1,376,973 --
Weighted Common shares outstanding post - IPO -- 3,307,287 5,613,942
------------- ----------- -----------
4,097,333 4,684,260 5,613,942
============= ============ ===========
Net loss per share................................ $ (.27) $ (.34) $ (1.25)
============= ============ ===========
</TABLE>
(1) Includes all common shares outstanding prior to the initial public offering
in accordance with the Staff Accounting Bulletin.
(2) Includes common equivalent shares outstanding as follows: (i) 500,000 shares
of Class A convertible preferred stock convertible into 500,000 shares of
common stock; (ii) 259,000 shares of common stock issued pursuant to
convertible debt at the closing of the initial public offering; (iii)
695,000 shares issuable pursuant to outstanding stock options and warrants;
and (iv) 300,000 shares of Class B convertible preferred stock convertible
into 300,000 shares of common stock. All of these shares were issued or have
exercise prices per share which are less than the initial public offering
price per share. The treasury stock method was not used in calculating
common equivalent shares.
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration statements of
GreenMan Technologies, Inc. on Form S-3 (Nos. 333-22813 and 333-27625) of our
report dated August 26, 1997, on the consolidated balance sheets of GreenMan
Technologies, Inc. as of May 31, 1996 and 1997 and the related consolidated
statements of loss, changes in stockholders' equity (deficit) and cash flows for
the years ended May 31, 1995, 1996 and 1997, which report appears in the Form
10-KSB of GreenMan Technologies, Inc. for the fiscal year ended May 31, 1997.
Wolf & Company, P.C.
Boston, Massachusetts
September 15, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> May-31-1997
<PERIOD-END> May-31-1997
<CASH> 104,193
<SECURITIES> 0
<RECEIVABLES> 577,416
<ALLOWANCES> 23,772
<INVENTORY> 553,688
<CURRENT-ASSETS> 1,412,680
<PP&E> 5,809,488
<DEPRECIATION> 888,445
<TOTAL-ASSETS> 9,785,530
<CURRENT-LIABILITIES> 4,428,778
<BONDS> 2,200,000
0
0
<COMMON> 68,733
<OTHER-SE> 11,759,665
<TOTAL-LIABILITY-AND-EQUITY> 9,785,530
<SALES> 4,020,670
<TOTAL-REVENUES> 4,020,670
<CGS> 3,399,310
<TOTAL-COSTS> 3,399,310
<OTHER-EXPENSES> 4,479,861
<LOSS-PROVISION> 1,000,000
<INTEREST-EXPENSE> 2,114,789
<INCOME-PRETAX> (7,006,465)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,006,465)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,006,465)
<EPS-PRIMARY> (1.25)
<EPS-DILUTED> (1.25)
</TABLE>