<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended June 30, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____ to _____
Commission File Number: 0-28444
EPL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-0990658
(State of incorporation) (I.R.S. Employer Identification Number)
2 INTERNATIONAL PLAZA, SUITE 245
PHILADELPHIA, PA 19113-1507
(Address of principal executive offices) Zip Code
(610) 521-4400
(Telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
16,645,434 shares of $0.001 par value
common stock outstanding as of July 31, 1997.
<PAGE> 2
EPL TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
A. CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1997 AND DECEMBER 31, 1996 1
B. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997
AND 1996 2
C. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 3
D. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 7
CONDITION AND RESULTS OF OPERATIONS.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 10
SIGNATURES. 11
</TABLE>
<PAGE> 3
EPL TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ -----------
(Unaudited) *
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,953,054 $ 1,639,567
Accounts receivable, net 3,431,343 2,911,660
Due from related parties 30,557 34,101
Inventories 2,309,063 1,938,819
Prepaid expenses and other current assets 1,013,948 623,792
------------ -----------
TOTAL CURRENT ASSETS 8,737,965 7,147,939
------------ -----------
PROPERTY AND EQUIPMENT, NET 4,278,615 4,005,711
------------ -----------
OTHER ASSETS
Patent and distribution rights, net 1,138,433 1,303,121
Goodwill 2,358,589 2,503,655
Other intangibles, net 236,737 254,996
------------ -----------
TOTAL OTHER ASSETS 3,733,759 4,061,772
------------ -----------
TOTAL ASSETS $ 16,750,339 $15,215,422
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,997,203 $ 3,005,577
Accrued expenses 935,134 1,213,964
Other liabilities 841,447 396,418
Current portion of long-term debt 251,370 262,779
------------ -----------
TOTAL CURRENT LIABILITIES 7,025,154 4,878,738
LONG TERM DEBT 1,573,055 1,554,161
DEFERRED INCOME TAXES 157,387 161,926
MINORITY INTEREST 125,510 202,120
------------ -----------
TOTAL LIABILITIES 8,881,106 6,796,945
SHAREHOLDERS' EQUITY
Series A Convertible Preferred Stock 2,353,000 2,490,000
Series B Convertible Preferred Stock 5,319 5,319
Series C Convertible Preferred Stock 144 --
Common Stock 16,487 15,531
Additional paid-in capital 23,988,662 21,314,678
Accumulated deficit (18,653,754) (15,658,464)
Foreign currency translation adjustment 159,375 251,413
------------ -----------
TOTAL SHAREHOLDERS' EQUITY 7,869,233 8,418,477
------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 16,750,339 $15,215,422
============ ===========
</TABLE>
* Condensed from audited financial statements
The accompanying notes are an integral part of these condensed financial
statements.
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<PAGE> 4
EPL TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 8,899,804 $ 3,543,104 $ 5,111,080 $ 1,845,576
Cost of Sales 8,031,660 2,974,429 4,643,530 1,567,234
----------- ----------- ----------- -----------
Gross Profit 868,144 568,675 467,550 278,342
Selling, general and administrative expenses 2,704,035 1,900,401 1,499,619 1,100,198
Research and development costs 585,003 414,101 265,839 219,185
Depreciation and amortization 602,465 413,807 318,230 200,811
----------- ----------- ----------- -----------
Net loss from operations (3,023,359) (2,159,634) (1,616,138) (1,241,852)
Interest expense, net 48,541 16,992 27,101 221
Minority Interest (76,610) (39,021)
----------- ----------- ----------- -----------
Net loss $(2,995,290) $(2,176,626) $(1,604,218) $(1,242,073)
Deduct:
Effect of 10% cumulative preferred dividend 246,687 137,107 122,337 65,813
----------- ----------- ----------- -----------
Net loss for common stockholders $(3,241,977) $(2,313,733) $(1,726,555) $(1,307,886)
=========== =========== =========== ===========
Loss per common share $ (0.20) $ (0.16) $ (0.11) $ (0.09)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
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<PAGE> 5
EPL TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(2,995,290) $(2,176,626)
Adjustments to reconcile net loss to net cash
Used in operating activities: 592,824 413,807
(Loss) on foreign currency translation (10,470) (617)
Minority interest (76,610)
Changes in assets and liabilities 841,389 (411,180)
----------- -----------
Net cash (used) in operating activities (1,648,157) (2,174,616)
----------- -----------
INVESTING ACTIVITIES:
Purchase of intangible assets (59,488)
Purchase of fixed assets (639,242) (176,280)
Proceeds from sale of fixed assets 15,658
----------- -----------
Net cash (used) in investing activities (623,584) (235,768)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from the exercise of options/warrants 578,084 3,686,150
Proceeds from issuance of preferred and common stock, net 1,960,000 2,500,000
Proceeds from note payable/net borrowings 131,675 931,200
Repayment of long term debt (84,531) (760,895)
----------- -----------
Net cash provided from financing activities 2,585,228 6,356,455
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 313,487 3,946,071
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,639,567 1,522,075
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,953,054 $ 5,468,146
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
-3-
<PAGE> 6
EPL TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The financial information of EPL Technologies, Inc. and Subsidiaries
(the "Company") included herein is unaudited; however, such information reflects
all adjustments (consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair statement of results for the
interim period.
The financial information has been prepared in accordance with generally
accepted accounting principles for interim financial information, the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly it does
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. Moreover, the results
of operations for the six months and three months ended June 30, 1997 are not
necessarily indicative of the results to be expected for the full year. At this
stage of the Company's development, month to month and quarter to quarter
anomalies in operating results are expected. This information must also be read
in connection with the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.
NOTE 2 - OPERATIONS
EPL Technologies, Inc. develops, manufactures and markets complementary
proprietary technologies designed to maintain the quality and integrity of fresh
produce. The Company's primary products are processing aids and packaging
materials, together with a range of scientific and technical services that
support and complement its product offerings. The Company's continued ability to
operate is dependent upon its ability to maintain adequate financing and to
achieve levels of revenues necessary to support its cost structure. The nature
of the processing aid business is such that fresh-cut produce processors and
other third party users supplying retail markets require extensive and
confidential on-site, and, in certain cases, independent testing prior to
utilizing the Company's product in their production. This results in an extended
sales process, which the Company supports by absorbing the costs of work
undertaken and by retaining data in a proprietary context. This adds to the cost
of market development. Management believes that success in this process with
large processors, despite the fact that such success is usually protected by
confidentiality agreements for competitive reasons, is the primary basis for
developing sustainable growth in revenues, would enable the Company to achieve
profitable operations in this area of the business. The nature of the packaging
materials business is that the sales process is shorter than that for processing
aids, but there is still an approval process to be completed with new customers
prior to sale.
The Company's management believes that cash flows from consolidated
operations and the availability of financing from other sources, such as
additional borrowing under its available line of credit, or other private or
public issuances of equity which the Company believes may be obtained on
acceptable terms, will provide the Company adequate financing for the next year,
assuming minimal sales budgets are met. See also Note 6 and Item 2 below.
NOTE 3 - INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
Raw Materials and Supplies $ 1,408,768 $938,050
Finished Goods 900,295 1,000,769
----------- ----------
Total Inventories $ 2,309,063 $1,938,819
========== ==========
</TABLE>
- 4 -
<PAGE> 7
NOTE 4 - INTANGIBLE ASSETS - PATENT AND DISTRIBUTION RIGHTS AND GOODWILL
Patents are amortized over the shorter of their estimated useful
lives or the life of the patent. The net book value of acquired and developed
patents totaled $1,023,634 as of June 30, 1997. Distribution rights are
amortized over the ten year life of the agreement. The net book value of
previously acquired distribution rights totaled $114,799 as of June 30, 1997.
Amortization expense related to patent and distribution rights totaled $164,688
for the six months ended June 30, 1997. Goodwill related to the acquisition of
certain subsidiaries is being amortized on a straight line basis over ten years.
Amortization expense related to goodwill and other intangible assets totaled
$163,325 for the six months ended June 30, 1997.
NOTE 5 - CONVERTIBLE PREFERRED STOCK
The Company's 10% Series A Convertible Preferred Stock (the "Series
A Stock"), which has been issued up to its authorized limit of 3,250,000, was
issued more than three years ago at a price of $1.00 per share, with each share
of Series A Stock carrying the option to convert into common shares at a rate of
$0.75 per share. The Series A Stock carries equal voting rights to the common
shares, based on the underlying number of common shares after conversion. The
Series A Stock carries a dividend rate of 10% per annum, payable in cash and/or
common shares ($0.75 per share) at the Company's option (dividends in arrears at
March 31, 1997 total $1,222,403).
During the three months ended June 30, 1997, shareholders holding
77,000 shares of Series A Stock elected to exercise their right of conversion,
leaving 2,353,000 shares of Series A Stock outstanding at June 30, 1997. In
addition, 20% of the common stock into which the Series A Stock may be converted
carries detachable warrants at an exercise price of $1.00 per warrant. During
the three months ended June 30, 1997, 11,334 of these warrants were exercised,
leaving 227,198 of these warrants unexercised at June 30, 1997.
At the Annual Meeting of the Company's shareholders held on July 22,
1996, the shareholders of the Company approved an amendment to the Company's
Articles of Incorporation to permit the issuance of up to 2,000,000 shares of
preferred stock (the "Board Designated Preferred Stock") with such designations
and preferences as the Company's Board of Directors may determine from time to
time (see also Note 9 below). On July 23, 1996, the Company issued 531,915 of
these shares - designated Series B 10% Convertible Preferred Stock - at an
aggregate consideration of $2,500,000 to two existing investors in the Company
(the "Series B Stock"). Such issuance was made under Regulation D under the
Securities Act of 1933, as amended, as not involving a public offering. The
Series B Stock carries the option to convert into shares of common stock at the
rate of $4.70 per share and votes as a class, except as otherwise provided by
law, with the Series A Stock, the Series C Stock (as defined above) and the
common stock, based on the underlying number of shares of common stock after
conversion. The Series B Stock carries a dividend rate of 10% per annum, payable
in cash and/or shares ($4.70 per share) at the Company's option. The dividend in
arrears on the Series B Stock at June 30, 1997 totaled $235,445.
During the three months ended June 30, 1997, the Company accepted
the subscription of $1.0 million, received in the three months ended March 31,
1997, from an existing shareholder in connection with an offering of common and
Board Designated Preferred Stock. This resulted in the issuance of 87,500 shares
of common stock, together with 144,444 shares of Board Designated Preferred
Stock - designated Series C 10% Convertible Preferred Stock (the "Series C
Stock"). Such issuance was made under Regulation D under the Securities Act of
1933, as amended, as not involving a public offering. The Series C Stock carries
the option to convert into shares of common stock at the rate of $4.50 per share
and votes as a class, except as otherwise provided by law, with the Series A
Stock, the Series B Stock and the common stock, based on the underlying number
of shares of common stock after conversion. The Series C Stock carries a
dividend rate of 10% per annum, payable in cash and/or shares ($4.50 per share)
at the Company's option. The dividend in arrears on the Series C Stock at June
30, 1997 were not material.
NOTE 6 - ISSUANCE OF COMMON STOCK AND EXERCISE OF WARRANTS
In addition to the 102,667 shares of common stock issued upon the
conversion of 77,000 shares of Series A Stock and 11,334 shares of common stock
issued upon the exercise of warrants underlying the Series A Stock, both as
described in Note 5 above, 389,000 shares of common stock were issued due to the
exercise of stock options covered by
- 5 -
<PAGE> 8
the Company's registration statement in Form S-8 during the three month period
ended June 30, 1997. This exercise of options resulted in gross proceeds to the
Company of $500,500. Furthermore, 20,000 warrants were exercised, which resulted
in additional gross proceeds to the Company of $40,000.
In addition to the 87,500 shares of common stock issued further to
the offering mentioned in Note 5 above, in May 1997, the Company issued a
further 250,000 shares of common stock in connection with the same offering of
common and Board Designated Preferred Stock, to an additional existing
shareholder. Such issuance was made under Regulation D under the Securities Act
of 1933, as amended, as not involving a public offering. This resulted in gross
proceeds to the Company of $1.0 million.
NOTE 7 - NET LOSS PER COMMON SHARE
Net loss per common share is computed by dividing the loss
applicable to common shareholders by the weighted average number of common
shares and common share equivalents during the period. Outstanding options,
convertible Series A Stock, Series B Stock and Series C Stock and stock warrants
were determined to be antidilutive for the periods ended June 30, 1997 and 1996
and were therefore excluded from the per share calculations.
NOTE 8 - NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 128,
"Earnings Per Share," which will result in changes to the computation and
presentation of earnings per share. The Company will be required to adopt this
standard during its quarter ended December 31, 1997 with earlier adoption not
permitted. At this time, the Company has not determined the impact this standard
will have on the Company's earnings per share.
NOTE 9 - SUBSEQUENT EVENTS
At the Annual Meeting of the Company held on July 21, 1997, the
shareholders of the Company approved an increase in the number of shares of
Board Designated Preferred Stock reserved for issuance from 2,000,000 to
4,000,000.
Also at the Annual Meeting of the Company, the shareholders of the
Company approved an amendment to the Company's 1994 Stock Incentive Plan (the
"Plan") which increases the number of shares of common stock reserved for
issuance under the Plan from 3,000,000 to 4,500,000.
- 6 -
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
EPL Technologies, Inc. develops, manufactures and markets
complementary proprietary technologies designed to maintain the quality and
integrity of fresh produce. The Company's primary products are processing aids
and packaging materials, together with a range of scientific and technical
services that support and complement its product offerings, which are designed
for and marketed to processors of fresh fruits and vegetables, to be integrated
into a customer's fresh produce production system. The Company believes its
products are safe (the Company's processing aid products use ingredients that
are included in the Food and Drug Administration list as generally recognized as
safe), environmentally friendly and, together with the Company's services, add
significant value to the business of its customers. The Company also believes
that its processing aids and packaging materials are complementary technologies
and markets them as such. The Company's goal is to become a world class provider
of products and scientific and technical services designed to maintain the
quality and integrity of fresh produce. As consumer awareness continues to grow,
including reaction to reports regarding the potential health concerns
surrounding the use of sulfite-based preservatives and untreated produce or
produce-derived food products, management believes interest in the Company's
products will increase, although there can be no assurance in this regard.
Management is continually searching for new ways to market its products and
services and expand operations, both internally and, where appropriate, through
strategic and opportunistic acquisitions. In this regard, in March 1997 the
Company executed a letter of intent containing its conditional offer to acquire
a European-based specialty packaging business, with sales revenue of
approximately $7,500,000. Since that time the Company has continued its due
diligence and negotiations. The Company believes that this acquisition would
complement its existing European operations and advance its strategic plan of
the range of products and services it desires to offer. There can, however, be
no assurance that this or any other acquisition will in fact be consummated. In
addition, the Company continues to be in discussions with a number of processors
in connection with various fruit and vegetable categories regarding strategic
alliances, joint ventures, licenses and other contracts. There can, however, be
no assurance that any such discussions will result in any transaction being
consummated.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Sales for the six months ended June 30, 1997 were $8,899,804, an
increase of 151% on the total revenue of $3,543,104 achieved during the six
months ended June 30, 1996. Sales for the first six months of 1997 was comprised
of $1,008,334 of processing aids and related activities, $1,355,452 of US
packaging materials and $6,536,018 of UK and other European packaging materials.
Sales of processing aids and related activities increased by
$813,574 (418%) compared to the six months ended June 30, 1996. This increase
was mainly from the inclusion of the revenue from the Company's corn activities
through of its majority owned company NewCorn Co, completed on July 22, 1996.
The focus of processing aid activity continues to be towards new product
introduction to larger processors. Testing at numerous locations continues, and
in some cases has been expanded and/or accelerated, and as detailed below,
significant costs have been incurred which are yet to show in material revenue
increases. The current market development includes work on potatoes and apples,
where the Company continues to be in volume market test in retail and food
service outlets. Market development activity is also ongoing in carrots, celery
and onions while product development continues on broccoli and mushrooms. As
mentioned above, the Company continues to evaluate the most appropriate
strategic options with regard to the development of each fruit or vegetable
category.
Sales of US packaging materials increased by $911,968 (206%) over
the same period in 1996, of which $719,429 in 1997 was due to the inclusion of
Crystal Specialty Films, Inc. (Crystal) which the Company acquired in July 1996.
The balance of the increase of $192,539 came from growth in the business of its
Respire subsidiary (up 25%), together with an initial contribution from the
contract with DuPont for gas-flame film perforation. Revenue from this source,
which is serviced from the Crystal factory, is expected to increase during 1997.
Sales of UK and other European packaging materials increased by
$3,631,158 (125%) in the six months ended June 30, 1997 compared to the same
period in 1996. This reflected both an increase in the underlying business of
what was formerly Bakery Packaging Services Limited (BPS) as well as the
contribution from EPL Flexible Packaging Limited
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<PAGE> 10
(EPL Flexible) and its main customer Pepsico. BPS and EPL Flexible now trade
under the one name, EPL Flexible. As already announced, at the end of 1996/early
1997, the Company relocated all of the film printing activities previously
located at the BPS site to the EPL Flexible site. In addition, following this
relocation, a plant reorganization to facilitate an increase in higher margin
film perforation and conversion capacity at the BPS site was commenced. Costs
incurred to date in connection with this reorganization have had an impact on
the gross margin in the first six months of 1997.
Gross margin for the six months ended June 30, 1997, was 9.8% as
compared to 16.0% for the same period in 1996. This reduction was principally
due to: the inclusion in consolidation of sales of UK and other European
packaging materials, which generate a lower average margin than processing aids
and now represent a greater proportion of total group sales; the effect of the
disproportionate level of fixed costs in packaging manufacturing operations
exacting a disproportionate impact on margins on the seasonably lower fiscal
first half volume levels; the previously noted costs incurred in the relocation
of the film printing activities to the EPL Flexible site; costs associated with
the subsequent plant reorganization at BPS which are expected to continue to
some degree into the next quarter; and an adverse sales mix in the period. With
the relocation of the printing presses mentioned above, combined with the
significant increase in volumes, the EPL Flexible site incurred operational
inefficiencies in meeting this demand. These have been identified and remedial
action has already commenced. The benefits of this action are expected to begin
to affect the Company later in 1997.
Selling, general and administrative expenses rose from $1,900,401
for the six months ended June 30, 1996 to $2,704,035 for the same period in
1997, an increase of $803,634 (42%). This increase was due not only to the
inclusion on consolidation of incremental expenses from the inclusion of EPL
Flexible, Crystal, and NewCorn Co, but also due to the continuing and
accelerating development of the sales and marketing effort as well as projects
to support prospective large customers. As discussed above, this effort is
focused on a number of vegetable categories, including potatoes and apples,
where market test activity is continuing. The Company expects that this level of
additional expenditure will continue at least in the short-term. Research and
development costs increased from $414,101 for the first six months of 1996 to
$585,003 for the same period of 1997, an increase of $170,902 (41%). This
reflects increased costs of the scientific activities related to projects
supporting the sales effort for prospective large customers, which, as
previously noted, the Company absorbs. Again, the Company expects that these
higher expenses will continue in the short-term, although it believes the
results of these expenditures will be seen in incremental revenues later in 1997
and beyond. Despite these increases, overheads as a percentage of sales revenue
fell from 65.3% in the six months ended June 30, 1996 to 37.0% for the six
months ended June 30, 1997.Depreciation and amortization expense increased by
$188,658 (46%), from $413,807 in the first six months of 1996 to $602,465 for
the same period of 1997. This reflects increased depreciation and amortization
as a result of capital expenditure and the assets acquired in the EPL Flexible,
Crystal and NewCorn Co acquisitions in the second half of 1996.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Sales for the three months ended June 30, 1997 increased to
$5,111,080 compared with $1,845,576 recorded during the three months ended June
30, 1996, an increase of $3,265,504 (177%). Of the sales in the second quarter,
processing aids and related activities accounted for $887,438, US packaging
materials $604,092 and UK and other European packaging materials $3,619,550.
Sales of processing aids and related activities rose by $797,332
(885%) compared to the six months ended June 30, 1996. This increase was mainly
due to the inclusion of revenue from the Company's corn activities as noted
above. The focus of processing aid activity continues to be towards new product
introduction to larger processors. Testing at numerous locations continues, and
in some cases has been expanded and/or accelerated, and as detailed below, costs
have been incurred which are yet to show in significant revenue increases. The
current market development includes work on potatoes and apples, where the
Company continues to be in volume market test in retail and food service
outlets. Market development activity is also ongoing in carrots, celery and
onions while product development continues on broccoli and mushrooms. As
mentioned above, the Company continues to evaluate the most appropriate
strategic options with regard to the development of each fruit or vegetable
category.
Sales of US packaging materials grew by some 151% or $363,264 from
the same period in 1996 primarily due to the inclusion of Crystal noted above.
The Company continues to target and to expand product development activities and
to exploit synergies that it believes exist with the processing aid business,
together with increasing business from the contract with DuPont.
Sales of UK and other European packaging materials increased by
$2,104,908 (139%) in the three months
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<PAGE> 11
ended June 30, 1997 compared to the same period in 1996. As mentioned above,
this was primarily due to the inclusion of EPL Flexible and the business of its
main customer Pepsico.
Gross margin for the second quarter of 1997 was 9.1% as compared to
15.1% for the second quarter of 1996. This reduction is also principally due to
the inclusion in consolidation of sales of UK and other European packaging
materials, which, as noted above, generate a lower average margin than
processing aids. However, also as mentioned above, it also reflects the effect
of the disproportionate level of fixed costs in packaging manufacturing
operations exacting a disproportionate impact on margins on the seasonably lower
fiscal second quarter volume levels, reorganization costs and the costs of
operational inefficiencies at the EPL Flexible site arising from this and
significantly increased volumes. As mentioned above, remedial action is already
in progress, the benefits of which are expected to come through later in 1997.
Selling, general and administrative expenses rose to $1,499,619 in
the 1997 quarter from $1,100,198, an increase of $399,421. This was due to the
inclusion in consolidation of expenses related to the inclusion of acquired
subsidiaries and the continuing development of the sales and marketing effort as
well as projects to support prospective, large customer particularly for field
tests of the Company's fresh potato product (the Company expects that this level
of additional expenditure will continue at least in the short term). Research
and development costs increased from $219,185 to $265,839, an increase of
$46,654. This reflects the costs to support the Company's scientific and
technical objectives in relation to the ongoing sales effort for large,
prospective customers particularly with reference to the field tests noted
above. Again, the Company expects that these expenses will continue to exceed
the expenses in 1996. However, overheads as a percentage of sales revenue fell
from 71.5% in the three months ended June 30, 1996 to 34.5% in the same period
in 1997. Depreciation and amortization expense increased by $117,419 from
$200,811 in 1996 to $318,230 in 1997. The majority of this increase was due to
and increased depreciation as a result of capital expenditure.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997 the Company had $1,953,054 in cash and short term
investments, compared with $1,639,567 at December 31, 1996, an increase of
$313,487. During the six months ended June 30, 1997, cash has been used to fund
operating activities of $1,648,157 and to finance the purchase of fixed tangible
and intangible assets of $639,242. The decrease in net cash used in operations
in 1997 is due primarily to an increase in current payables offset by an
increase in accounts receivables, prepaid expenses and inventories. Total
financing activities were $2,585,228 in this period, principally through the
issuance of new stock and the exercise of options and warrants as mentioned in
Notes 5 and 6 above.
The Company may seek additional financing through an equity offering
or increase in debt facility if the Company believes results of its sales
objectives over the short term are unsatisfactory, although there can be no
assurance that such capital would be available or if available, obtainable on
acceptable terms in such circumstances. The Company's continued ability to
operate is dependent upon its ability to maintain adequate financing and to
achieve levels of revenue necessary to support its cost structure. The nature of
the business is such that fresh-cut produce processors and other third-party
users supplying retail markets require extensive on site, and, in certain cases,
independent testing prior to utilizing the Company's product in their
production. This results in an extended sales process. The Company's management
believes that this process, despite the fact that success in this process is
usually protected by confidentiality agreements for competitive reasons, is the
basis for developing sustainable growth in revenues which will enable the
Company to achieve profitable operations. The Company's management also believes
that cash flows from consolidated operations and the availability of financing
from other sources such as borrowing under its available line of credit, or
other private or public issuances of equity which the Company believes may be
obtained on acceptable terms, will allow the Company to maintain adequate
financing for the next year, assuming minimal sales budgets are met. At June 30,
1997 the Company had 486,684 warrants outstanding to purchase shares of common
stock at between $1.00 and $5.00 per share, which if exercised would provide the
Company with gross proceeds of approximately $1,120,000. In addition, at June
30, 1997 the Company had 3,029,500 outstanding to purchase shares of common
stock at a weighted average price of $3.42 per share, which if exercised would
provide the Company with gross proceeds of approximately $10,360,000. There can
be no assurance, however, that any such exercises will occur. At June 30, 1997,
there were no material commitments for capital expenditures.
- 9 -
<PAGE> 12
FORWARD LOOKING STATEMENTS
The discussion above includes certain forward looking statements
regarding the Company's expectations on gross margin, expenses, market
penetration, success in obtaining large new customers, possible acquisitions,
access to capital and new product introduction. Consequently, actual results may
vary materially from such expectations. Meaningful factors that might affect
such results include : a) the length and effectiveness of the sales process for
processing aids and packaging, b) raw material availability and pricing, c)
changes in regulatory environment and d) difficulty with research and
development activities regarding new products, including extension of necessary
time periods or increase in expense for product introduction.
- 10 -
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
Exhibit 3.1 - Amended and Restated Articles of Incorporation
of the Company, as amended to date.
Exhibit 10.11 - Employment agreement between EPL
Technologies, Inc. and P.L. Devine, Director, President and
Chief Executive Officer, as of January 1, 1997.
Exhibit 11.0 - Computation of Loss per share
b) Reports on Form 8-K
None
- 11 -
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EPL TECHNOLOGIES, INC.
Date: August 14, 1997 /s/ Paul L. Devine
--------------------
Paul L. Devine
Chairman and President
(Principal Executive Officer)
Date: August 14, 1997 /s/ Timothy B. Owen
----------------------
Timothy B. Owen
Principal Financial Officer
- 12 -
<PAGE> 1
FOR OFFICE USE ONLY
MAIL TO: SECRETARY OF STATE
CORPORATIONS SECTION
1560 BROADWAY, SUITE 200
DENVER, CO 80202
(303) 894-2251
(303) 894-2242
MUST BE TYPED
FILING FEE: $25.00
MUST SUBMIT TWO COPIES
ARTICLES OF AMENDMENT
PLEASE INCLUDE A TYPED TO THE
SELF-ADDRESSED ENVELOPE ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is EPL Technologies, Inc.
----------------------------------------
SECOND: the following amendment to the Articles of Incorporation was adopted on
July 21, 1997, as prescribed by the Colorado Business Corporation Act,
- - -------------
in the manner marked with an X below:
No shares have been issued or Directors Elected - Action by Incorporators
- - ---
No shares have been issued but Directors Elected - Action by Directors
- - ---
Such amendment was adopted by the board of directors where shares have been
- - --- issued.
X Such amendment was adopted by a vote of the shareholders. The number of
- - --- shares voted for the amendment was sufficient for approval.
See Exhibit A
THIRD: The manner, if not set forth in such amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the amendment
shall be effected, is as follows:
<TABLE>
<S> <C>
If these amendments are to have a delayed effective date, please list that date: n/a
(Not to exceed ninety (90) days from the date of filing) ----------------------------
----------------------------
By /s/ Timothy B. Owen
----------------------------
Its Secretary and Treasurer
----------------------------
(Title)
</TABLE>
<PAGE> 2
EXHIBIT A
RESOLVED, that Paragraph A. of Article V of the Articles of Incorporation of the
Company be amended and restated to read in its entirety as follows:
The Corporation shall have the authority to issue fifty million
(50,000,000) shares of common stock with a par value $0.001 per share,
three million two hundred fifty thousand (3,250,000) shares of Series A
10% Cumulative Convertible Preferred Stock with a par value of $1.00
per share ("Series A Preferred Stock"), 531,915 shares of Series B 10%
Cumulative Convertible Preferred Stock with a par value of $0.01 per
share ("Series B Preferred Stock"), 144,444 shares of Series C
Convertible Preferred Stock with a par value of $0.01 per share
("Series C Preferred Stock") and three million, three hundred
twenty-three thousand, six hundred forty-one (3,323,641) shares of
preferred stock with a par value of $0.01 per share ("Board Designated
Preferred Stock"). The Board of Directors of the Corporation may
determine, in whole or in part, the preferences, limitations, and
relative rights of the Board Designated Preferred Stock, within the
limits set forth in Section 7-106-101 of the Colorado Business
Corporation Act, of any class of the Board Designated Preferred Stock,
before the issuance of any shares of that class, or one or more series
within a class of the Board Designated Preferred Stock before the
issuance of any shares of that series. The Board of Directors may
issue, in one or more classes or series, shares of the Board Designated
Preferred Stock with full, limited, multiple, fractional or no voting
rights, and with such designations, preferences, qualifications,
privileges, limitations, restrictions, options, conversion rights, or
other special or relative rights as shall be fixed from time to time by
the Board of Directors, except for and subject to, in each case, the
limits set forth in Section 7-106-101 of the Colorado Business
Corporation Act and in accordance with the provisions and requirements
of Section 7-106-102 of the Colorado Business Corporation Act.
<PAGE> 3
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
EPL TECHNOLOGIES, INC.
Pursuant to the provisions of the Colorado Business Corporation Act,
the undersigned corporation (the "Corporation") adopts the following Amended
and Restated Articles of Incorporation. The Corporation certifies as follows:
FIRST: The name of the Corporation is EPL Technologies, Inc.
SECOND: Paragraph A of Article V of the Articles of Incorporation has been
amended to read as it appears below. The amendment was adopted on
July 22, 1996 by a vote of the shareholders. The number of shares
voted for the amendment was sufficient for approval.
THIRD: The following restatement of the Articles of Incorporation was adopted
on July 22, 1996 by the Board of Directors of the Corporation without
shareholder action, as shareholder action was not required for such
restatement.
FOURTH: The following articles correctly set forth the provisions of the
Articles of Incorporation, as amended, and supersede the original
Articles of Incorporation and all amendments thereto:
ARTICLE I
The name of the Corporation is EPL Technologies, Inc.
ARTICLE II
The period of duration of the Corporation shall be perpetual.
ARTICLE III
The purposes for which the Corporation is organized are: The
transaction of all lawful business for which corporations may be incorporated
pursuant to the laws of the State of Colorado, whether acting singly or in
conjunction with any other person or entity.
ARTICLE IV
In furtherance of the purposes set forth in Article III of these
Articles of Incorporation, the Corporation shall have and may exercise all of
the rights, powers, and privileges now or hereafter conferred upon corporations
organized under and pursuant to the laws of the State of Colorado.
<PAGE> 4
ARTICLE V
A. Authorized Shares. The Corporation shall have the authority to issue
fifty million (50,000,000) shares of common stock with a par value $0.001 per
share, three million two hundred fifty thousand (3,250,000) shares of Series A
10% Cumulative Convertible Preferred Stock with a par value of $1.00 per share
("Series A Preferred Stock") and two million (2,000,000) shares of preferred
stock with a par value of $.01 per share ("Board Designated Preferred Stock").
The Board of Directors of the Corporation may determine, in whole or in part,
the preferences, limitations, and relative rights of the Board Designated
Preferred Stock, within the limits set forth in Section 7-106-101 of the
Colorado Business Corporation Act, of any class of the Board Designated
Preferred Stock, before the issuance of any shares of that class, or one or
more series within a class of the Board Designated Preferred Stock before the
issuance of any shares of that series. The Board of Directors may issue, in one
or more classes or series, shares of the Board Designated Preferred Stock with
full, limited, multiple, fractional or no voting rights, and with such
designations, preferences, qualifications, privileges, limitations,
restrictions, options, conversion rights, or other special or relative rights
as shall be fixed from time to time by the Board of Directors, except for and
subject to, in each case, the limits set forth in Section 7-106-101 of the
Colorado Business Corporation Act and in accordance with the provisions and
requirements of Section 7-106-102 of the Colorado Business Corporation Act.
B. Transfer Restrictions. The Corporation shall have the right, by
appropriate action, to impose restrictions upon the transfer of any shares of
its stock or any interest therein, from time to time provided that any
restrictions imposed, or notice of the substance thereof, shall be set forth
upon the face or back of the Certificates representing the Corporation's shares
of stock.
C. Preemptive Rights. The holders of the shares of the common stock of
the Corporation shall not be entitled, as of right, to purchase or subscribe
for any unissued or treasury stock of any class, or any additional stock of any
class to be issued by reason of any increase of the authorized shares of the
Corporation of any class, or any bonds, certificates of indebtedness,
debenture, or other securities, rights, warrants or options convertible into
shares of the Corporation or carrying any right to purchase shares of any class
in accordance with their proportionate equity in the Corporation.
D. Cumulative Voting. The cumulative system of voting for Directors or
for any other purpose shall not be allowed.
E. Series A Preferred Stock. The terms, preferences and relative,
participating, optional or other special rights of the Series A Preferred Stock
and the limitations and restrictions thereof are as follows:
Dividend Rights. Holders of the Series A Preferred Stock are entitled to
dividends at the rate of 10% per annum of the par value of the stock. At
the option of the Corporation, these dividends may be paid either in
cash or in common stock. If the dividends are paid in common stock, the
common stock will be valued at the conversion price, which is $0.75 per
share (subject to adjustment for stock splits, stock dividends, the
effect of mergers and the like). If the dividends are not paid, the
right to receive unpaid dividends will accumulate, but without interest.
No dividends may be paid on
<PAGE> 5
the common stock at a time when payment of dividends on the Series A
Preferred Stock is in arrears.
Terms of Conversion. Each share of Series A Preferred Stock may be
converted into that number of full shares of common stock of the
Corporation determined by dividing $1.00 by the Conversion Price of $0.75
per share (subject to adjustment for stock splits, stock dividends, the
effect of mergers and the like). Conversion may be elected by the holder of
the Series A Preferred Stock at any time prior to payment of a distribution
in liquidation with respect to the Series A Preferred Stock. Payment in
cash will be made in lieu of issuance of fractional shares.
Voting Rights. Each holder of Series A Preferred Stock is entitled to the
number of votes equal to the number of whole shares of common stock into
which the shares of Series A Preferred Stock are convertible. Except when
voting by class or series is required by law or the Articles of
Incorporation, holders of the Series A Preferred Stock shall vote together
with the holders of the common stock as a single class.
Liquidation Rights. In the event of a liquidation, dissolution or winding
up of the Corporation, the holders of shares of Series A Preferred Stock
are entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders $1.00 per share (subject to adjustment for
stock splits, stock dividends, the effect of mergers and the like affecting
the Series A Preferred Stock). This payment shall be made in full by the
Corporation prior to any payment being made to the holders of the common
stock.
No Other Rights. The Series A Preferred Stock will not have the benefit of
any sinking fund provisions, any redemption provisions, any preemptive
rights to subscribe to any additional shares of any class or series of the
Corporation's stock, or any liability to further calls or assessments. The
Series A Preferred Stock will not have any right to elect a separate class
of Directors of the Corporation. There is no restriction on the repurchase
or redemption of any shares of the Corporation while there is any arrearage
in the payment of dividends on the Series A Preferred Stock.
F. Indemnification. The Corporation shall, to the fullest extent permitted
by law, indemnify Incorporators, Directors, Officers, employees, fiduciaries,
agents, consultants or other parties whom it shall have power to indemnify from
and against any expenses (including attorney's fees), liabilities, claims or
other matters arising by reason of the person's relationship with the
Corporation. The Corporation may obtain and pay for insurance for that purpose.
The indemnification provided for herein shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under these Articles or
any Bylaw, agreement, vote of shareholders, or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office. This indemnification shall continue as to a person who has terminated
his position for actions occurring during the period of his relationship with
the Corporation, and shall inure to the benefit of the heirs, executors,
personal representatives, and administrators of such a person.
<PAGE> 6
ARTICLE VI
The Board of Directors of the Corporation shall consist of not less
than three (3) nor more then seven (7) directors, as set forth in the Bylaws
of the Corporation, who need not be shareholders of the Corporation or
residents of the State of Colorado.
ARTICLE VII
No contract or other transaction between the Corporation and one or
more of its Directors, Officers, agents or employees or any other corporation,
firm, association or entity in which one or more of its Directors, Officers,
agents or employees are directors or officers or are financially interested in
shall be either void or voidable because of such relationship or interest, or
because such Directors or Officers are present at a meeting of the Board of
Directors or a Committee thereof which authorizes, approves or ratifies such
contract or transaction, or because their votes were counted for such purpose
if:
A. The fact of such relationship or interest is disclosed or known
to the Board of Directors or Committee which authorizes, approves or ratifies
the contract or transaction by a majority vote of uninterested directors; or
B. The fact of such relationship or interest is disclosed or known
to the shareholders entitled to vote and they authorize, approve or ratify such
contract or transaction by vote or written consent; or
C. The contract or transaction is fair and reasonable to the
Corporation.
Interested Directors or Officers may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
ARTICLE VIII
In addition to the other powers now or hereafter conferred upon the
Board of Directors by these Articles of Incorporation, the Bylaws of the
Corporation, or by the law of Colorado, the Board of Directors may from time to
time distribute to the shareholders in partial liquidation, out of the stated
capital or the capital surplus of the Corporation, a portion of the corporate
assets, in cash or in kind; subject, however, to the limitations contained in
the Colorado Business Corporation Act.
ARTICLE IX
With respect to any action to be taken by shareholders of this
Corporation, a vote or concurrence of the holders of a majority of the
outstanding shares present or represented at a meeting and entitled to vote
thereon shall be required.
<PAGE> 7
ARTICLE X
The address of the Registered Office of the Corporation is 1675
Broadway, Denver, Colorado 80202. The name of the Registered Agent of the
Corporation at such address is The Corporation Company.
ARTICLE XI
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in, or to add any provisions to, its Articles of
Incorporation from time to time, in any manner permitted by law.
EPL TECHNOLOGIES, INC.
By:
---------------------------------
Name: Shawn J. Collins
Title: Secretary
<PAGE> 8
-------------------
FOR OFFICE USE ONLY
MAIL TO: SECRETARY OF STATE
CORPORATIONS SECTION
1560 BROADWAY, SUITE 200
DENVER, CO 80202
(303) 894-2251
FAX (303) 894-2242
MUST BE TYPED -------------------
FILING FEE: $25.00
MUST SUBMIT TWO COPIES
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
PLEASE INCLUDE A TYPED
SELF-ADDRESSED ENVELOPE
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is EPL Technologies, Inc.
SECOND: The following amendment to the Articles of Incorporation was adopted on
July 22, 1996, as prescribed by the Colorado Business Corporation Act, in the
manner marked with an X below:
/ / No shares have been issued or Directors Elected - Action by
Incorporators
/ / No shares have been issued but Directors Elected - Action by Directors
/X/ Such amendment was adopted by the board of directors where shares have
been issued.
/ / Such amendment was adopted by a vote of the shareholders. The number of
shares voted for the amendment was sufficient for approval.
THIRD: The manner, if not set forth in such amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the
amendment shall be effected, is as follows: See amendment attached.
If these amendments are to have a delayed effective date, please list that date:
N/A
- - --------------------------------------------------------
(Not to exceed ninety (90) days from the date of filing)
EPL Technologies, Inc.
By /s/ SHAWN J. COLLINS
----------------------------
Its Secretary
------------------------
Title
<PAGE> 9
Certificate of Designation, Number, Voting Powers,
Preferences and Rights of the Series of the Preferred Stock
of
EPL TECHNOLOGIES, INC.
To be Designated
Series B Convertible Preferred Stock
EPL Technologies, Inc., a Colorado corporation (the "Corporation"),
pursuant to authority conferred on the Board of Directors of the Corporation by
its Articles of Incorporation, and in accordance with the provisions of Section
7-108-101 of the Colorado Business Corporation Act ("CBCA"), certifies that the
Board of Directors of the Corporation, at a meeting duly called and held
pursuant to Section 7-108-201 of the CBCA, duly adopted the following
resolution providing for the establishment and issuance of a series of
Preferred Stock to be designated "Series B Convertible Preferred Stock" and to
consist of 531,915 shares as follows:
RESOLVED, that, pursuant to the authority expressly granted and vested
in the Board of Directors of this Corporation in accordance with the provisions
of its Amended and Restated Certificate of Incorporation, as amended, a series
of Preferred Stock of the Corporation be and hereby is established, consisting
of 531,915 shares, to be designated "Series B Convertible Preferred Stock" (the
"Series B Preferred Stock"); the Board of Directors be and hereby is authorized
to issue such shares of Series B Preferred Stock from time to time and for such
consideration and on such terms as the Board of Directors shall determine; and
subject to the limitations provided by law and by
<PAGE> 10
the Articles of Incorporation, the powers, designations, preferences and
relative, participating, option or other special rights of, and the
qualifications, limitations or restrictions upon, the Series B Preferred Stock
shall be as follows:
2
<PAGE> 11
1. Dividends
In each fiscal year of the Corporation, the holders of shares
of Series B Preferred Stock shall be entitled to receive, before any cash
dividends shall be declared and paid upon or set aside for the Common Stock in
such fiscal year, out of the funds legally available for that purpose,
dividends at a rate of ten percent (10%) per annum, or $.47 per share, and no
more, in cash or in stock, at the Corporation's discretion, (i. e., stock at
the stated conversion price) and in preference and priority to any payment of
any cash dividend on Common Stock or any other shares of capital stock of the
Corporation ranking on liquidation junior to the Series B Preferred Stock by
reason of their ownership thereof ("Junior Shares") and pari passu with the
Series A Preferred Stock or any other shares of capital stock of the
Corporation ranking on liquidation pari passu with the Series B Preferred
Stock.
Dividends shall accrue and be deemed to accrue from day to day
whether or not earned or declared and shall be cumulative so that if at any
time after the issuance of the Series B Preferred Stock such dividends shall
not have been paid, or declared and set apart for payment, the deficiency shall
be fully paid on or declared and set apart for payment before any dividend
shall be paid on or declared or set apart for any shares of Junior Shares is
made by the Corporation, except the repurchase of Junior Shares from employees
of this Corporation upon termination of employment. Any accumulation of
dividends on the Series B Preferred Stock shall not bear interest.
2. Liquidation, Dissolution or Winding Up
(a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the holders of
shares of Series B Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Corporation available for distribution to its
stockholders, after and subject to the payment in full of all amounts required
to be distributed to the holders of any class of series of stock of the
Corporation ranking on liquidation prior and in preference to the Series B
Preferred Stock, but before any payment shall be made to the holders of Common
Stock or any other Junior Shares, an amount
3
<PAGE> 12
equal to $4.70 per share of Series B Preferred Stock (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or
other similar recapitalization affecting such shares). If upon any such
liquidation, dissolution or winding up of the Corporation the remaining assets
of the Corporation available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Series B Preferred Stock the full
amount to which they shall be entitled, the holders of shares of Series B
Preferred Stock and any other class of series of stock ranking on liquidation
on a parity with the Series B Preferred Stock shall share ratably in any
distribution of the remaining assets and funds of the Corporation in proportion
to the respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full. The Series B Preferred Stock shall
rank on liquidation on a parity with the Series A Preferred Stock and the
Common Stock shall constitute Junior Shares hereunder.
(b) After the payment of all preferential amounts
required to be paid to the holders of any class or series of stock of the
Corporation ranking on liquidation prior and in preference to the Series B
Preferred Stock and any other class or series of stock of the Corporation
ranking on liquidation on a parity with the Series B Preferred Stock, upon the
dissolution, liquidation or winding up of the Corporation, the holders of
shares of Common Stock or any other Junior Shares then outstanding shall be
entitled to receive the remaining assets and funds of the Corporation available
for distribution to its stockholders.
3. Voting
(a) Each holder of outstanding shares of Series B Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series B Preferred Stock held
by such holder are convertible (as adjusted from time to time pursuant to
Section 4 hereof), at each meeting of stockholders of the Corporation (and
written actions of stockholders in lieu of meetings) with respect to any and
all matters presented to the stockholders of the Corporation for their action
or consideration. Except as required by law or
4
<PAGE> 13
by the provisions of its Amended and Restated Certificate of Incorporation, as
amended from time to time, holders of Series B Preferred Stock and any other
outstanding series of Preferred Stock shall vote together with the holders of
Series A Preferred Stock and the Common Stock as a single class or "voting
group" within the meaning of the Colorado Business Corporation Act.
(b) The Corporation shall not (i) amend, alter or repeal the
preferences, special rights or other powers of the Series B Preferred Stock so
as to affect adversely the Series B Preferred Stock, or (ii) amend, alter or
modify its Articles of Incorporation to increase the number of authorized
shares of Series B Preferred Stock, without the written consent or affirmative
vote of the holders of a majority of the then outstanding shares of the Series
B Preferred Stock in writing or by vote at a meeting, consenting or voting (as
the case may be) separately as a class. For this purpose, without limiting
the generality of the foregoing, the authorization of any class or series of
stock with preference or priority over the Series B Preferred Stock as to the
right to receive either dividends or amounts distributable upon liquidation,
dissolution or winding up the Corporation shall be deemed to affect adversely
the Series B Preferred Stock, and the authorization of any class or series of
stock on a parity with the Series B Preferred Stock as to the rights to receive
either dividends or amounts distributable upon liquidation, dissolution or
winding up of the Corporation shall not be deemed to affect adversely the
Series B Preferred Stock.
4. Optional Conversion The holders of the Series B Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert Each share of Series B
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $4.70 by the Conversion Price (as defined
below) in effect at the time of conversion for each share of Series B Preferred
Stock. The conversion price at which shares of Common Stock shall be
deliverable upon conversion of Series B Preferred Stock without the payment of
additional consideration by the holder thereof (the "Conversion Price") shall
initially be $4.70. Such initial
5
<PAGE> 14
Conversion Price, and the rates at which shares of Series B Preferred Stock may
be converted into shares of Common Stock, shall be subject to adjustment as
provided below.
In the event of a liquidation of the Corporation, the Conversion
Rights shall terminate at the close of business on the first full day preceding
the date fixed for the payment of any amounts distributable on liquidation to
the holders of Series B Preferred Stock.
(b) Fractional Shares No fractional shares of
Common Stock shall be issued upon conversion of the Series B Preferred Stock.
In lieu of any fractional shares to which the holder would otherwise be
entitled, the Corporation shall pay cash equal to such fraction multiplied by
the then effective Conversion Price.
(c) Mechanics of Conversion
(i) In order for a holder of Series B Preferred
Stock to convert shares of Series B Preferred Stock into shares of Common
Stock, such holder shall surrender the certificate or certificates for such
shares of Series B Preferred Stock (or at the principal office of the
Corporation if the Corporation serves as its own transfer agent), together with
written notice that such holder elects to convert all or any number of the
shares of the Series B Preferred Stock represented by such certificate or
certificates. Such notice shall state such holder's name or the names of the
nominees in which such holder wishes the certificate or certificates for shares
of Common Stock to be issued. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or his, her, or its attorney duly
authorized in writing. The date of receipt of such certificates and notice by
the transfer agent (or by the Corporation if the Corporation serves as its own
transfer agent) shall be the Conversion Date. The Corporation shall, as soon
as practicable after the Conversion Date, issue and deliver at such office to
such holder, or to his, her, or its nominees, a certificate or certificates for
the number of shares of Common
6
<PAGE> 15
Stock to which such holder shall be entitled, together with cash in lieu of any
fraction of a share.
(ii) The Corporation shall at all times when the
Series B Preferred Stock shall be outstanding, reserve and keep available out
of its authorized but unissued stock, for the purpose of effecting the
conversion of the Series B Preferred Stock, such number of its duly authorized
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding Series B Preferred Stock. Before taking any
action which would cause an adjustment reducing the Conversion Price below the
then par value of the shares of Common Stock issuable upon conversion of the
Series B Preferred Stock, the Corporation will take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Corporation
may validly and legally issue fully paid and nonassessable shares of Common
Stock at each such adjusted Conversion Price.
(d) Issue of Securities Deemed Issue of Additional Shares
of Common Stock
(i) Adjustment for Merger or Reorganization, etc.
In case of any consolidation or merger of the Corporation with or into another
corporation or the sale of all or substantially all of the assets of the
Corporation to another corporation, each share of Series B Preferred Stock
shall thereafter be convertible into the kind and amount of shares of stock or
other securities or property to which a holder of the number of shares of
Common Stock of the Corporation deliverable upon conversion of such Series B
Preferred Stock would have been entitled upon such consolidation, merger or
sale; and, in such case, appropriate adjustment (as determined in good faith
by the Board of Directors) shall be made in the application of the provisions
in this Section 4 set forth with respect to the rights and interest thereafter
of the holders of the Series B Preferred Stock, to the end that the provisions
set forth in this Section 4 (including provisions with respect to changes in
and other adjustments of the Conversion Price) shall thereafter be applicable,
as nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Series B Preferred
Stock.
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<PAGE> 16
(ii) No Impairment
The Corporation will not by amendment of its Restated
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Corporation, but will
at all times in good faith assist in the carrying out of all the provisions of
this Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series B Preferred Stock against impairment.
(iii) Certificate as to Adjustments
Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Section 4, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series B Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series B Preferred Stock, furnish or cause to be
furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price then in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which then would be received upon the conversion of Series B Preferred
Stock.
(5) Notice of Record Date In the event:
(i) that the Corporation declares a dividend (or
any other distribution) on its Common Stock
payable in Common Stock or other securities
of the Corporation;
(ii) that the Corporation subdivides or combines
its outstanding shares of Common Stock;
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<PAGE> 17
(iii) of any reclassification of the Common Stock
of the Corporation (other than a subdivision
or combination of its outstanding shares of
Common Stock or a stock distribution
thereon), or of any consolidation or merger
of the Corporation into or with another
corporation, or of the sale of all or
substantially all of the assets of the
Corporation; or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation; then the Corporation shall cause
to be filed at its principal office or at the office of the transfer agent of
the Series B Preferred Stock, and shall cause to be mailed to the holders of
the Series B Preferred Stock at their last addresses as shown on the records of
the Corporation or such transfer agent, at least ten days prior to the record
date specified in (A) below or 20 days before the date specified in (B) below,
a notice stating
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is
not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such
dividend, distribution, subdivision or combination
are to be determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution,
liquidation or winding up is expected to become
effective, and the date as of which it is expected
that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock
for securities or other property deliverable upon
such reclassification, consolidation, merger,
sale, dissolution or winding up.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to
be affixed hereto and this Certificate of Designation to
9
<PAGE> 18
be signed by its Chief Executive Officer and attested by its Secretary this
23rd day of July, 1996
/s/ Paul L. Devine
- - -----------------------------------------------
Paul L. Devine
Chairman, President and Chief Executive Officer
EPL Technologies, Inc.
/s/ Shawn J. Collins
- - -----------------------------------------------
Shawn J. Collins
Secretary
EPL Technologies, Inc.
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<PAGE> 1
Exhibit 10.11
Employment agreement between EPL Technologies, Inc.
and P L Devine
Director, President and Chief Executive Officer
as of January 1, 1997
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of this 1st day of January, 1997, by and
between EPL TECHNOLOGIES, INC., a Colorado corporation (hereinafter called
"Company"), and PAUL L. DEVINE, an individual (hereinafter called "Employee").
WITNESSETH:
WHEREAS, Company wishes to employ Employee and Employee wishes to enter
into the employ of Company on the terms and conditions contained in this
Agreement.
NOW, THEREFORE, in consideration of the facts, mutual promises and
covenants contained herein and intending to be legally bound hereby, Company and
Employee agree as follows:
1. Employment. Company hereby employs Employee and Employee
hereby accepts employment by Company for the period and upon the terms and
conditions contained in this Agreement.
2. Office and Duties.
(a) Employee shall serve Company generally as
Chairman of the Board, President and Chief Executive Officer during the term of
this Agreement, with the rights and duties of such offices as are described in
the Company's Bylaws or as are exercised by such officers in companies similarly
situated as the Company and otherwise shall have such other authority and such
responsibilities as Company reasonably may determine from time to time. Employee
shall perform any other duties reasonably required by Company, and, if requested
by Company, shall serve as an officer or director of Company or comparable
position of any entity "controlled" (within the meaning of Rule 405 under the
Securities Act of 1933, as amended) by the Company, without additional
compensation.
(b) Throughout the term of this Agreement, Employee
shall devote his entire working time, energy, skill and best efforts to the
performance of his duties hereunder in a manner which will faithfully and
diligently further the business and interests of Company and shall not, during
the term of this Agreement, actively engage in any other business activity,
whether or not for profit; provided, however, that Employee may engage in such
other business activity as is set forth in Exhibit A attached hereto to the
extent such activity, in the aggregate, does not, in the reasonable judgment of
Company, interfere with Employee's duties at the Company or compete with any
aspect of the Company's business.
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<PAGE> 3
3. Term. This Agreement shall commence as of 8:00 a.m.,
January 1, 1997 and shall continue until 11:59 p.m. on December 19, 2014.
(a) Early Termination by Company. Company may
terminate this Agreement upon the Employee suffering a "Disability" (as defined
in Paragraph 7) or, at the end of the month in which the Employee dies or,
otherwise, at any time, for any reason, immediately upon delivery of written
notice of termination from the Company to Employee prior to the expiration of
the term under Paragraph 3 (the date of such notice of early expiration of the
term is hereinafter referred to as the "Early Termination Date"). However, in
the event of such early termination (other than a termination due to death or
Disability or for Cause, as described in Paragraph 10 of this Agreement), (i)
the Employee shall have an additional reasonable period of time, at the
Company's discretion, for no additional compensation, to gather his personal
effects and documents from his office at the Company; (ii) the Employee shall
continue to receive the sum of (A) his then applicable annual base salary under
subparagraph 4(a) and (B) the average of the sum of all bonuses received by the
Employee for the three complete calendar years prior to the year in which the
Early Termination Date occurs, which bonuses were not identified by the
Company's Board of Directors at the time of award as "extraordinary" bonuses,
calculated as a yearly average (the "Average Bonus"), such sum of (A) and (B) to
be payable in approximately equal installments in accordance with the Company's
regular payroll practices from time to time, but not less frequently than
monthly, up to and including the third anniversary of the Early Termination
Date; and (iii) the Company shall remain obligated under Paragraph 5 of this
Agreement as though this Agreement had not terminated and Employee were
"Continuously Employed" (as defined in such Paragraph 5) until the later of (X)
age 50 and (Y) the age of Employee on the Early Termination Date. In the event
Employee is granted and takes a "Leave of Absence," under Paragraph 5 of six
months or more, the Company's obligation to make payments to Employee under
Sections 4(a) and 4(b) shall be suspended and any payments to Employee will be
governed by Paragraph 5.
(b) Early Termination by Employee. Employee may
terminate this Agreement upon 270-days' written notice (other than for "Good
Reason" as described in Paragraph 10 of this Agreement). However, in the event
of such early termination (other than for "Good Reason" as described in
Paragraph 10 of this Agreement), Employee shall remain obligated under Paragraph
13 of this Agreement for the period therein specified and the Company shall pay
to the Employee the base salary and benefits otherwise payable to the Employee
under Subparagraphs 4(a) and 4(c) through 4(f) through the last day of his
actual employment by the Company and thereafter, the Company shall have no
further
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<PAGE> 4
obligation to the Employee other than possible benefits to be paid under
Paragraph 5.
(c) Upon any termination of Employee's employment
hereunder by the Company for any reason, or by the Employee for any reason,
Employee shall be deemed to have resigned from all positions as an officer
and/or director of the Company and of any entity controlled by the Company.
4. Compensation and Benefit Plans.
(a) For all of the service rendered by Employee to
Company, Employee shall receive an annual base salary of U.S. Two Hundred
Seventy-Five Thousand Dollars ($275,000.00), payable in approximately equal
installments in accordance with Company's regular payroll practices in effect
from time to time, but not less frequently than monthly. On an annual basis, the
Board of Directors of the Company shall review the Employee's performance under
this Agreement to consider an increase in the Employee's annual base salary in
accordance with that performance, in its sole discretion.
(b) In addition to Employee's base salary, Employee
may be entitled to certain bonuses as agreed and determined by the Board of
Directors of the Company, in its sole discretion.
(c) Throughout the term of this Agreement and as long
as they are kept in force by Company, Employee shall be entitled to participate
in, and shall be entitled to all benefits and service credits under all employee
benefit, fringe benefit and perquisite plans, programs and arrangements of the
Company which are made generally available from time to time by the Company to
its managerial employees, including any profit sharing, retirement or pension
plans, health, life, accident, disability insurance or sick leave plans or
programs, bonus, stock option, stock appreciation rights or stock purchase
plans, and deferred or incentive compensation plans. Such participation shall be
on terms at least as favorable as those applicable to any other senior
management employees of the Company.
(d) Company shall maintain life insurance on
Employee's life with a face amount equal to at least $1,000,000, of which
Employee's Beneficiary shall be the sole beneficiary. For purposes of this
Subparagraph 4(d), "Beneficiary" means the person or persons designated in
writing by the Employee to receive the amounts payable hereunder or, if no such
written designation is made, the Employee's spouse (if living at the date of the
payment required hereunder), and otherwise to the Employee's issue per stirpes.
To the extent that the Employee is required to recognize taxable income in
connection with the
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<PAGE> 5
provision of life insurance under this Subparagraph 4(d), the Company shall
increase Employee's base annual salary under Subparagraph 4(a) such that, after
any federal, state and local taxes due on such additional taxable income is
paid, Employee's taxable income is no less than it would have been had no
insurance been provided under this Subparagraph 4(d).
(e) Employee shall be entitled to twenty (20) days'
paid vacation during each year of the term of this Agreement, in addition to all
days on which the principal offices of the Company are closed. Accrued but
unused vacation days may be carried forward into succeeding years of the term of
the Agreement, up to a maximum of sixty (60) days accruable at any time during
the term of this Agreement; provided, however, that Employee may not take a
vacation absence of longer than thirty (30) days without the prior consent of
the Board or without the Board granting Employee a Leave of Absence. Any accrued
unused vacation days in excess of such 60-day maximum shall be forfeited by the
Employee; provided, however, that if Employee has failed to use such excess
vacation days due to extraordinary and unanticipated business circumstances, at
the request of the Company's Board of Directors, then such excess vacation days
not so taken shall be added to such 60-day maximum. Upon termination of
employment, whether by the Company or Employee, (other than a termination by
Employee for other than "Good Reason" or a termination by the Company for
"Cause"), Employee shall be entitled to payment for any accrued but unused
vacation days (not forfeited by the other requirements of this Paragraph) at a
rate equal to the Employee's base salary (as determined under Subparagraph 4(a)
of this Agreement) in effect at the time of such termination of employment. At
any time, Employee may seek, and the Board of Directors may grant, a Leave of
Absence for Employee, not requiring the use of unused vacation days, for any
period that the Board of Directors, in its sole discretion, may allow, it being
understood that it is not expected that any Leave of Absence would exceed a
six-month period. A "Leave of Absence" shall mean any temporary absence from
active employment authorized (but not required) by the Company for education,
family sickness, military duty or other similar reasons. During any Leave of
Absence of up to six months, Employee shall continue to receive his base salary,
payable in accordance with prior practice, and for any Leave of Absence in
excess of six months, to the extent allowed by the Board of Directors, Employee
shall receive such continued compensation, if any, as the Board may determine,
in its sole discretion.
(f) Company will reimburse Employee for all
reasonable expenses incurred by Employee in connection with the performance of
Employee's duties hereunder upon receipt of itemized accounts of such
expenditures and in accordance with Company's regular reimbursement procedures
and practices in
4
<PAGE> 6
effect from time to time. In addition the Company, for its own benefit and
convenience, shall provide Employee with living accommodations and an automobile
for the Employee's use. Such living accommodations and motor vehicle shall be
reasonably selected by Employee.
5. Retirement Benefit. The Employee shall be entitled to
receive a retirement benefit under this Paragraph 5 if he remains Continuously
Employed by Company until age 50. For purposes of this Agreement, the phrase
"Continuously Employed" shall include periods when the Employee has sustained a
Disability and qualifies for disability payments under Paragraph 7 of this
Agreement and Leaves of Absences of up to six months or such longer period as
the Board of Directors, in its sole discretion, may allow.
(a) Amount of Benefit.
(i) Retirement At Age 65. If Employee is
eligible to receive a retirement benefit under this Paragraph 5 and elects to
commence receipt of such benefit at age 65, then Company shall pay Employee a
monthly benefit equal to fifty percent (50%) of his "Pension Compensation" (as
defined herein), less any retirement benefit received by Employee from any other
defined benefit pension plan or arrangement maintained by Company. For purposes
of this Agreement, "Pension Compensation" shall mean the sum of (A) the average
of the Employee's base salary payable under Paragraph 4(a), calculated on an
annual basis, during the final three complete calendar years of Employee's
employment by the Company prior to retirement and (B) the average of the
Employee's bonuses received by the Employee for the final three complete
calendar years of the Employee's employment by the Company prior to retirement
and which were not identified by the Company's Board of Directors at the time of
award as "extraordinary" bonuses.
(ii) Retirement Before or After Age 65. If
Employee is eligible to receive a retirement benefit under this Paragraph 5 and
elects to commence receipt of such benefit before or after age 65 then Company
shall pay Employee a monthly benefit equal to the benefit payable under
Subparagraph 5(a)(i) of this Agreement, reduced (in the event of commencement
before age 65) or increased (in the event of commencement after age 65) by 6%
per each full year by which benefits commence earlier or later than Employee's
sixty-fifth birthday, as the case may be; provided, however, that Employee shall
give not less than 270 days' prior notice of retirement before age 60.
(b) Form of Payment. Generally, any benefit under
this Paragraph 5 shall be paid in equal monthly installments for the lifetime of
the Employee. However, the
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<PAGE> 7
present value of such benefit (determined by applying reasonable actuarial
factors that would be permissible under a defined-benefit pension plan qualified
under Section 401(a) of the Internal Revenue Code or as otherwise mutually
agreed to by Company and Employee) may be paid according to any other schedule
or in any other form mutually agreed to by Company and Employee.
6. Grant of Options.
(a) Entitlement. Employee shall be entitled to such
grants of options to acquire the common stock of the Company, as may be
determined by the Board of Directors of the Company from time to time in its
sole discretion.
(b) Withholding of Taxes. Whenever the Company
proposes or is required to deliver or transfer options or shares of common stock
pursuant to this Agreement or the exercise of any option, the Company shall have
the right to (i) require Employee to remit to the Company or to withhold from
Employee directly amounts sufficient to satisfy any federal, state and/or local
withholding tax requirements, prior to the delivery or transfer of any
certificates for such options or shares of common stock, or (ii) take whatever
action it deems necessary to protect its interest with respect to tax
liabilities.
(c) Terms of Option Exercise. Each option granted
under subparagraph 6(a) above shall contain such other terms and conditions as
are permitted under the terms of any then applicable stock option plan of the
Company as the committee or the Board of Directors administering any such plan
may elect, in its sole discretion, except to the extent necessary to preserve
the status of any option granted as an incentive stock option to continue to
qualify as an incentive stock option under Section 422 of the Internal Revenue
Code.
(d) Mechanics of Exercise. When exercisable, any
option granted hereunder may be exercised by written notice to the Company
specifying the number of shares to be issued upon exercise of the option (the
"Option Shares") and, to the extent such Option Shares are not then covered by
an effective registration statement under the Securities Act of 1933, as
amended, on Form S-8, Form S-3 or otherwise, containing the Employee's
acknowledgment, in form and substance satisfactory to the Company, that the
Employee (i) is purchasing such Option Shares for investment and not for
distribution or resale and (ii) has been advised and understands that such
Option Shares may not be transferred without compliance with all applicable
federal or state securities laws.
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<PAGE> 8
7. Disability.
If Employee becomes substantially unable to perform
his duties hereunder due to partial or total disability or incapacity resulting
from a mental or physical illness, injury or any other cause for a period of 180
consecutive days or 120 non-consecutive days in any 365 day period (hereinafter
referred to as a "Disability"), Company will continue for one year (or until the
cessation of such Disability) to pay the Employee his annual base salary (as
determined under Subparagraph 4(a)) in effect immediately prior to the onset of
such Disability. Thereafter, until such Disability ceases or Employee attains
age 65, on the first day of every month Company shall pay to Employee an amount
equal to five percent (5%) of his annual base salary (as determined under
Subparagraph 4(a)) in effect immediately prior to the onset of such Disability.
Notwithstanding the foregoing, if the Company, prior to the onset of any
Disability, has purchased group or individual disability insurance that covers
the Employee (benefits under such policies are hereinafter referred to as
"Disability Insurance Benefits"), the Company shall pay to the Employee under
the preceding two sentences only the amount by which the requirements of such
sentences exceed the amount of Disability Insurance Benefits to be received by
Employee.
8. Death.
(a) If Employee dies while entitled to disability
payments under Paragraph 7 of this Agreement or while actively employed by
Company, Company shall continue to pay to his Beneficiary installments of
Employee's annual base salary (as determined under Subparagraph 4(a) of this
Agreement) in effect immediately prior to his death until the end of the month
in which Employee died. Any amount paid under this Section 8 shall be in
addition to benefits provided under Subparagraph 4(d).
(b) For purposes of this paragraph 8, "Beneficiary"
means the person or persons designated in writing by the Employee to receive the
amounts payable hereunder or, if no such written designation is made, the
Employee's spouse (if living at the date of the payment required hereunder), and
otherwise to the Employee's issue per stirpes.
9. Change in Control.
(a) Definition. For purposes of this Agreement, the
term "Change in Control" shall mean any of the following:
(i) any person (as such term is used in
Sections 3(a)(9), 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (the
"Exchange Act")), other than the Company, a
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<PAGE> 9
subsidiary of the Company, an employee benefit plan (or related trust) of the
Company or a direct or indirect subsidiary of the Company, or affiliates of the
Company (as defined in Rule 12b-2 under the Exchange Act), becomes the
beneficial owner (as determined pursuant to Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 50% or more of
the combined voting power of the Company's then outstanding securities (provided
that for purposes of this determination, a person shall not be deemed the
beneficial owner of securities of which such person has the right to acquire
beneficial ownership if such right has not been exercised and such right was
acquired directly from the Company); or
(ii) the liquidation or dissolution of the
Company or the occurrence of a sale of all or substantially all of the assets of
the Company to an entity which is not a direct or indirect subsidiary or parent
of the Company; or
(iii) the occurrence of a reorganization,
merger, consolidation or other similar transaction or connected series of
transactions of the Company as a result of which either (a) the Company does not
survive or (b) pursuant to which shares of the Company common stock ("Common
Stock") would be converted into cash, securities or other property, unless, in
case of either (a) or (b), the holders of the Company's Common Stock immediately
prior to such transaction will, following the consummation of the transaction,
beneficially own, directly or indirectly, (x) more than 50% of the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors of the Company surviving, continuing or
resulting from such transaction (the "Successor") or (y) beneficially own voting
securities in the Successor in substantially the same proportion in which they
beneficially owned the Company's Common Stock immediately prior to such
transaction; or
(iv) the occurrence of a reorganization,
merger, consolidation, or similar transaction of the Company, or before any
connected series of such transactions, if, upon consummation of such transaction
or transactions, the persons who are members of the Board of Directors of the
Company immediately before or at the time of execution of an agreement providing
for such transaction or transactions cease to constitute a majority of the Board
of Directors of the Company or, in a case where the Company does not survive in
such transaction, of the corporation surviving, continuing or resulting from
such transaction or transactions; or
(v) any other event which is at any time
designated as a "Change in Control" for purposes of this Agreement by a
resolution adopted by the Board of Directors of
8
<PAGE> 10
the Company with the affirmative vote of a majority of the nonemployee directors
in office at the time the resolution is adopted; in the event any such
resolution is adopted, the Change in Control event specified thereby shall be
deemed incorporated herein by reference and thereafter may not be amended,
modified or revoked without the written agreement of the Employee.
(b) Payment Upon a Change in Control. If a Change in
Control occurs during the Employee's employment with the Company, the Company
shall immediately upon such Change in Control pay the Employee an amount equal
to 2.99 multiplied by the Employee's "base amount" (as that term is defined in
Section 280G of the Internal Revenue Code).
10. Termination for Cause or Good Reason.
(a) Cause. For purposes of this Agreement, the term
"Cause" means (i) the willful failure by Employee to substantially perform his
duties or obligations hereunder (other than any such failure resulting from
Employee's Disability or Leaves of Absence to which Employee is entitled
hereunder and other than breaches of the covenants set forth in Paragraphs 12
and 13 hereof, which events are governed by clause (iv) below), resulting, or
reasonably likely to result, in material economic harm to the Company; provided
such failure remains uncured for a period of 30 days after written notice
describing the same is received by the Employee; provided, further that isolated
or insubstantial failure shall not constitute Cause hereunder, (ii) Employee's
conviction (which, through lapse of time or otherwise, is not subject to appeal)
of any felonious crime or any other offense if it involves money or other
property of the Company or any of its subsidiaries; provided, that any such
crime or offense results in material injury to the Company, (iii) use of alcohol
or any unlawful controlled substance to the extent that it interferes on a
continuing and material basis with the performance of Employee's duties under
the Agreement or (iv) any material breach by Employee of the terms of Paragraphs
12 and 13 of this Agreement. For purposes of the definition of "Cause" under
this Agreement, no act, or failure to act, on Employee's part shall be
considered "willful" if it was done, or omitted to be done, in good faith and
with reasonable belief that such action or omission was in the best interest of
the Company. Employee shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to the Employee a copy of the
resolution, duly adopted by the affirmative vote of not less than a majority of
the entire membership of the Board, at a meeting of the Board (after notice to
Employee and an opportunity for Employee, together with Employee's counsel, to
be heard before the Board prior to its taking such action), finding that in the
opinion of the Board, Employee engaged in conduct set forth above in clauses
(i)-(iv) above, and specifying the
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<PAGE> 11
particulars thereof. Upon Employee's termination for Cause by the Company,
Employee shall be entitled to receive his annual base salary through the day on
which his termination occurs, together with any other compensation and benefits
to which Employee may be entitled under applicable plans, programs and
agreements of the Company.
(b) Good Reason. For purposes of this Agreement,
"Good Reason" shall mean (i) a material adverse change in the Employee's title
or responsibilities (including a failure by the Board to elect Employee as
Chairman of the Board), or the assignment to the Employee of any duties
inconsistent with his position; (ii) a material reduction in the authority of
the Employee; or (iii) a failure to increase the salary payable to Employee
under Paragraph 4(a) for three consecutive full calendar years or any reduction
in such annual salary. Notwithstanding any other provision of this Agreement,
Employee may terminate this Agreement at any time for "Good Reason"; provided
that Employee has provided written notice to the Company that an event included
in the definition of "Good Reason" has occurred, specifying such event and
stating that unless such event is cured within the 30 day period described
below, that Employee will terminate this Agreement, and such event continues
uncured for 30 days after such written notice from the Employee has been
received by the Company. In the event of such resignation and termination,
Employee shall have no further obligations or liabilities hereunder except as
provided in Paragraph 13.
11. Severance Payment. In the event the Employee terminates
his employment for Good Reason or is terminated by the Company without Cause,
the Employee shall be entitled to (i) continued annual base salary payments
payable under Paragraph 4(a) and (ii) the Average Bonus calculated under
Paragraph 3(a) for the three years preceding the year of termination of
Employee's employment, each of the amounts in clauses (i) and (ii) payable in
approximately equal installments less applicable withholding, pursuant to the
Company's regular payroll practices, but in no event less frequently than
monthly, for a period of three years following termination of his employment,
and any other compensation and benefits to which Employee may be entitled under
applicable plans, programs and agreements of the Company, pro rated through the
date of the Employee's termination of employment, the aggregate of all such
amounts to be reduced by any amount paid under Paragraph 9 of this Agreement
within the three years prior to such termination.
12. Company Property. All advertising sales, manufacturers'
and other materials or articles or information, including without limitation
data processing reports, customer sales analyses, invoices, price lists or
information, samples, product formulations and formulas, or any other materials
or data
10
<PAGE> 12
of any kind furnished to Employee by Company, or developed by Employee on behalf
of Company or at Company's direction or for Company's use or otherwise in
connection with Employee's employment hereunder or prior to the date hereof, are
and shall remain the sole and confidential property of Company; if Company
requests the return of such materials at any time during or at or after the
termination of Employee's employment, Employee shall immediately deliver the
same to Company.
13. Noncompetition, Trade Secrets, Etc.
(a) During the term of this Agreement and for a
period of three (3) years after the termination of his employment with Company
for any reason whatsoever, whether by the Company or Employee, Employee shall
not directly or indirectly induce or attempt to influence any employee of
Company to terminate his or her employment with Company and shall not engage in
(as a principal, partner, director, officer, agent, employee, consultant or
otherwise) or be financially interested in any business operation within North
America or the United Kingdom of Great Britain and Northern Ireland or any other
country which is a member of the European Union on the date hereof (the
"Territory") which is involved in business activities which are the same as,
similar to or in competition with business activities carried on by Company or
being definitely planned by Company, at the time of the termination of
Employee's employment. However. nothing contained in this Paragraph 13 shall
prevent Employee from holding for investment no more than five percent (5%) of
any class of equity securities of a company whose securities are traded on a
national securities exchange.
(b) During the term of this Agreement and at all
times thereafter, Employee shall not use for his personal benefit, or disclose,
communicate or divulge to, or use for the direct or indirect benefit of any
person, firm, association or company other than the Company, any material
referred to in Paragraph 12 above or any information regarding the business
methods, business policies, procedures, techniques, research or development
projects or results, trade secrets, or other knowledge or processes of or
developed by the Company or any names and addresses of customers or clients or
any data on or relating to past, present or prospective customers or clients or
any other confidential information relating to or dealing with the business
operations or activities of Company, made known to Employee or learned or
acquired by Employee while in the employ of Company.
(c) Any and all writing, inventions,
improvements, processes, procedures and/or techniques which Employee may make,
conceive, discover or develop, either solely or jointly with any other person or
persons, at any time during
11
<PAGE> 13
the term of this Agreement, whether during working hours or at any other time
and whether at the request or upon the suggestion of the Company or otherwise,
which relate to or are useful in connection with any business now or hereafter
carried on or contemplated by the Company, including developments or expansions
of its present field of operations, shall be the sole and exclusive property of
Company. Employee shall make full disclosure to Company of all such writings,
inventions, improvements, processes, procedures and techniques, and shall do
everything necessary or desirable to vest the absolute title thereto in Company.
Employee shall write and prepare all specifications and procedures regarding
such inventions, improvements, processes, procedures and techniques and
otherwise aid and assist Company so that Company can prepare, at the Company's
expense, and present applications for copyright or Letters Patent therefore and
can secure such copyright or Letters Patent wherever possible, as well as
reissues, renewals, and extensions thereof, and can obtain the record title to
such copyright or patents so that Company shall be the sole and absolute owner
thereof in all countries in which it may desire to have copyright or patent
protection. Employee shall not be entitled to any additional or special
compensation or reimbursement regarding any and all such, writings, inventions,
improvements, processes, procedures and techniques.
(d) Employee acknowledges that the restrictions
contained in the foregoing subparagraphs 13(a), (b) and (c,), in view of the
nature of the international business in which Company is engaged, including the
definition of the Territory, are reasonable and necessary in order to protect
the legitimate interests of Company, and that any violation thereof would result
in irreparable injuries to Company, and Employee therefore acknowledges that, in
the event of his violation of any of these restrictions, Company shall be
entitled to obtain from any court of competent jurisdiction preliminary and
permanent injunctive relief as well as damages and an equitable accounting of
all earnings, profits and other benefits arising from such violation, which
rights shall be cumulative and in addition to any other rights or remedies to
which Company may be entitled.
(e) If the period of time or the area specified
in subparagraph (a) above should be adjudged unreasonable in any proceeding,
then the period of time shall be reduced by such number of months or the area
shall be reduced by the elimination of such portion thereof or both so that such
restrictions may be enforced in such area and for such time as is adjudged to be
reasonable. If Employee violates any of the restrictions contained in the
foregoing subparagraph (a), the restrictive period shall not run in favor of
Employee from the time of the commencement of any such violation until such time
as such
12
<PAGE> 14
violation shall be cured by Employee to the satisfaction of Company.
14. Prior Agreement. Employee represents to Company (a) that
there are no restrictions, agreements or understandings whatsoever to which
Employee is a party which would prevent or make unlawful his execution of this
Agreement or his employment hereunder, (b) that his execution of this Agreement
and his employment hereunder shall not constitute a breach of any contract,
agreement or understanding, oral or written, to which he is a party or by which
she is bound and (c) that he is free and able to execute this Agreement and to
enter into employment by Company.
15. Miscellaneous.
(a) Indulgences, Etc. Neither the failure nor
any delay on the part of either party to exercise any right, remedy, power or
privilege under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy, power or privilege preclude any
other or further exercise of the same or of any other right, remedy, power or
privilege, nor shall any waiver of any right, remedy, power or privilege with
respect to any occurrence be construed as a waiver of such right, remedy, power
or privilege with respect to any other occurrence. No waiver shall be effective
unless it is in writing and is signed by the party asserted to have granted such
waiver.
(b) Controlling Law. This Agreement and
questions relating to its validity, interpretation, performance and enforcement
(including, without limitation, provisions concerning limitations of actions),
shall be governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania, and without the aid of any canon, custom or rule
of law requiring constriction against the draftsman.
(c) Notices. All notices, request, demands and
other communications required or permitted under this Agreement shall be in
writing and shall be deemed to have been duly given, made and received only when
delivered (personally, by courier service such as Federal Express, or by other
messenger) or when deposited in the United States mails, registered or certified
mail, postage prepaid, return receipt requested, addressed as set forth below:
(i) If to Employee:
Paul L. Devine
c/o David Dalgano
Warner Cranston
13
<PAGE> 15
Pickfords Wharf
Clink Street
LONDON SE 1 9DG, UK
(ii)If to Company:
EPL Technologies, Inc.
2 International Plaza
Suite 245
Philadelphia, PA 19113-1507
Attention: Secretary
Notice by mail, if posted outside of the continental United
States, shall be by air mail. Any party may alter the address to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this paragraph for the giving of
notice.
(d) Binding Nature of Agreement. This Agreement shall
be binding upon and inure to the benefit of Company and its successors and
assigns and shall be binding upon Employee, his heirs and legal representatives.
(e) Execution in Counterparts. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original as against any party whose signature appears thereon, and all of which
shall together constitute one and the same instrument. This agreement shall
become binding when one or more counterparts hereof individually or taken
together, shall bear the signatures of all of the parties reflected hereon as
the signatories.
(f) Provisions Separable. The provisions of this
Agreement are independent of and separable from each other and no provision
shall be affected or rendered invalid or unenforceable by virtue of the fact
that for any reason any other or others of them may be invalid or unenforceable
in whole or in part.
(g) Entire Agreement. This Agreement contains the
entire understanding among the parties hereto with respect to subject matter
hereof, and supersedes all prior and contemporaneous agreements, and
understanding, inducements or conditions, express or implied, oral or written,
except as herein contained. The express terms hereof control and supersede any
course of performance and/or usage of the trade inconsistent with any of the
terms hereof. This Agreement may not be modified or amended other than by an
agreement in writing.
(h) Paragraph Headings. The paragraph headings in
this Agreement are for convenience only; they form no part of
14
<PAGE> 16
this Agreement and shall not affect its construction or interpretation.
(i) Plurality, etc. Words used herein, regardless of
the number and gender specifically used, shall be deemed and construed to
include any other number, singular or plural, and any other gender, masculine,
feminine or neuter, as the context indicates is appropriate.
(j) Number of Days. In computing the number of days
for purposes of this Agreement, all days shall be counted, including Saturdays,
Sundays and holidays; provided, however, that if the final day of any time
period falls on a Saturday, Sunday, or holiday on which federal banks are or may
elect to be closed, then the final day shall be deemed to be the next day which
is not a Saturday, Sunday or such holiday.
(k) Enforcement. If the Employee determines in good
faith that the Company or any successor, has failed to comply with its
obligations under this Agreement, or if the Company or any successor or any
other person takes any action to declare this Agreement void or unenforceable in
whole or in part, or institutes any legal action or arbitration proceeding with
respect to this Agreement, the Company hereby irrevocably authorizes the
Employee from time to time to retain counsel of the Employee's choice, at the
expense of the Company, to represent the Employee in connection with any and all
actions and proceedings, whether by or against the Company, any acquiror or
successor, or any director, officer, stockholder or other person affiliated with
any of the foregoing, which may adversely affect the Employee's rights
hereunder. In such event, the Company shall reimburse the Employee for all of
the Employee's reasonable costs and expenses (including reasonable attorney's
fees) incurred and expended in connection with enforcement.
(l) Excise Tax Matters. It is the intention of the
Company that the Employee not be required to incur any expenses associated with
determination of the amount of any excess parachute payment under Internal
Revenue Code Section 280G or the amount of any excise tax imposed on the
Employee pursuant to Internal Revenue Code Section 4999 (or any successor
provisions thereto). Therefore, the Company agrees to pay all expenses,
including the expenses of the Company's independent certified accountant and tax
counsel, related to the determination of any excess parachute payment and excise
tax, and to pay the legal costs and expenses of any tax audit of the Employee to
the extent such expenses relate to the payment of such excise taxes.
(m) Attachment. Neither this Agreement nor any
benefit payable hereunder shall be subject to anticipation,
15
<PAGE> 17
alienation, sale, transfer, assignment, pledge, encumbrance or change or to
execution, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntarily or involuntarily, to effect such action shall
be void and of no effect.
(n) Type of Arrangement and Status. It is the
intention of the parties that this Agreement constitutes an unfunded arrangement
for Federal Income Tax purposes and for purposes of Title I of ERISA, and is an
unfunded plan maintained for the purpose of providing deferred compensation for
a select group of management or highly compensated employees. The Employee's
interest under this Agreement is that of a general unsecured creditor of the
Company.
IN WITNESS WHEREOF, the parties have executed and delivered that
Agreement as of the date first above written.
EPL TECHNOLOGIES, INC. ("Company")
/s/ Timothy B Owen
-----------------------------------
By: Timothy B. Owen, Secretary
[Corporate Seal]
ATTEST: EMPLOYEE
/s/ Paul L Devine
________________________ _____________________________(SEAL)
PAUL L. DEVINE
16
<PAGE> 18
EXHIBIT A
Other Business Activities
1. Chairman - Critical Audit Limited
17
<PAGE> 1
EXHIBIT 11
EPL TECHNOLOGIES, INC.
COMPUTATION OF LOSS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Loss $ (2,995,290) $ (2,176,626) $ (1,604,218) $ (1,242,073)
Deduct:
Effect of 10% cumulative
preferred dividend 246,687 137,107 122,337 65,813
------------ ------------ ------------ ------------
Net loss for common stockholders $ (3,241,977) $ (2,313,733) $ (1,726,555) $ (1,307,886)
============ ============ ============ ============
Weighted average number
of common shares outstanding 15,821,506 14,255,656 16,070,145 14,255,656
============ ============ ============ ============
Primary Loss Per Share $ (0.20) $ (0.16) $ (0.11) $ (0.09)
============ ============ ============ ============
Net Loss for fully diluted loss
per share computation $ (2,995,290) $ (2,176,626) $ (1,604,218) $ (1,242,073)
============ ============ ============ ============
Weighted average number
of common shares outstanding 15,821,506 14,255,656 16,070,145 14,255,656
Common share equivalent applicable to:
Series A convertible preferred stock 3,233,111 3,614,444 3,172,889 3,468,889
Series B convertible preferred stock 531,915 531,915
Series C convertible preferred stock 24,074 48,148
Series A warrants 232,864 254,310 227,198 250,754
Other warrants 182,831 842,332 210,662 155,000
Stock options 3,228,667 2,295,167 3,176,833 2,453,833
Weighted average number of common shares
and common share equivalents used to compute ------------ ------------ ------------ ------------
fully diluted loss per share 23,254,968 21,261,909 23,437,790 20,584,132
============ ============ ============ ============
Fully diluted loss per share $ (0.13) $ (0.10) $ (0.07) $ (0.06)
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET, AT JUNE 30, 1997 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE 6 MONTHS ENDED JUNE 30,
1997 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,953,054
<SECURITIES> 0
<RECEIVABLES> 3,431,343
<ALLOWANCES> 0
<INVENTORY> 2,309,063
<CURRENT-ASSETS> 8,737,965
<PP&E> 5,300,146
<DEPRECIATION> (1,021,531)
<TOTAL-ASSETS> 16,750,339
<CURRENT-LIABILITIES> 7,025,154
<BONDS> 1,573,055
0
2,358,463
<COMMON> 16,437
<OTHER-SE> 5,494,283
<TOTAL-LIABILITY-AND-EQUITY> 16,750,339
<SALES> 8,899,804
<TOTAL-REVENUES> 8,899,804
<CGS> 8,031,660
<TOTAL-COSTS> 8,031,660
<OTHER-EXPENSES> 3,814,893
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,541
<INCOME-PRETAX> (2,995,290)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,995,290)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,995,290)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.13)
</TABLE>
