-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RQ9NUVFfcHJxG2TGwpwJ2tVG6AYBarb8fOiW5IHsYiubqpTtz9OYNWFmE5WVoED3 +rDEeGTi0IAl9MJm+2U/IA== 0000930661-01-502417.txt : 20020410 0000930661-01-502417.hdr.sgml : 20020410 ACCESSION NUMBER: 0000930661-01-502417 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RETRACTABLE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000946563 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 752599762 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-16465 FILM NUMBER: 1790557 BUSINESS ADDRESS: STREET 1: 511 LOBO LANE CITY: LITTLE ELM STATE: TX ZIP: 75068-0009 BUSINESS PHONE: 9722941010 MAIL ADDRESS: STREET 1: 511 LOBO LANE CITY: LITTLE ELM STATE: TX ZIP: 75068-0009 10QSB 1 d10qsb.txt FORM 10-QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 ------------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from ___________ to ___________ Commission file number 000-30885 Retractable Technologies, Inc. - ------------------------------------------------------------------------------- (Exact Name of Small Business Issuer as Specified in Its Charter) Texas 75-2599762 ------------------------------- ---------------------------- (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 511 Lobo Lane Little Elm, Texas 75068-0009 -------------------------------------------------------------------- (Address of Principal Executive Offices) (972) 294-1010 -------------------------------------------------------------------- (Issuer's Telephone Number, Including Area Code) --------------------------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X --- No --- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 20,245,600 Shares of Common Stock, no par value, issued and outstanding on November 12, 2001. Transitional Small Business Disclosure Format (check one): Yes No X --- --- 1 TABLE OF CONTENTS PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Balance Sheets 3 Condensed Statements of Operations 4 Condensed Statements of Cash Flows 5 Notes to Condensed Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 10 PART II OTHER INFORMATION ITEM 3. DEFAULTS UPON SENIOR SECURITIES 17 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17 ITEM 5. OTHER INFORMATION 19 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19 SIGNATURE 20 2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS RETRACTABLE TECHNOLOGIES, INC. CONDENSED BALANCE SHEETS
September 30, December 31, 2001 2000 ----------------- ----------------- ASSETS (Unaudited) ----------------- Cash and cash equivalents $ 837,427 $ 3,727,682 Accounts receivable, net 1,977,164 2,325,252 Inventories, net 2,126,072 1,575,636 Other current assets 234,817 426,758 ----------------- ----------------- Total current assets 5,175,480 8,055,328 Property, plant, and equipment, net 11,939,980 11,902,792 Intangible assets and deferred charges, net 526,332 529,803 ----------------- ----------------- Total assets $ 17,641,792 $ 20,487,923 ================= ================= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable $ 2,955,800 $ 1,868,357 Current portion of long-term debt 1,195,759 971,676 Accrued compensation 227,630 339,431 Marketing fees payable 2,341,541 1,937,072 Royalties payable 842,334 198,940 Interest payable to Abbott 477,556 141,276 Other accrued liabilities 1,363,003 482,139 ----------------- ----------------- Total current liabilities 9,403,623 5,938,891 ----------------- ----------------- Long-term debt, net of current maturities 6,680,618 7,180,130 ----------------- ----------------- Stockholders' equity Preferred Stock $1 par value Series A 1,231,500 1,826,500 Series I, Class B 261,900 366,400 Series II, Class B 455,000 489,250 Series III, Class B 158,245 158,245 Series IV, Class B 1,066,000 1,066,000 Additional paid-in capital 37,518,392 36,774,763 Accumulated deficit (39,133,486) (33,312,256) ----------------- ----------------- Total stockholders' equity 1,557,551 7,368,902 ----------------- ----------------- Total liabilities and stockholders' equity $ 17,641,792 $ 20,487,923 ================= =================
See accompanying notes to the condensed financial statements 3 RETRACTABLE TECHNOLOGIES, INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Three Months Nine Months Nine Months ended ended ended ended September 30, 2001 September 30, 2000 September 30, 2001 September 30, 2000 Sales, net $ 4,542,481 $ 3,753,110 $ 12,762,425 $ 6,109,417 Cost of sales 4,413,057 3,445,697 10,414,905 5,782,287 ------------ ------------ ------------ ------------ Gross margin (loss) 129,424 307,413 2,347,520 327,130 ------------ ------------ ------------ ------------ Operating expenses: Preproduction manufacturing - - - 627,200 Sales and marketing 1,014,842 1,543,914 3,415,374 3,180,353 Research and development 127,598 207,186 651,784 467,786 General and administrative 1,028,127 1,221,776 3,216,313 2,825,925 Deferred IPO expenses 540,273 - 540,273 - ------------ ------------ ------------ ------------ Total operating expenses 2,710,840 2,972,876 7,823,744 7,101,264 ------------ ------------ ------------ ------------ Loss from operations (2,581,416) (2,665,463) (5,476,224) (6,774,134) Interest income 8,566 75,087 45,831 150,413 Interest expense, net (150,781) (72,580) (390,837) (115,477) ------------ ------------ ------------ ------------ Net loss (2,723,631) (2,662,956) (5,821,230) (6,739,198) Preferred stock dividend requirements (494,445) (1,103,276) (1,541,411) (2,905,323) ------------ ------------ ------------ ------------ Net loss applicable to common shareholders $ (3,218,076) (3,766,232) $ (7,362,641) $ (9,644,521) ============ ============ ============ ============ Net loss per share (basic and diluted) $ (0.16) $ (0.27) $ (0.38) $ (0.69) ------------ ------------ ------------ ------------ Weighted average common shares outstanding 19,975,350 14,004,333 19,621,642 14,001,444 ============ ============ ============ ============
See accompanying notes to the condensed financial statements 4 RETRACTABLE TECHNOLOGIES, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Nine Months ended ended September 30, September 30, 2001 2000 --------------- --------------- Cash flows from operating activities Net loss $ (5,821,230) $ (6,739,199) Depreciation and amortization 843,962 716,094 Recognition of stock option compensation - 144,211 Capitalized interest (148,312) (190,835) Adjustments to reconcile net loss to net cash provided by operating activities: (Increase) decrease in inventories (550,436) (260,555) (Increase) decrease in accounts and note receivable 348,088 (1,443,918) (Increase) decrease in other current assets 267,392 (331,528) Increase (decrease) in accounts payable 1,087,443 (92,278) Increase (decrease) in marketing fees payable 404,469 806,231 Increase (decrease) in other accrued liabilities 1,748,737 341,505 ---------------- ----------------- Net cash used by operating activities (1,819,887) (7,050,272) ---------------- ----------------- Cash flows from investing activities Purchase of property, plant, and equipment (648,425) (1,484,411) Acquisition of patents, trademarks, and licenses (37,492) (44,823) Sale of restricted certificates of deposit - 600,000 ---------------- ----------------- Net cash used by investing activities (685,917) (929,234) ---------------- ----------------- Cash flows from financing activities Borrowings under long-term debt and notes payable - 5,000,000 Repayments of long-term debt and notes payable (394,331) (1,714,624) Proceeds from issuance of preferred stock - 11,335,200 Proceeds from exercise of options 4,000 - Stock subscriptions held in escrow 5,880 - Dividends paid - (2,818,542) ---------------- ----------------- Net cash provided by financing activities (384,451) 11,802,034 ---------------- ----------------- Net (decrease) increase in cash (2,890,255) 3,822,528 Cash and cash equivalents at: Beginning of period 3,727,682 646,005 ---------------- ----------------- End of period $ 837,427 $ 4,468,533 ================ ================= Equipment acquired through capital lease obligation $ 43,451 $ - ================ ================= Assets acquired through acquisition of debt $ 75,451 $ - ================ =================
See accompanying notes to the condensed financial statements 5 RETRACTABLE TECHNOLOGIES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. BUSINESS OF THE COMPANY, RECENT DEVELOPMENTS, AND BASIS OF PRESENTATION Business of the Company Retractable Technologies, Inc. (the "Company") was incorporated in Texas on May 9, 1994, to design, develop, manufacture and market safety syringes and other safety medical products for the healthcare profession. The Company began to develop its manufacturing operations in 1995. The Company's manufacturing and administrative facilities are located in Little Elm, Texas. The Company's primary products are the VanishPoint(R) Syringe in 1cc, 3cc, 5cc and 10cc sizes and blood collection tube holders. The Company has conducted clinical evaluations and worked with national distributors to encourage healthcare facilities to transition from the use of standard syringes to the VanishPoint(R) syringe. Preliminary shipments, which commenced in February 1997, included syringes for hospital product evaluations as well as for sale in clinics and other healthcare settings. Until the second quarter of the year 2000, the Company was considered a development stage enterprise for financial reporting purposes as significant efforts were devoted to raising capital, financial planning, research and development, acquiring equipment, training personnel, developing markets and starting up production. The Company completed its development stage activities in the second quarter of 2000. Recent developments On September 20, 2001, RTI filed a post-effective amendment to its May 3, 2001, Registration Statement withdrawing from registration and terminating the offer of 2,000,000 shares of common stock RTI intended to sell in its initial public offering. The post-effective amendment did not affect the registration or offering of the remaining 5,293,350 shares of common stock offered by RTI's selling shareholders which terminated on November 3, 2001. Accordingly, the Company expensed deferred costs related to the offering during the three months ended September 30, 2001. In November 2001, in order to raise working capital and build a warehouse, the Company entered into a Loan Agreement with Katie Petroleum, Inc. whereby the Company obtained two loans for $2,500,000 and $1,000,000 respectively. The $2,500,000 loan matures on November 12, 2006, and the principal and interest on the $1,000,000 loan is due and payable on November 12, 2002. The interest rate for both loans is prime plus 1%. Additionally, Katie Petroleum purchased the real estate loan from 1st International Bank. Upon completion of the warehouse and assuming no defaults, the $1 million loan will be consolidated with the real estate loan purchased from 1st International Bank into a twenty year mortgage with principal and interest payments to be determined at the time of consolidation. The loans are guaranteed by Thomas Shaw, the President and Chief Executive Officer. Pursuant to the Loan Agreement, RTI gave Katie the right to convert all indebtedness (approximately $5 million) into common stock at a ratio of one share per $7.00 of indebtedness. Basis of presentation The accompanying condensed financial statements are unaudited and, in the opinion of management, reflect all adjustments that are necessary for a fair presentation of the financial position and results of operations for the periods presented. All of such adjustments are of a normal and recurring nature. The results of operations for the periods presented are not necessarily indicative of the results to 6 be expected for the entire year. The condensed financial statements should be read in conjunction with the financial statement disclosures contained in the Company's audited financial statements for the year ended December 31, 2000. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Cash and cash equivalents For purposes of reporting cash flows, cash and cash equivalents include unrestricted cash and investments with original maturities of three months or less. Inventories Inventories are valued at the lower of cost or market, with cost being determined using a standard cost method, which approximates average cost. Provision is made for any excess or obsolete inventories. Property, plant and equipment Property, plant and equipment are stated at cost. Expenditures for maintenance and repairs are charged to operations as incurred. Cost includes major expenditures for improvements, and replacements which extend useful lives or increase capacity and interest cost associated with significant capital additions. For the nine months ended September 30, 2001 and 2000, the Company capitalized interest of $148,312 and $190,835 respectively. Gains or losses from property disposals are included in income. Depreciation and amortization is calculated using the straight-line method over the following useful lives: Production equipment 3 to 13 years Office furniture and equipment 3 to 10 years Building 39 years Building improvements 15 years Automobiles 7 years Long-lived assets When events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable, the Company will review the net realizable value of the long-lived assets through an assessment of the estimated future cash flows related to such assets. In the event that assets are found to be carried at amounts which are in excess of estimated gross future cash flows, the assets will be adjusted for impairment to a level commensurate with a discounted cash flow analysis of the underlying assets. 7 Reclassifications Certain prior year amounts have been reclassified to conform with the current year's presentation. Intangible assets and deferred charges Intangible assets are stated at cost and consist primarily of patents, a license agreement granting exclusive rights to use patented technology, and trademarks which are amortized using the straight-line method over 17 years. Other intangible assets consist of deferred charges for loan origination fees, which are amortized over the life of the debt. Financial instruments The fair market value of financial instruments is determined by reference to various market data and other valuation techniques as appropriate. The Company believes that the fair value of financial instruments approximate their recorded values. Concentrations of credit risk The Company's financial instruments exposed to concentrations of credit risk consist primarily of cash, cash equivalents and accounts receivable. Cash balances, which may exceed the federally insured limits, are maintained in financial institutions; however, management believes the institutions are of high credit quality. The majority of accounts receivable are due from companies which are well-established entities. As a consequence, management considers any exposure from concentrations of credit risks to be limited. The Company has a high concentration of sales with one significant customer. Revenue recognition Revenue is recognized for sales to distributors when title and risk of ownership passes to the distributor, generally upon shipment. Revenue is recorded on the basis of sales price to distributors. Revenues on sales to distributors is recorded net of contractual pricing allowances. Revenue for shipments directly to end-users is recognized when title and risk of ownership passes from the Company. Any product shipped or distributed for evaluation purposes is expensed. Marketing fees The Company pays certain distributors marketing fees for services provided by distributors. These services include participation in promotional activities, development of educational and promotional materials, representation at trade shows, clinical demonstrations, inservicing and training, and tracking reports detailing the placement of the Company's products to end-users. Marketing fees are accrued at the time of the sale of product to the distributor. These fees are paid after the distributor provides the Company a tracking report of product sales to end-users. These costs are included in sales and marketing expense in the Statements of Operations. Income taxes The Company provides for deferred income taxes in accordance with Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires an asset and liability approach for financial accounting and reporting for income taxes based on the tax effects of differences between the financial statement and tax bases of assets and liabilities, based on enacted rates expected to be in effect when such basis differences reverse in future periods. Deferred tax assets are 8 periodically reviewed for reliability. Valuation allowances are recorded when realizability of deferred tax assets is not likely. Earnings per share The Company has adopted Statement of Financial Accounting Standards No. 128, Earnings Per Share, which establishes standards for computing and presenting earnings per share. Basic earnings per share is computed by dividing net earnings for the period (adjusted for any cumulative preferred dividends for the period) by the weighted average number of common shares outstanding during the period. The weighted average number of shares outstanding was 19,621,642 and 14,001,444 for the nine months ended September 30, 2001 and 2000, respectively. The Company's potentially dilutive common stock equivalents including warrants, options, and convertible debt are all antidilutive as the Company is in a loss position. Accordingly, basic loss per share is equal to diluted loss per share and is presented on the same line for income statement presentation. Cumulative 0preferred dividends of $1,541,411 and $2,905,323 have been added to net losses for the nine months ended September 30, 2001, and 2000, respectively, to arrive at net loss per share. Research and development costs Research and development costs are expensed as incurred. Stock-based compensation The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which establishes accounting and reporting standards for stock-based employee compensation plans. As permitted by SFAS 123, the Company has elected not to adopt the fair value based method of accounting for stock-based employees compensation and will account for such arrangements under Accounting Principles Board Opinion No. 25. Accordingly, compensation cost for stock options issued to directors, officers, and employees is measured as the excess, if any, of the fair market value of the Company's stock at the date of grant over the amount the director, officer or employee must pay to acquire the stock. Employee expense is recognized ratably from the date of the grant over the vesting period of the option. The Company accounts for stock options issued to non-employees in accordance with SFAS 123. Non-employees expense is recognized based upon the shorter of the contract period or vesting period as applicable. Recent Pronouncements On July 29, 2001, the Financial Accounting Standards Board (FASB) issued a statement of Financial Accounting Standards No. 141 ("FAS 141"), Business Combinations, and Statement 142 ("FAS 142"), Goodwill and Other Intangible Assets. FAS 141 primarily addresses the accounting for the cost of an acquired business. FAS 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their acquisition. As the Company has not grown through acquisition and does not have a material amount of recorded intangibles, the new pronouncements are not expected to have a material effect on the Company. FAS 141 is effective for all business combinations after June 30, 2001. FAS 142 is effective for fiscal years beginning after December 15, 2001. On October 3, 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 144 ("FAS 144"), Accounting for the Impairment or Disposal of Long-Lived Assets. FAS 144 supercedes FAS 121 and provides guidance on the accounting for the impairment or disposal of long-lived assets. FAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. 3. LIQUIDITY The Company has been successful in completing five rounds of private equity financing totaling approximately $43 million over the last five years with its last round totaling approximately $11 million from January through June of 2000. However, the Company has incurred substantial losses and negative cash flows from operations in every fiscal period since inception. For the years ended December 31, 2000, 1999, and 1998, the Company incurred a loss from operations of approximately $10.4 million, $8.2 million and $5.6 million, respectively. For the nine months ended September 30, 2001 the Company incurred a loss from operations of $5.5 million. For the years ended December 31, 2000, 1999 and 1998, the Company had negative cash flows from operating activities of approximately $8.3 million, $6.7 million and $5.4 million, respectively. For the nine months ended September 30, 2001, the Company had negative cash flows from operating activities of $1.9 million. As of September 30, 2001, December 31, 2000 and 1999, the Company had accumulated deficits of approximately $39.1 million, $33.3 million, and $22.9 million, respectively. As discussed in Note 1, the Company was considered a development stage enterprise for financial reporting purposes until May of the second quarter of 2000. Management expects 9 to reach a break-even operating point during the first quarter of the year 2002. The Company has a high concentration of sales with one significant customer. The Company plans to devote significant resources to expansion of production capacity to meet current and future expected increases in sales activity. Failure to generate sufficient revenues or raise additional capital could have a material adverse effect on the Company's ability to continue as a going concern and to achieve its intended business objectives. The Company obtained a loan agreement on November 12, 2001 whereby the lender purchased the real estate note from 1st International Bank and provided a construction loan of $1 million to build a 15,000 square foot warehouse. Upon completion of the warehouse, the two loans will be consolidated into a 20 year loan. Furthermore, the same lender provided a working capital loan of $2.5 million secured by certain equipment. This loan is a five year loan. The loans are guaranteed by Thomas Shaw and all indebtedness (approximately $5 million) is convertible into common stock of the Company at a rate of one share per $7.00 of indebtedness. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Certain statements included by reference in this Form 10-QSB containing the words "believes," "anticipates," "intends," "expects," and similar such words constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Any forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements of RTI to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the impact of dramatic increases in demand, RTI's ability to quickly increase its capacity in the event of a dramatic increase in demand, the ability of RTI to continue to finance research and development as well as operations and expansion of production through equity and debt financing, as well as sales, and the increased interest of larger market players in providing safety needle devices. Given these uncertainties, undue reliance should not be placed on forward- looking statements. Comparison of Nine Months Ended September 30, 2001, and September 30, 2000 Net sales were $12,762,425 and $6,109,417 for the nine months ended September 30, 2001 and September 30, 2000, respectively. The increase of $6,653,008, or 109 percent, was due principally to increased production capacity and increased market penetration due to legislation. Sales under the Abbott agreement, signed in May 2000, accounted for more than 55 percent of unit sales in the nine months ended September 30, 2001. Initial shipments of the Vanishpoint 1cc syringe began in the first quarter of 2001. Cost of sales increased from $5,782,287 in the nine months ended September 30, 2000 to $10,414,905 in the nine months ended September 30, 2001, or an increase of 80 percent. Of the variable costs, direct labor costs increased approximately $444,000, material costs increased $1,992,000, and royalty costs were up $516,000. Repair and maintenance expense increased $205,000. Sterilization costs increased $156,000. Cost of indirect production costs, including overhead of the production department, facilities cost, regulatory affairs and manufacturing engineering increased $1,009,000, due principally to increased labor cost of $762,000 and depreciation of $137,000. During the third quarter of 2001, RTI closed the plant for one week for maintenance and two and a half weeks to reconfigure certain aspects of the assembly equipment which resulted in a more efficient assembly process. As a result of those shutdowns, RTI did not manufacture product at previously achieved levels. As a result of the lower production the unit cost went up significantly resulting in a lower gross margin than previously experienced. With the improvement in assembly, RTI expects to continue the trend of decreasing unit costs as experienced in the first six months of 2001. Preproduction expenses were $627,200 in the nine months ended September 30, 2000. There were no preproduction costs for the nine months ended September 30, 2001. Coincident with the signing of the Abbott agreement, we ceased reporting as a development stage enterprise, and we no longer classify any manufacturing costs as preproduction expenses. 10 Research and development expense increased from $467,786 in the nine months ended September 30, 2000 to $651,784 in the nine months ended September 30, 2001. Salaries increased $35,000 and consulting expenses increased $139,000, due principally to design costs. Sales and marketing expenses increased $235,021 to $3,415,374 in the nine months ended September 30, 2001 from $3,180,353 in the nine months ended September 30, 2000. As a percentage of net revenues, sales and marketing expenses decreased from 52 percent to 27 percent. Marketing fees to distributors increased $188,000 due to the increase in revenues. Travel expenses increased $97,000. Consulting expenses increased $25,000 over the same period last year as a result of our international marketing efforts. Marketing expenses including samples, trade shows and advertising increased $167,000. These increases were offset by a decrease in payroll expense of $201,000. General and administrative costs increased $390,388, or 14 percent, from $2,825,925 for the nine months ended September 30, 2000 to $3,216,313 for the nine months ended September 30, 2001. Additional personnel increased salary expenses by $214,000. Legal, accounting and other fees increased by $213,000, principally due to the filing requirements we have as a publicly reporting company. Travel expense decreased $71,000. RTI incurred expenses of $540,273 in connection with its public offering which was filed on December 22, 2000 and which was declared effective by the Securities and Exchange Commission on May 3, 2001. On September 20, 2001 RTI filed a post-effective amendment to withdraw RTI's offering of 2,000,000 shares of common stock. Effective with the decision to withdraw such offering, RTI expensed all deferred IPO costs resulting in a charge in the third quarter of 2001 of $540,273. Interest income decreased by $104,582 due to lower invested cash balances. Net interest expense increased $275,360 due to higher outstanding debt. The increase in interest expense of $43,000 was due principally to a reduction in capitalized interest. Preferred stock dividend requirements were $1,541,411 for the nine months ended September 30, 2001, a decrease of $1,363,912 from the $2,905,323 requirement for the nine months ended September 30, 2000. This decrease is the result of conversions of preferred stock into common stock. Net loss per share decreased 45 percent, from $0.69 per share to $0.38 per share. Approximately $0.15 of the decrease is due to the increase in average shares outstanding and $0.16 per share due to a decrease in net loss applicable to common shareholders. Weighted average common shares outstanding increased due to the conversion of convertible preferred stock into common stock. Comparison of Three Months Ended September 30, 2001, and September 30, 2000 Net sales were $4,542,481 and $3,753,110 for the three months ended September 30, 2001 and September 30, 2000, respectively. The increase of $789,371, or 21 percent, was due principally to increased sales of the 1cc syringe, offset somewhat by a decrease in sales of blood collection tube holders. Sales under the Abbott agreement, signed in May 2000, accounted for more than 40 percent of unit sales in the three months ended September 30, 2001. Cost of sales increased from $3,445,697 in the three months ended September 30, 2000 to $4,413,057 in the three months ended September 30, 2001, or an increase of 28 percent. Of the variable costs, material costs increased $407,000, and royalty costs were up $125,000. Depreciation increased 11 $117,000, due principally to the 1cc machine. Repair and maintenance expense decreased $118,000. Indirect production costs were up due to an increase of $174,000 in payroll costs, of which $65,000 was transferred from research and development. During the third quarter of 2001, RTI closed the plant for one week for maintenance and two and a half weeks to reconfigure certain aspects of the assembly equipment which resulted in a more efficient assembly process. As a result of those shutdowns, RTI did not manufacture product at previously achieved levels. As a result of the lower production the unit cost went up significantly resulting in a lower gross margin than previously experienced. With the improvement in assembly, RTI expects to continue the trend of decreasing unit costs as experienced in the first six months of 2001. Sales and marketing expenses decreased $529,072 to $1,014,842 in the three months ended September 30, 2001 from $1,543,914 in the three months ended September 30, 2000. As a percentage of net revenues, sales and marketing expenses decreased from 41 percent to 22 percent. Marketing fees to distributors decreased $508,000. Salary expense decreased $76,000 and was offset by an increase in marketing expense of $69,000. Research and development expense decreased from $207,186 in the three months ended September 30, 2000 to $127,598 in the three months ended September 30, 2001. This decrease is due principally to the transfer of certain functions to production. General and administrative costs decreased $193,649, or 16 percent, from $1,221,776 for the three months ended September 30, 2000 to $1,028,127 for the three months ended September 30, 2001. Salary expense decreased by $123,000. Compensation expense related to stock options decreased $51,000. RTI incurred expenses of $540,273 in connection with its public offering which was filed on December 22, 2000 and was declared effective by the Securities and Exchange Commission on May 3, 2001. On September 20, 2001 RTI filed a post-effective amendment to withdraw RTI's offering of 2,000,000 shares of common stock. Effective with the decision to withdraw such shares, RTI expensed all deferred IPO costs resulting in a charge in the third quarter of 2001 of $540,273. Interest income decreased by $66,521 due to lower invested cash balances. Interest expense increased $78,201 or 108 percent due to a decrease in capitalized interest. Preferred stock dividend requirements were $494,445 for the three months ended September 30, 2001, a decrease of $608,831 from the $1,103,276 requirement for the three months ended September 30, 2000. This decrease is the result of conversions of preferred stock into common stock. Net loss per share decreased 41 percent, from $0.27 per share to $0.16 per share. Approximately $0.07 of the decrease is due to the increase in average outstanding shares and $0.04 per share due to a decrease in net loss applicable to common shareholders. Weighted average common shares outstanding increased due to the conversion of convertible preferred stock into common stock. 12 ASSESSMENT OF FAS 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES On June 15, 1998, the Financial Accounting Standards Board (FASB) issued a Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (FAS 133). FAS 133 is effective for all fiscal quarters of all fiscal years beginning after December 15, 2000 (January 1, 2001 for the Company). FAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. There was no effect of adopting FAS 133 on the financial statements of the Company, as the Company determined that it has not entered into any transactions for derivative instruments or hedging activities that would qualify for treatment under the provisions of the statement. BUSINESS COMBINATIONS (FAS 141) and GOODWILL AND OTHER INTANGIBLE ASSETS (FAS 142) On July 29, 2001, the Financial Accounting Standards Board (FASB) issued a statement of Financial Accounting Standards No. 141 ("FAS 141"), Business Combinations, and Statement 142 ("FAS 142"), Goodwill and Other Intangible Assets. FAS 141 primarily addresses the accounting for the cost of an acquired business. FAS 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their acquisition. As the Company has not grown through acquisition and does not have a material amount of recorded intangibles, the new pronouncements are not expected to have a material effect on the Company. FAS 141 is effective for all business combinations after June 30, 2001. FAS 142 is effective for fiscal years beginning after December 15, 2001. ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS (FAS 144) On October 3, 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 144 ("FAS 144"), Accounting for the Impairment or Disposal of Long-Lived Assets. FAS 144 supercedes FAS 121 and provides guidance on the accounting for the impairment or disposal of long-lived assets. FAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. LIQUIDITY AND FUTURE CAPITAL REQUIREMENTS We believe we will be able to sustain operations for our existing products without additional financing. We believe that we will achieve our breakeven point in the first quarter of 2002. To the extent we use all of our cash resources, we will be required to obtain funds, if available, through additional borrowing or equity financing. There can be no assurance that such capital will be available on acceptable terms. If we are unable to obtain sufficient financing, we may be unable to implement our long-term plan of operation. We anticipate strengthening our capital structure over the next four years by increasing capital through debt and equity offerings, improving profitability, and participating in joint ventures or licensing arrangements, where possible, to accelerate the manufacture and distribution of our products. We currently produce products at a rate in excess of 40 million syringes and 10 million blood collection tube holders annually. In order to increase production to meet the expected demand for safe needle devices, we raised over $18 million in debt and equity funds in 2000. We obtained these funds from: (1) two loans given by 1st International Bank totaling $2,000,000, (2) a loan of $5,000,000 from Abbott, and (3) the sale of $11,338,000 of our Series IV Class B Stock. We obtained $2,000,000 of the $18,000,000 from 1st International Bank in the form of two loans. The loan for $1,500,000 from 1st International Bank matures on February 18, 2005. Monthly payments are based on a twenty-year amortization and the loan bears interest at prime plus 1%. The $500,000 loan, also from 1st International Bank, matured on February 18, 2001, with only interest being paid monthly. This loan was renewed in February 2001 for a one year term. The interest rate is prime plus 1%. Pursuant to RTI's Loan Agreement with Katie Petroleum, Inc. ("Katie"), this loan has been assigned to Katie. See "External Sources of Liquidity." ----------------------------- We obtained $5,000,000 of the $18,000,000 as a result of an agreement with Abbott. On May 4, 2000, we entered into a National Marketing and Distribution Agreement with Abbott for an initial five-year term. Pursuant to the Abbott agreement, Abbott agreed to act as a non-exclusive marketer and distributor of our 1cc, 3cc, 5cc, and 10cc syringes, blood collection tube holders, and small tube adapters to acute care facilities in the United States. As part of the consideration for the Abbott agreement, Abbott agreed to make periodic loans to us prior to June 30, 2005, in increments of $1,000,000 in an aggregate amount of up to $5,000,000 at an interest rate of prime plus one percent with any and all amounts lent to be due and payable on June 30, 2005. Accounts receivable from Abbott and contracts where Abbott is the account debtor secure any loans made. Payments due to us from Abbott under the Abbott agreement, and certain equipment already owned by us also serve as collateral for the loans granted by Abbott. We have borrowed $5 million under the Abbott agreement. Pursuant to the Abbott agreement, we gave Abbott the right, at its option, to convert any and all principal amounts owed into common stock at a price of $10 per share. Abbott also holds registration rights with respect to the shares of common stock issued upon 13 conversion of any principal amount of the loan. As part of the consideration paid to us under the Abbott agreement, Abbott purchased $5 million of Series IV Stock under the same terms and conditions as all other investors in the Series IV Stock offering. We expect to fund future expansion through a combination of debt, a public offering, and internally generated funds. Capital needs are expected to require an additional $87 million over the next five years for expansion of production discussed in greater detail in Material Commitments -------------------- for Expenditures below. - ---------------- We obtained the remainder of the $18,000,000 from the sale of $11,338,000 of our Series IV Stock, including the shares purchased by Abbott. In November 2001, in order to raise working capital and build a warehouse, we entered into a Loan Agreement with Katie Petroleum, Inc. whereby we obtained two loans for $2,500,000 and $1,000,000 respectively. The $2,500,000 loan matures on November 12, 2006, and the principal and interest on the $1,000,000 loan is due and payable on November 12, 2002. The interest rate for both loans is prime plus 1%. Additionally, Katie Petroleum purchased the real estate loan from 1st International Bank. Upon completion of the warehouse and assuming no defaults, the $1 million loan will be consolidated with the real estate loan purchased from 1st International Bank into a twenty year mortgage on terms to be determined at the time of consolidation. The loans are guaranteed by Thomas Shaw, the President and Chief Executive Officer. Pursuant to the loan agreement, RTI gave Katie the right to convert all indebtedness (approximately $5 million) into common stock at a rate of one share per $7.00 of indebtedness. The terms of the loans are discussed in greater detail in the "External Sources of Liquidity" section below. Internal Sources of Liquidity and Anticipated Trends in Sales - ------------------------------------------------------------- The increase in sales is primarily due to legislation mandating the use of safety needles. The legislation requires the use of safe needle devices to eliminate exposure to needlestick injuries. Employers must implement written exposure control plans and involve frontline healthcare workers in the selection of safe needle devices. In addition, the legislation requires employers to create and maintain sharps injury logs containing detailed information on the type, brand and manufacturer of devices associated with such injuries. The National Institute for Occupational Safety and Health ("NIOSH") issued a safety alert calling on employers to adopt safer needles to reduce needlestick injuries. OSHA issued a Compliance Directive which instructs OSHA inspectors to cite employers who fail to evaluate and buy safety needle devices. The Service Employees International Union ("SEIU") has taken a proactive stance with regard to promoting the use of automated retraction needle devices in member hospitals and by participating in federal and state legislation protests. Demand for safety products is increasing in the United States and internationally. A significant portion of the increased sales has been the result of the Abbott agreement. The desire to mandate safety engineered solutions to protect healthcare workers heralds internationally. The European Union has accepted the issue of needlestick safety as their top issue for healthcare worker safety. Organized healthcare workers in the UK, France, Spain, Germany and Italy are currently proposing changes to their respective national purchasing agencies to reflect a mandate for safety engineering controls for needlestick protection. Additionally, a working document for a European Directive on the issue has been completed. RTI's products have been implemented in clinics and hospitals in the UK, France and other selected European countries and have been demonstrated throughout Europe at trade exhibitions and for selected distributors. External Sources of Liquidity - ----------------------------- We have obtained several loans over the past five years, which have, together with proceeds from sales of equities, enabled us to pursue development and production of our products. 14 In July 1996, we obtained a United States Small Business Administration note payable to Texas Bank in the principal amount of $1,000,000, which matures on July 1, 2003. The note is payable monthly at an annual interest rate of prime plus 1.5 percent adjustable quarterly. The loan is collateralized by manufacturing equipment and guaranteed by Thomas J. Shaw, our President and Chief Executive Officer, and Suzanne M. August, his wife. This loan is in good standing. We have agreed not to make any distribution upon our capital stock, purchase any of our capital stock, or merge without prior written consent. Such permission was obtained where necessary. In April 1997, we obtained a loan from Legacy Bank of Texas (formerly Plano Bank & Trust) in the principal amount of $710,000 at an interest rate of prime plus 1 percent (adjustable daily) for reimbursement for the purchase of equipment, which matures on July 10, 2004. The loan is collateralized by certain machinery and equipment, a certificate of deposit in the amount of $200,000, and restrictions on the transfer of certain patents. This certificate of deposit was applied to the loan balance in 2000. The loan is (continuously and without limit) guaranteed by Thomas J. Shaw, the President and Chief Executive Officer. At December 31, 2000 we were not in compliance with certain debt to equity ratios. Legacy Bank provided us with a waiver of this covenant for December 31, 2000, through January 1, 2002. This loan is otherwise in good standing. In February 2000, we obtained loans of $2 million through 1st International Bank of Plano. The proceeds from these loans were used to pay off the Western Bank loan and also for working capital purposes. $1,500,000 of the loan is secured by a lien on the land, building, and building improvements and matures on February 18, 2005. The remaining $500,000 is secured by our accounts receivable and matured on February 18, 2001. This note was renewed for a one year term in February 2001. Both loans were guaranteed by a continuing guaranty by Thomas J. Shaw, the President and Chief Executive Officer. The interest rate on both loans is the prime rate, as defined in The Wall Street Journal, plus 1 ----------------------- percent. This loan was in good standing. As of November 12, 2001, this loan was purchased by Katie Petroleum, Inc. In May 2000, we entered into an agreement with Abbott. As part of the consideration for the Abbott agreement, Abbott agreed to make periodic loans prior to June 30, 2005, in increments of $1,000,000 in an aggregate amount of up to $5,000,000 at an interest rate of prime plus 1 percent with any and all amounts lent to be due and payable on June 30, 2005. We borrowed $3 million in August 2000 and $2 million in December 2000 under the Abbott agreement. This loan is in good standing. At December 31, 2000 we were not in compliance with certain debt to equity ratios under a capital lease agreement. We received a waiver of this covenant at December 31, 2000 and amended the covenants in the agreement. We are not in compliance at September 30, 2001 and therefore have reclassified the remaining long term obligation of $207,734 from long term debt to current maturities of long term debt. On November 12, 2001, we entered into a Loan Agreement (the "Loan Agreement") with Katie Petroleum, Inc. ("Katie") whereby Katie agreed to: (1) purchase RTI's promissory note dated February 18, 2000, with an original principal amount of $1,500,000 from 1st International Bank, of Plano (the "FIB Note"). The FIB Note has a current unpaid principal balance of $1,458,201. (2) loan RTI a principal amount of $2,500,000, to be used by RTI as working capital in its manufacturing business (the "Working Capital Loan"). During the first year of the Working Capital Loan only interest is paid. The principal and interest on the Working Capital Loan is payable quarterly thereafter and matures on November 12, 2006. The Working Capital Loan is secured by certain manufacturing machinery and equipment relating to the production of the 1cc syringe; and (3) loan RTI an additional 15 principal amount of $1,000,000 under a construction loan for the purpose of building a warehouse facility (the "Construction Loan"). The Construction Loan matures on November 12, 2002 and is secured by a lien upon the land designated for the contemplated warehouse facility. The loans are also guaranteed by Thomas J. Shaw, the President and Chief Executive Officer. The Loan Agreement contains a conversion feature which allows Katie, at its option, to exchange all or any part of the indebtedness covered by the Loan Agreement into authorized capital stock of RTI. The exchange ratio of debt to stock is set at one share of RTI's common stock for each $7.00 of indebtedness exchanged by Katie. Upon completion of the warehouse contemplated by the Construction Loan, if we are not in default of the Loan Agreement, the unpaid balance of the FIB Note will be consolidated with the unpaid balance of the Construction Loan into a new twenty year mortgage loan with monthly principal and interest payments to be negotiated at the time of such consolidation. The interest rate on both the Working Capital Loan and the Construction Loan is the prime rate, as defined in The Wall Street Journal, ----------------------- plus 1 percent. Material Commitments for Expenditures - ------------------------------------- We anticipate capital expenditures in the amount of $87 million over the next five years for the purpose of expanding capacity by adding equipment and additional space (for 14 assembly lines for syringe production and 5 lines for blood collection tube holder production), expanding the current building by an additional 60,000 square feet, constructing a 15,000 square foot warehouse, and constructing another facility for additional assembly, equipment, and warehousing needs in order to meet our target production of syringes and blood collection tube holders by 2005. We need this capital to fund equipment and facilities expansion for additional 1cc, 3cc, and blood collection tube holders, as well as equipment to manufacture 5cc and 10cc syringes. The equipment will include machinery for assembly, packaging, and molds. This production target equates to our obtaining 6 percent of the United States' 6.6 billion-unit syringe annual market and less than 1 percent of the world's 24 billion-unit annual syringe market. We obtained a $5 million Loan Agreement which provided $2.5 million in working capital, $1 million for use in constructing a warehouse facility and approximately $1.5 million to purchase outstanding indebtedness owed to 1st International Bank in November 2001. We also obtained $18 million in a combination of debt and equity financing in 2000 and expect to raise $60 million through equity and debt financing over a period of time. We anticipate other funding requirements to be paid from operations. Management anticipates $1,300,000; $27,500,000; and $36,000,000 in capital expenditures for the manufacturing facility, equipment, and machinery in fiscal 2001, 2002, and 2003, respectively. $2,687,464 of the estimated $3,500,000 in expenditures expected in 2000 were made. 16 PART II OTHER INFORMATION ITEM 3. DEFAULTS UPON SENIOR SECURITIES Series A Convertible Preferred Stock As of the date of this filing, $241,170 in dividends is in arrears. Series I Class B Convertible Preferred Stock As of the date of this filing, $2,272,690 in dividends is in arrears. Series II Class B Convertible Preferred Stock As of the date of this filing, $3,521,567 in dividends is in arrears. Series III Class B Convertible Preferred Stock As of the date of this filing, $2,098,092 in dividends is in arrears. Series IV Class B Convertible Preferred Stock As of the date of this filing, $1,533,998 in dividends is in arrears. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The 2001 Annual Meeting of Stockholders (the "Annual Meeting") of RTI was held on September 21, 2001, at 10:00 a.m. The purposes of the meeting were: 1) the election by the Series II Class B Convertible Preferred ("Series II") shareholders of three Series II directors, 2) the election by the common stockholders of one Class 1 director, and 3) the reappointment of PricewaterhouseCoopers LLP as the independent accountant for RTI for the year ended 2001. Of the 459,000 shares of Series II Stock of RTI entitled to vote less than the 229,500 required to constitute a quorum were represented in person or by proxy. Accordingly, no business of the Series II shareholders could be transacted except for the rescheduling of the Series II shareholder meeting. 17 The only Series II shareholder to be represented in person and Thomas Shaw, as proxy for the Series II shareholders that submitted their votes via proxy cards, voted in favor of November 20, 2001, as the rescheduled date for the Series II business of the Annual Meeting. The business of the Series II shareholders was accordingly adjourned until November 20, 2001. No other business was transacted by the Series II shareholders. Of the 19,939,600 shares of common stock of RTI entitled to vote, 13,645,545 shares were represented in person or by proxy at the Annual Meeting, which is more than the 9,969,800 required to constitute a quorum. Accordingly, the following matters were submitted to a vote of the common stockholders: The election of one Class 1 Director to serve a two-year term was put to a vote by the holders of the common stock present in person or by proxy at the Annual Meeting. Russell B. Kuhlman was the sole nominee submitted to a vote of the common stock shareholders. The results of the vote were 12,999,062 votes "for," and 646,483 votes were withheld. Accordingly, by majority vote of those common shares represented at the meeting, Mr. Kuhlman was duly elected a Class 1 Director of RTI. The ratification of the reappointment of PricewaterhouseCoopers LLP as RTI's independent accountant was also put to a vote by the holders of the common stock present in person or by proxy at the Annual Meeting. The results of the vote were 13,501,012 votes "for," 30,833 "against," and 113,700 votes were withheld. The reappointment of PricewaterhouseCoopers LLP was thereby ratified by majority vote of those common shares represented at the meeting. No other matters were voted on at the Annual Meeting. As of the adjournment of the September 21, 2001, Annual Meeting of Stockholders, the Board of Directors of RTI consists of the following members: Thomas J. Shaw Class 2 Director Steven R. Wisner Class 2 Director Russell B. Kuhlman Class 1 Director Douglas W. Cowan Class 2 Director Clarence Zierhut Class 2 Director Marwan Saker Class 2 Director Lillian E. Salerno Class 1 Director* Jimmie Shiu, M.D. Class 1 Director* Edith A. Zagona Class 1 Director* * With the exception of Russell Kuhlman, who was re-elected by the common stock shareholders, Class 1 Directors' terms expired at the September 21, 2001, Annual Meeting. However, their successors have yet to be elected by the Series II Class B Shareholders. These directors' terms will continue until their successors are elected. The election of their successors will be held on November 20, 2001, a meeting date set by the Series II Class B Shareholders assuming a quorum attends the meeting. Such Series II directors will serve terms that expire at the next Annual Meeting or until such time as dividends are no longer in arrears. Series II Shareholders will have the right to elect one-third of the Board of Directors only until such time as their dividends are no longer in arrears. 18 ITEM 5. OTHER INFORMATION On November 12, 2001, we entered into a Loan Agreement (the "Loan Agreement") with Katie Petroleum, Inc. ("Katie") whereby Katie agreed to: (1) purchase RTI's promissory note dated February 18, 2000, with an original principal amount of $1,500,000 from 1st International Bank of Plano (the "FIB Note"). The FIB Note has a current unpaid principal balance of $1,458,201.05; (2) loan RTI a principal amount of $2,500,000, to be used by RTI as working capital in its manufacturing business (the "Working Capital Loan"). During the first year only interest is paid. Thereafter, the principal and interest on the Working Capital Loan is payable quarterly and matures on November 12, 2006. The Working Capital Loan is secured by certain manufacturing machinery and equipment relating to the production of the 1cc syringe; and (3) loan RTI an additional principal amount of $1,000,000 under a construction loan for the purpose of building a warehouse facility (the "Construction Loan"). The Construction Loan matures on November 12, 2002 and is secured by a lien upon the land designated for the contemplated warehouse facility. The loans are also guaranteed by Thomas J. Shaw, the President and Chief Executive Officer. The Loan Agreement contains a conversion feature which allows Katie, at its option, to exchange all or any part of the indebtedness covered by the Loan Agreement (approximately $5 million) into authorized capital stock of RTI. The exchange ratio of debt to stock is set at one share of RTI's common stock for each $7.00 of indebtedness exchanged by Katie. Upon completion of the warehouse contemplated by the Construction Loan, if we are not in default of the Loan Agreement, the unpaid balance of the FIB Note will be consolidated with the unpaid balance of the Construction Loan into a new twenty year mortgage loan with monthly principal and interest payments to be negotiated at the time of such consolidation. The interest rate on both the Working Capital Loan and the Construction Loan is the prime rate, as defined in The Wall Street Journal, plus 1 percent. ----------------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit No. Description of Document - ------------ ----------------------- 4 Loan Agreement between RTI and Katie Petroleum, Inc. dated November 12, 2001 with the following Exhibits: "Note," "Security Agreement," "Construction Loan Agreement," "Real Estate Lien Note," "Guaranty," and "Deed of Trust." (See Exhibit 10) 10 Loan Agreement between RTI and Katie Petroleum, Inc. dated November 12, 2001 with the following Exhibits: "Note," "Security Agreement," "Construction Loan Agreement," "Real Estate Lien Note," "Guaranty," and "Deed of Trust." (See Exhibit 4) (b) Reports on Form 8-K On August 1, 2001, RTI filed a Form 8-K with an item 9 disclosure that RTI issued a letter to its shareholders dated July 26, 2001. On August 21, 2001, RTI filed a Form 8-K with an item 5 disclosure that RTI issued a press release announcing that RTI had signed an agreement with Abbott Laboratories granting Abbott the exclusive right to place RTI's VanishPoint (R) syringes in its spinal and epidural anesthesia trays and 19 announcing a corresponding amendment to RTI's National Marketing and Distribution Agreement with Abbott. SIGNATURE In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DATE: November 14, 2001 RETRACTABLE TECHNOLOGIES, INC. (Registrant) BY: /s/ Douglas W. Cowan ------------------------------ DOUGLAS W. COWAN CHIEF FINANCIAL OFFICER 20 EX-4 3 dex4.txt LOAN AGREEMENT EXHIBIT 4 EXHIBIT 10 LOAN AGREEMENT This Loan Agreement made and entered into this 12 day of November, 2001, by RETRACTABLE TECHNOLOGIES, INC., a Texas corporation with an office at 511 Lobo Lane, Little Elm, Texas 75068-0009, hereinafter referred to as "Borrower," THOMAS J. SHAW, an individual whose mailing address is 1510 Hillcrest Drive, Little Elm, Texas 75068, hereinafter referred to as "Guarantor," and KATIE PETROLEUM, INC., a Texas corporation with an office at 10325 Gaywood, Dallas, Texas 75229, hereinafter referred to as "Lender;" RECITALS 1. Borrower is in the business of manufacturing retractable syringes, used in the medical field, at a plant owned by it and located at 511 Lobo Lane, Little Elm, Texas. 2. Borrower is currently indebted to FIRST INTERNATIONAL BANK, of Plano, Texas under a promissory note dated February 18, 2000 in original principal amount of $1,500,000.00 and with a current unpaid principal balance of $1,458,201.05, said note being hereinafter referred to as the "FIB Note." The FIB Note is secured by a Deed of Trust lien on certain real estate and equipment owned by Borrower and by an Assignment of Rents. The payment of the FIB Note is guaranteed by Guarantor under an Unlimited Continuing Guaranty dated February 18, 2000 . 3. Borrower is the owner of equipment in its plant used in the manufacture of its product. 4. Borrower wants to construct a warehouse facility and related infrastructure, estimated to cost $1,000,000.00, for use in its business. 5. Borrower requires additional funds for use as working capital in its business and to build the warehouse facility, and Lender has agreed to loan funds to Borrower on the terms and conditions hereinafter stated. For a valuable consideration received by each of the undersigned parties to this Loan Agreement, it is hereby agreed as follows: 1. Lender agrees upon the closing of this Loan Agreement to purchase the FIB Note from FIRST INTERNATIONAL BANK for a consideration equal to the unpaid principal balance of the FIB Note and interest accrued since the last payment by Borrower. The Deed of Trust lien, the Unlimited Continuing Guaranty and other security for the payment of the FIB Note shall be assigned to Lender. The terms of payment, personal guaranty and other conditions of the FIB Note shall continue in force and effect after the assignment to Lender. 2. Lender also agrees upon the closing of this Loan Agreement to loan to Borrower on a new promissory note the principal sum of $2,500,000.00, to be used by Borrower as working capital in its manufacturing business. This promissory note will be secured by a first lien on the plant equipment owned by Borrower. The promissory note evidencing such loan shall be in the form attached hereto as Exhibit A and the security for the loan shall be in the form of the Security Agreement attached hereto as Exhibit B. 3. Lender further agrees to loan Borrower an additional $1,000,000.00 under a construction loan for the purpose of building the warehouse facility required by Borrower. The terms and conditions of the construction loan are set forth in the Construction Loan Agreement attached hereto as Exhibit C and made a part hereof. 4. The loans made by Lender secured by the plant equipment of Borrower and for the construction of the warehouse facility shall be personally guaranteed by Guarantor under a Guaranty agreement attached as Exhibit II to Exhibit C of this Loan Agreement. 5. As an inducement to cause Lender to make the commitments contained herein, Borrower and Guarantor hereby represent and warrant to Lender as follows: a. Borrower is not in default of any of its obligations to First International Bank, of Plano, Texas, and Borrower and Guarantor are not in default under any material loan agreement, indenture, mortgage, security agreement or other agreement or obligation to which they are a party or by which their respective properties may be bound; except the failure of Borrower to meet the financial ratios required under the Fleet Lease Agreement, which has been disclosed by Borrower to Lender. b. Borrower is and shall remain the sole owner of the collateral pledged as security under this Loan Agreement; c. All of Borrower's collateral pledged hereunder shall be located on premises owned by Borrower; d. Borrower has furnished Lender with Borrower's financial statements and other information regarding Borrower's business, all of which is true and correct and does not omit any material fact necessary to make such information not misleading; e. No action, suit, proceeding, governmental investigation or arbitation is or shall be pending or, to the knowledge of Borrower, threatened against Borrower or Guarantor which might result in any material and adverse change in Borrower's financial condition or materially affect the collateral pledged hereunder, and there are no outstanding judgments against Borrower or Guarantor. f. Borrower and Guarantor are and shall continue to be Solvent, as such term is defined in the Loan Agreement with First International Bank, of Plano, Texas, after the execution of this Loan Agreement and the creation of Lender's lien and security interests in the collateral pledged hereunder. g. Borrower and Guarantor have filed and shall file all tax returns required to be filed by federal, state or local law and have paid and shall pay when due all of the tax liabilities and other fees and assessments charged against Borrower and Guarantor, or their respective property. Neither Borrower or Guarantor know of any pending investigation of Borrower or Guarantor by any taxing or governmental authority or of any pending but unassessed tax liability or other fee or assessment owing by Borrower or Guarantor. h. Borrower and its property subject to this Loan Agreement are and shall be in compliance with all environmental, health and safety laws, rules and regulations and Borrower is or shall be subject to any liability or obligation for remedial action thereunder. i. Neither Borrower or Guarantor to their knowledge have violated or shall violate any applicable federal, state, county or municipal statute, regulation or ordinance which may materially and adversely affect Borrower's business operations or financial condition or the collateral pledged hereunder. j. Borrower is duly organized , validly existing and in good standing under the laws of the State of Texas and is licensed to conduct business in all jurisdictions in which its business is conducted. k. Borrower and Guarantor are authorized to enter into this Loan Agreement and their becoming a party to this Loan Agreement will not violate or constitute a default under any other agreement to which Borrower or Guarantor is a party. l. Borrower shall furnish Lender with a copy of its annual federal income tax returns, and quarterly financial information including but not limited to its balance sheet, income statement, cash flow and profit and loss. m. There has been no adverse material financial change to Borrower or Guarantor since the last financial statements were provided to Lender. 6. Borrower and Guarantor acknowledge that: (i) Lender has not exercised or attempted to exercise any control or influence of any kind over the business or financial affairs of Borrower; (ii) Lender does not have and shall not have any fiduciary or similar duty to Borrower or Guarantor; (iii) Lender has not participated and shall not participate in any type of joint venture or partnership with Borrower or Guarantor; the execution and consummation of this Loan Agreement, other documents executed pursuant hereto, and consummation of the transactions contemplated hereby do not and shall not constitute or amount to a joint venture or partnership; and (iv) Lender has not acted and shall not act in any respect as the agent of Borrower or Guarantor for any purpose and no agency relationship has been or shall be created by the execution of this Loan Agreement and other documents executed pursuant hereto. 7. While any unpaid indebtedness of Borrower is held by Lender, Lender shall have the continuing right and option, upon written notice to Borrower, to exchange all or any part of such indebtedness into the authorized common capital stock of Borrower. The exchange ratio of debt to stock shall be one share of Borrower's capital stock for each $7 of indebtedness exchanged by Lender for such stock. The exchange ratio shall be adjusted up or down in the event of a split or reverse split of Borrower's capital stock while Lender's right and option to exchange debt for stock is in effect. The issuance of stock by Borrower to Lender pursuant hereto shall be in compliance with applicable federal and state securities laws. 8. Upon completion of Borrower's warehouse construction project, if Borrower is not in default hereunder, Borrower and Lender will consolidate the unpaid balance of the FIB Note with the unpaid balance of the construction loan made by Lender into a new twenty year mortgage loan with monthly principal and interest payments determined at the time of such consolidation of debt. 9. At the closing is this Loan Agreement, Borrower agrees to pay to Lender a closing fee equal to one percent (1%) of the principal balance of the FIB Note purchased by Lender, the principal amount of the working capital loan loan secured by equipment, and the principal amount of the construction loan. 10. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES HERETO. 11. Lender's obligation to perform any of Lender's obligations hereunder shall be subject to the following conditions precedent, all of which shall be satisfied at Borrower's expense: a. Borrower shall execute and deliver this Loan Agreement and the necessary loan documents and all other documents related thereto, each in form and substance acceptable to Lender; b. Lender shall be provided with such written evidence, as required by Lender, that the representatives of Borrower are authorized to execute this Loan Agreement and the loan documents on behalf of Borrower and to bind Borrower to the terms and conditions set forth therein; c. Documents necessary to perfect Lender's liens, security interests, and other encumbrances upon the collateral pledged hereunder executed by Borrower and furnished to Lender. d. Borrower shall furnish to Lender a certificate from Commonwealth Land Title Insurance Company showing any documents filed of record in Denton County, Texas, affecting the title to the land securing the FIB Note since the date of Mortgagee Policy of Title Insurance Policy Number 535-435420 issued by Commonwealth Land Title Insurance Company, and Lender shall be satisfied with Borrower's title to said land. e. Lender shall be furnished with a certificate of UCC searches which shows that there are no security interests outstanding in the property owned by Borrower and pledged as collateral for the working capital loan. f. Borrower shall have furnished to Lender financial statements and other financial information on Borrower as requested by Lender. g. All of the respective representations and warranties of Borrower and Guarantor under this Loan Agreement shall be true and correct on and as of the date of execution of the documents required to be executed hereunder or on the date of any advances required of Lender. h. No event of default shall exist under this Loan Agreement or the loan documents on the date hereof or the date of any advances required of Lender. 12. THIS LOAN AGREEMENT SHALL BE SUBJECT TO AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAWS PRINCIPLES. IT IS LENDER'S INTENTION TO COMPLY FULLY WITH TEXAS LAW, AND FEDERAL LAW AS APPLICABLE, REGULATING CREDIT TERMS, INTEREST, FEES, CHARGES, EXPENSES, AND OTHER AMOUNTS. 13 The closing of this Loan Agreement shall be held on November 12, 2001, at a location mutually agreeable to the parties hereto, or such earlier date as the parties shall mutually agree. The representations and warranties by Borrower and Guarantor contained in this Loan Agreement shall survive the closing hereof. EXECUTED in multiple original counterparts on the day and year first above written. BORROWER: RETRACTABLE TECHNOLOGIES, INC. By: \s\ Thomas J. Shaw ----------------------------------------- President LENDER: KATIE PETROLEUM, INC. By: \s\ John Jackson ------------------------------------------- President GUARANTOR: \s\ Thomas J. Shaw -------------------------------------------- Thomas J. Shaw NOTE (Secured by Security Agreement) Date: November 12, 2001 Maker: RETRACTABLE TECHNOLOGIES, INC. Maker's Mailing Address (including county): 511 Lobo Lane, Little Elm, Denton County, Texas 75065 Payee: KATIE PETROLEUM, INC. Place for Payment (including county) 10325 Gaywood, Dallas, Dallas County, Texas 75229-6608 Principal Amount: Two Million Five Hundred Thousand Dollars ($2,500,000.00) Annual Interest Rate on Unpaid Principal from Date: 1% over "Prime Rate" as shown in the Money Rates column of the Wall Street Journal, redetermined on the first business day at the beginning of each calendar quarter Annual Interest Rate on Matured, Unpaid Amounts: Same as Annual Interest Rate Terms of Payment (principal and interest): Interest only payable quarterly until the first Anniversary date of this Note; thereafter in equal quarterly payments of principal and interest until Maturity on November 12, 2006 Security for Payment A Security Interest Created and Granted in the Following Security Agreement: Date: November 12, 2001 Debtor: RETRACTABLE TECHNOLOGIES, INC. Secured Party: Payee County Where Collateral Located: Denton County, Texas Collateral: Manufacturing machines and equipment as set forth in Exhibit I Other Security for Payment: Personal Guaranty of Thomas J. Shaw Maker promises to pay to the order of Payee at the place for payment and according to the terms of payment the principal amount plus interest at the rates stated above. All unpaid amounts shall be due by the final scheduled payment date. If Maker defaults in the payment of this note or in the performance of any obligation in any instrument securing or collateral to it, and the default continues for thirty (30) days after Payee gives Maker notice of the default and the time within which it must be cured, as may be required by law or by written agreement, then Payee may declare the unpaid principal balance and earned interest on this note immediately due. Maker and each surety, endorser, and guarantor waive all demands for payment, presentations for payment, notices of intention to accelerate maturity, notices of acceleration of maturity, protests, and notices of protest, to the extent permitted by law. If this note or any instrument securing or collateral to it is given to an attorney for collection or enforcement, or if suit is brought for collection or enforcement, or if it is collected or enforced through probate, bankruptcy, or other judicial proceeding, then Maker shall pay Payee all costs of collection and enforcement, including reasonable attorney's fees and court costs, in addition to other amounts due. Interest on the debt evidenced by this note shall not exceed the maximum amount of nonusurious interest that may be contracted for, taken, reserved, charged, or received under law; any interest in excess of that maximum amount shall be credited on the principal of the debt or, if that has been paid, refunded. On any acceleration or required or permitted prepayment, any such excess shall be canceled automatically as of the acceleration or prepayment or, if already paid, credited on the principal of the debt or, if the principal of the debt has been paid, refunded. This provision overrides other provisions in this and all other instruments concerning the debt. The Maker is responsible for all obligations represented by this note. When the context requires, singular nouns and pronouns include the plural. KATIE PETROLEUM, INC. RETRACTABLE TECHNOLOGIES, INC. By: \s\ John Jackson By: \s\ Thoams J. Shaw --------------------------------- ------------------------------------- President President Secured Party Debtor PREPARED IN THE LAW OFFICE OF: Lionel E. Gilly EXHIBIT I Retractable Technologies, Inc. 1cc assembly equipment detail As of 9/30/2001
Vendor Invoice # Invoice Date Amount Serial #'s ------ --------- ------------ -------- ------------ Sortimat Cameron Automation, L.P. 991492 10/6/1999 $ 39,720.00 -automated assembly equipment 991460 9/8/1999 39,720.00 Ck req. 4/16/2001 5,193.00 Ck req. 1/22/2001 600,000.00 Ck req. 7/20/2000 38,000.00 Ck req. 8/4/1999 223,377.00 Ck req. 6/23/1999 200,000.00 Ck req. 5/24/1999 200,000.00 Ck req. 4/19/1999 200,000.00 Ck req. 3/11/1999 200,000.00 Ck req. 2/1/1999 200,000.00 981093 11/5/1998 152,500.00 981093 6/15/1998 152,500.00 Ck req. 3/11/1998 305,000.00 ---------------- $ 2,556,010.00 5022,5023,5024,5031 ---------------- Trans Tech 619106 7/10/2000 $ 4,800.00 -barrell printing machinery 618718 6/30/2000 5,104.00 618718 6/30/2000 5,895.12 618717 6/30/2000 28,172.64 617334 6/15/2000 63,127.00 596759 10/25/1999 68,231.00 613135 5/9/2000 68,231.00 ---------------- $ 243,560.76 6217 ---------------- Multivac 8046959FP 8/9/2000 $ 12,987.60 -packaging equipment 8046959S 6/1/2000 70,994.00 Q9261DP2 2/17/2000 19,362.00 Q90261DP3 2/17/2000 6,454.00 Q90261DP1 12/21/1999 19,362.00 ---------------- $ 129,159.60 980 ---------------- Magor Mold, Inc. Ck req. 9/14/1999 87,250.00 -component molds DP1746 12/27/2000 28,725.00 1672 1/19/2000 57,875.00 1674 1/19/2000 40,900.00 1675 1/19/2000 52,050.00 1676 1/19/2000 29,875.00 1677 1/19/2000 33,650.00 1678 1/19/2000 37,600.00 1679 1/19/2000 37,400.00 1680 1/19/2000 34,900.00 DP1674 3/3/2000 40,900.00 DP1675 3/3/2000 52,050.00 8598A 5/17/2000 29,875.00 8597A 5/17/2000 26,025.00 8596 5/17/2000 42,690.00 8597 5/17/2000 26,025.00 8598 5/17/2000 29,875.00
Retractable Technologies, Inc. 1cc assembly equipment detail As of 9/30/2001
Vendor Invoice # Invoice Date Amount Serial #'s ------ --------- ------------ -------- ------------ 8644 6/19/2000 134,848.75 8599 5/17/2000 16,825.00 8600 5/17/2000 18,800.00 8601 5/17/2000 18,700.00 8602 5/17/2000 17,450.00 DP1672 12/1/1999 34,725.00 DP1674A 12/1/1999 24,540.00 DP1675A 12/1/1999 31,230.00 DP1676 12/1/1999 29,875.00 DP1677 12/1/1999 10,095.00 DP1678 12/1/1999 11,280.00 DP1679 12/1/1999 11,220.00 DP1680 12/1/1999 10,470.00 ---------------- $ 1,057,723.75 1) 32 cavity syringe barrell #1675 ---------------- 2) 16 cavity plunger handle #1676 3) 32 cavity short needle cap #1672 4) 32 cavity needle holder #1674 5) 16 cavity plunger handle #1746 6) 32 cavity friction ring #1677 7) 32 cavity plunger seal #1680 8) 32 cavity plunger cap #1678 9) 32 cavity plunger plug #1679 Comtech 100000 1/12/2001 21,247.94 -spring machine 99447 5/8/2001 26,122.91 99439 4/19/2001 42,495.88 ---------------- $ 89,866.73 900135 ---------------- ---------------- KSE Texas, Inc. paid with Visa 11/10/2000 $ 683.18 ---------------- -light fixture for the 1cc machine ---------------- Trust X 037023 1/3/2001 $ 4,374.00 983110 ---------------- -tape machine for packaging product ---------------- Bullock Fabrication 0006836 1/4/2001 $ 580.58 ---------------- -misc. assembly of machinery ---------------- Cisco-Eagle, Inc. 71778 11/8/2000 $ 864.86 ---------------- -labor to install conveyor belt ---------------- Equipment total $ 4,082,823.46 ================
SECURITY AGREEMENT Date: November 12, 2001 Debtor: RETRACTABLE TECHNOLOGIES, INC. Debtor's Mailing Address (including county): 511 Lobo Lane, Little Elm, Denton County, Texas 75065 Secured Party: KATIE PETROLEUM, INC. Secured Party's Mailing Address (including county): 10325 Gaywood, Dallas, Dallas County, Texas 75229-6608 Classification of Collateral: Manufacturing machinery and equipment Collateral (including all accessions): As shown in Exhibit I attached hereto Obligation Note Date: November 12, 2001 Amount: Two Million Five Hundred Thousand Dollars ($2,500,000.00) Maker: RETRACTABLE TECHNOLOGIES, INC. Payee: KATIE PETROLEUM, INC. Final Maturity Date: November 12, 2006 Terms of Payment (optional): Other Obligation: Debtor's Representation Concerning Location of Collateral (optional): Collateral to be located at 511 Lobo Lane, Little Elm, Denton County, Texas 75068 Subject to the terms of this agreement, Debtor grants to Secured Party a security interest in the collateral and all its proceeds to secure payment and performance of Debtor's obligation in this security agreement and all renewals and extensions of any of the obligation. Debtor's Warranties 1. Financing Statement. Except for that in favor of Secured Party, no financing statement covering the collateral is filed in any public office. 2. Ownership. Debtor owns the collateral and has the authority to grant this security interest. Ownership is free from any setoff, claim, restriction, lien, security interest, or encumbrance except this security interest and liens for taxes not yet due. 3. Fixtures and Accessions. None of the collateral is affixed to real estate, is an accession to any goods, is commingled with other goods, or will become a fixture, accession, or part of a product or mass with other goods except as expressly provided in this agreement. 4. Financial Statements. All information about Debtor's financial condition provided to Secured Party was accurate when submitted, as will be any information subsequently provided. Debtor's Covenants 1. Protection of Collateral. Debtor will defend the collateral against all claims and demands adverse to Secured Party's interest in it and will keep it free from all liens except those for taxes not yet due and from all security interests except this one. The collateral will remain in Debtor's possession or control at all times, except as otherwise provided in this agreement. Debtor will maintain the collateral in good condition and protect it against misuse, abuse, waste, and deterioration except for ordinary wear and tear resulting from its intended use. 2. Insurance. Debtor will insure the collateral in accord with Secured Party's reasonable requirements regarding choice of carrier, casualties insured against, and amount of coverage. Policies will be written in favor of Debtor and Secured Party according to their respective interests or according to Secured Party's other requirements. All policies will provide that Secured Party will receive at least ten days' notice before cancellation, and the policies or certificates evidencing them will be provided to Secured Party when issued. Debtor assumes all risk of loss and damage to the collateral to the extent of any deficiency in insurance coverage. Debtor irrevocably appoints Secured Party as attorney-in-fact to collect any return, unearned premiums, and proceeds of any insurance on the collateral and to endorse any draft or check deriving from the policies and made payable to Debtor. 3. Secured Party's Costs. Debtor will pay all expenses incurred by Secured Party in obtaining, preserving, perfecting, defending, and enforcing this security interest or the collateral and in collecting or enforcing the note. Expenses for which Debtor is liable include, but are not limited to, taxes, assessments, reasonable attorney's fees, and other legal expenses. These expenses will bear interest from the dates of payments at the highest rate stated in notes that are part of the obligation, and Debtor will pay Secured Party this interest on demand at a time and place reasonably specified by Secured Party. These expenses and interest will be part of the obligation and will be recoverable as such in all respects. 4. Additional Documents. Debtor will sign any papers that Secured Party considers necessary to obtain, maintain, and perfect this security interest or to comply with any relevant law. 5. Notice of Changes. Debtor will immediately notify Secured Party of any material change in the collateral; change in Debtor's name, address, or location; change in any matter warranted or represented in this agreement; change that may affect this security interest; and any event of default. 6. Use and Removal of Collateral. Debtor will use the collateral primarily according to the stated classification unless Secured Party consents otherwise in writing. Debtor will not permit the collateral to be affixed to any real estate, to become an accession to any goods, to be commingled with other goods, or to become a fixture, accession, or part of a product or mass with other goods except as expressly provided in this agreement. 7. Sale. Debtor will not sell, transfer, or encumber any of the collateral without the prior written consent of Secured Party. Rights and Remedies of Secured Party 1. Generally. Secured Party may exercise the following rights and remedies after default: a. take control of any proceeds of the collateral; b. release any collateral in Secured Party's possession to any debtor, temporarily or otherwise; c. take control of any funds generated by the collateral, such as refunds from and proceeds of insurance, and reduce any part of the obligation accordingly or permit Debtor to use such funds to repair or replace damaged or destroyed collateral covered by insurance; and d. demand, collect, convert, redeem, settle, compromise, receipt for, realize on, sue for, and adjust the collateral either in Secured Party's or Debtor's name, as Secured Party desires. 2. Insurance. If Debtor fails to maintain insurance as required by this agreement or otherwise by Secured Party, then Secured Party may purchase single- interest insurance coverage that will protect only Secured Party. If Secured Party purchases this insurance, its premiums will become part of the obligation. Events of Default Each of the following conditions is an event of default: 1. if Debtor defaults in timely payment or performance of any obligation, covenant, or liability in any written agreement between Debtor and Secured Party or in any other transaction secured by this agreement; 2. if any warranty, covenant, or representation made to Secured Party by or on behalf of Debtor proves to have been false in any material respect when made; 3. if a receiver is appointed for Debtor or any of the collateral; 4. if the collateral is assigned for the benefit of creditors or, to the extent permitted by law, if bankruptcy or insolvency proceedings commence against or by any of these parties: Debtor; any partnership of which Debtor is a general partner; and any maker, drawer, acceptor, endorser, guarantor, surety, accommodation party, or other person liable on or for any part of the obligation; 5. if any financing statement regarding the collateral but not related to this security interest and not favoring Secured Party is filed; 6. if any lien attaches to any of the collateral; and 7. if any of the collateral is lost, stolen, damaged, or destroyed, unless it is promptly replaced with collateral of like quality or restored to its former condition. Remedies of Secured Party on Default During the existence of any event of default, Secured Party may declare the unpaid principal and earned interest of the obligation immediately due in whole or part, enforce the obligation, and exercise any rights and remedies granted by chapter 9 of the Texas Business and Commerce Code or by this agreement, including the following: 1. require Debtor to deliver to Secured Party all books and records relating to the collateral; 2. require Debtor to assemble the collateral and make it available to Secured Party at a place reasonably convenient to both parties; 3. take possession of any of the collateral and for this purpose enter any premises where it is located if this can be done without breach of the peace; 4. sell, lease, or otherwise dispose of any of the collateral in accord with the rights, remedies, and duties of a secured party under chapters 2 and 9 of the Texas Business and Commerce Code after giving notice as required by those chapters; unless the collateral threatens to decline speedily in value, is perishable, or would typically be sold on a recognized market, Secured Party will give Debtor reasonable notice of any public sale of the collateral or of a time after which it may be otherwise disposed of without further notice to Debtor; in this event, notice will be deemed reasonable if it is mailed, postage prepaid, to Debtor at the address specified in this agreement at least ten days before any public sale or ten days before the time when the collateral may be otherwise disposed of without further notice to Debtor; 5. surrender any insurance policies covering the collateral and receive the unearned premium with proceeds applied against the loan; 6. apply any proceeds from disposition of the collateral after default in the manner specified in chapter 9 of the Texas Business and Commerce Code, including payment of Secured Party's reasonable attorney's fees and court expenses; and 7. if disposition of the collateral leaves the obligation unsatisfied, collect the deficiency from Debtor. General Provisions 1. Parties Bound. Secured Party's rights under this agreement shall inure to the benefit of its successors and assigns. Assignment of any part of the obligation and delivery by Secured Party of any part of the collateral will fully discharge Secured Party from responsibility for that part of the collateral. If Debtor is more than one, all their representations, warranties, and agreements are joint and several. Debtor's obligations under this agreement shall bind Debtor's personal representatives, successors, and assigns. 2. Waiver. Neither delay in exercise nor partial exercise of any of Secured Party's remedies or rights shall waive further exercise of those remedies or rights. Secured Party's failure to exercise remedies or rights does not waive subsequent exercise of those remedies or rights. Secured Party's waiver of any default does not waive further default. Secured Party's waiver of any right in this agreement or of any default is binding only if it is in writing. Secured Party may allow remedy for any default without waiving it. 3. Reimbursement. If Debtor fails to perform any of Debtor's obligations, Secured Party may perform those obligations and be, reimbursed by Debtor on demand at the place where the note is payable for any sums so paid, including attorney's fees and other legal expenses, plus interest on those sums from the dates of payment at the rate stated in the note for matured, unpaid amounts. The sum to be reimbursed shall be secured by this security agreement. 4. Interest Rate. Interest included in the obligation shall not exceed the maximum amount of nonusurious interest that may be contracted for, taken, reserved, charged, or received under law; any interest in excess of that maximum amount shall be credited to the principal of the obligation or, if that has been paid, refunded. On any acceleration or required or permitted prepayment of the obligation, any such excess shall be canceled automatically as of the acceleration or prepayment or, if already paid, credited on the principal amount of the obligation or, if the principal amount has been paid, refunded. This provision overrides other provisions in this and all other instruments concerning the obligation. 5. Modifications. No provisions of this agreement shall be modified or limited except by written agreement. 6. Severability. The unenforceability of any provision of this agreement will not affect the enforceability or validity of any other provision. 7. After-Acquired Consumer Goods. This security interest shall attach to after-acquired consumer goods only to the extent permitted by law. 8. Applicable Law. This agreement will be construed according to Texas laws. 9. Place of Performance. This agreement is to be performed in the county of Secured Party's mailing address. 10. Financing Statement. A carbon, photographic, or other reproduction of this agreement or any financing statement covering the collateral is sufficient as a financing statement. 11. Presumption of Truth and Validity. If the collateral is sold after default, recitals in the bill of sale or transfer will be prima facie evidence of their truth, and all prerequisites to the sale specified by this agreement and by chapter 9 of the Texas Business and Commerce Code will be presumed satisfied. 12. Singular and Plural. When the context requires, singular nouns and pronouns include the plural. 13. Priority of Security Interest. This security interest shall neither affect nor be affected by any other security for any of the obligations. Neither extensions of any of the obligation nor releases of any of the collateral will affect the priority or validity of this security interest with reference to any third person. 14. Cumulative Remedies. Foreclosure of this security interest by suit does not limit Secured Party's remedies, including the right to sell the collateral under the terms of this agreement. All remedies of Secured Party may be exercised at the same or different times, and no remedy shall be a defense to any other. Secured Party's rights and remedies include all those granted by law or otherwise, in addition to those specified in this agreement. 15. Agency. Debtor's appointment of Secured Party as Debtor's agent is coupled with an interest and will survive any disability of Debtor. 16. Attachments Incorporated. The addendum indicated below is attached to this agreement and incorporated into it for all purposes: ( ) addendum relating to accounts, inventory, documents, chattel paper, and general intangibles ( ) addendum relating to instruments KATIE PETROLEUM, INC. RETRACTABLE TECHNOLOGIES, INC. By: \s\ John Jackson By: \s\ Thomas J. Shaw ---------------------------------- ---------------------------------- President President Secured Party Debtor EXHIBIT I Retractable Technologies, Inc. 1cc assembly equipment detail As of 9/30/2001
Vendor Invoice # Invoice Date Amount Serial #'s ------ --------- ------------ ------ ---------- Sortimat Cameron Automation, L.P. 991492 10/6/1999 $ 39,720.00 -automated assembly equipment 991460 9/8/1999 39,720.00 Ck req. 4/16/2001 5,193.00 Ck req. 1/22/2001 600,000.00 Ck req. 7/20/2000 38,000.00 Ck req. 8/4/1999 223,377.00 Ck req. 6/23/1999 200,000.00 Ck req. 5/24/1999 200,000.00 Ck req. 4/19/1999 200,000.00 Ck req. 3/11/1999 200,000.00 Ck req. 2/1/1999 200,000.00 981093 11/5/1998 152,500.00 981093 6/15/1998 152,500.00 Ck req. 3/11/1998 305,000.00 ---------------- $ 2,556,010.00 5022,5023,5024,5031 ---------------- Trans Tech 619106 7/10/2000 $ 4,800.00 -barrell printing machinery 618718 6/30/2000 5,104.00 618718 6/30/2000 5,895.12 618717 6/30/2000 28,172.64 617334 6/15/2000 63,127.00 596759 10/25/1999 68,231.00 613135 5/9/2000 68,231.00 ---------------- $ 243,560.76 6217 ---------------- Multivac 8046959FP 8/9/2000 $ 12,987.60 -packaging equipment 8046959S 6/1/2000 70,994.00 Q9261DP2 2/17/2000 19,362.00 Q90261DP3 2/17/2000 6,454.00 Q90261DP1 12/21/1999 19,362.00 ---------------- $ 129,159.60 980 ---------------- Magor Mold, Inc. Ck req. 9/14/1999 87,250.00 -component molds DP1746 12/27/2000 28,725.00 1672 1/19/2000 57,875.00 1674 1/19/2000 40,900.00 1675 1/19/2000 52,050.00 1676 1/19/2000 29,875.00 1677 1/19/2000 33,650.00 1678 1/19/2000 37,600.00 1679 1/19/2000 37,400.00 1680 1/19/2000 34,900.00 DP1674 3/3/2000 40,900.00 DP1675 3/3/2000 52,050.00 8598A 5/17/2000 29,875.00 8597A 5/17/2000 26,025.00 8596 5/17/2000 42,690.00 8597 5/17/2000 26,025.00 8598 5/17/2000 29,875.00
Retractable Technologies, Inc. 1cc assembly equipment detail As of 9/30/2001
Vendor Invoice # Invoice Date Amount Serial #'s ------ --------- ------------ ------ ---------- 8644 6/19/2000 134,848.75 8599 5/17/2000 16,825.00 8600 5/17/2000 18,800.00 8601 5/17/2000 18,700.00 8602 5/17/2000 17,450.00 DP1672 12/1/1999 34,725.00 DP1674A 12/1/1999 24,540.00 DP1675A 12/1/1999 31,230.00 DP1676 12/1/1999 29,875.00 DP1677 12/1/1999 10,095.00 DP1678 12/1/1999 11,280.00 DP1679 12/1/1999 11,220.00 DP1680 12/1/1999 10,470.00 ---------------- $ 1,057,723.75 1) 32 cavity syringe barrell #1675 ---------------- 2) 16 cavity plunger handle #1676 3) 32 cavity short needle cap #1672 4) 32 cavity needle holder #1674 5) 16 cavity plunger handle #1746 6) 32 cavity friction ring #1677 7) 32 cavity plunger seal #1680 8) 32 cavity plunger cap #1678 9) 32 cavity plunger plug #1679 Comtech 100000 1/12/2001 21,247.94 -spring machine 99447 5/8/2001 26,122.91 99439 4/19/2001 42,495.88 ---------------- $ 89,866.73 900135 ---------------- ---------------- KSE Texas, Inc. paid with Visa 11/10/2000 $ 683.18 ---------------- -light fixture for the 1cc machine ---------------- Trust X 037023 1/3/2001 $ 4,374.00 983110 ---------------- -tape machine for packaging product ---------------- Bullock Fabrication 0006836 1/4/2001 $ 580.58 ---------------- -misc. assembly of machinery ---------------- Cisco-Eagle, Inc. 71778 11/8/2000 $ 864.86 ---------------- -labor to install conveyor belt ---------------- Equipment total $ 4,082,823.46 ================
CONSTRUCTION LOAN AGREEMENT This Construction Loan Agreement made and entered into this 12 day of November, 2001, by RETRACTABLE TECHNOLOGIES, INC., a Texas corporation with an office at 511 Lobo Lane, Little Elm, Texas 75068-0009, hereinafter called "Borrower," THOMAS J. SHAW, an individual whose mailing address is 1510 Hillcrest Drive, Little Elm, Texas 75068, hereinafter referred to as "Guarantor," and KATIE PETROLEUM, INC., a Texas corporation with an office at 10325 Gaywood, Dallas, Texas 75229, hereinafter referred to as "Lender." RECITALS 1. Borrower is in the business of manufacturing retractable syringes, used in the medical field, at a plant owned by it and located at 511 Lobo Lane, Little Elm, Texas. 2. Borrower needs to have a warehouse building constructed on land now owned by Borrower, and Borrower and Guarantor have requested Lender to assist in providing financing up to but not exceeding $1,000,000.00 for the construction of the warehouse building.. 3. Lender is willing to provide financing to assist Borrower in the construction of the warehouse facility on the terms and conditions hereinafter set forth. For a valuable consideration received by each of the undersigned parties to this Construction Loan Agreement, it is hereby agreed as follows: 1. Subject to the approval of Lender, Borrower shall enter into a contract for the construction of the warehouse building with Wayne Allen Construction Co., Inc., of Denton, Texas, hereinafter referred to as "Contractor." 2. Lender agrees to advance funds to Borrower as construction progresses on the warehouse building equal to 90% of the draw requests made from time to time by Contractor as provided in the construction contract. 3. To evidence the loan commitment made by Lender hereunder, Borrower shall execute and deliver to Lender a promissory note, in the form attached hereto as Exhibit I, in principal amount of $1,000,000.00, with a maturity date of one year from the date of the promissory note. The payment of the note to Lender shall be guaranteed by Guarantor under a Guaranty agreement in the form attached hereto as Exhibit II. The note shall bear interest at a rate which is 1% greater than the "Prime Rate" as shown in the Money Rates column of the Wall Street Journal, such interest rate to be redetermined each calender quarter on the first business day of the calendar quarter. Accrued interest shall be paid by Borrower to Lender at the time a request is made for an advance payment on the loan commitment. 4. The land on which the warehouse building is to be constructed is now subject to a first lien deed of trust in favor of First International Bank, of Denton, Texas, and Borrower shall execute and deliver to Lender a second lien deed of trust, in the form attached here as Exhibit III, to secure the payment of Borrower's indebtedness to Lender. 5. This Construction Loan Agreement is entered into as a part of a Loan Agreement of even date herewith made by the undersigned parties to this agreement. All of the representations and warranties by Borrower and Guarantor to Lender and the agreements of the parties contained in Paragraphs 5, 6 and 7 of said Loan Agreement are incorporated herein by reference to the same extent as if said paragraphs were copied herein in full. The Lender's obligations hereunder are also subject to the same conditions contained in Paragraph 11 of said Loan Agreement. 6. THIS LOAN AGREEMENT SHALL BE SUBJECT TO AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAWS PRINCIPLES. IT IS LENDER'S INTENTION TO COMPLY FULLY WITH TEXAS LAW, AND FEDERAL LAW AS APPLICABLE, REGULATING CREDIT TERMS, INTEREST, FEES, CHARGES, EXPENSES, AND OTHER AMOUNTS. 7. The closing of this Construction Loan Agreement shall be held on the same date, time and place as provided in the Loan Agreement of even date herewith by the undersigned parties. EXECUTED in multiple original counterparts on the day and year first above written. BORROWER: RETRACTABLE TECHNOLOGIES, INC. By: \s\ Thomas J. Shaw ---------------------------------------- President LENDER: KATIE PETROLEUM, INC. By: \s\ John Jackson ------------------------------------------- President GUARANTOR: \s\ Thomas J. Shaw -------------------------------------------- Thomas J. Shaw Real Estate Lien Note Date: November 12, 2001 Maker: RETRACTABLE TECHNOLOGIES, INC. Maker's Mailing Address (including county): 511 Lobo Lane, Little Elm, Denton County, Texas 75060-0009 Payee: KATIE PETROLEUM, INC. Place for Payment (including county): 10325 Gaywood, Dallas, Dallas County, Texas 75229 Principal Amount: One Million Dollars ($1,000,000.00) Annual Interest Rate on Unpaid Principal from Date: 1% over "Prime Rate" as shown in the Money Rates column of the Wall Street Journal, redetermined on the first business day at the beginning of each calendar quarter. Annual Interest Rate on Matured, Unpaid Amounts: Same as Annual Interest Rate Terms of Payment (principal and interest): Principal due and payable on November 12, 2002. Accrued interest payable at time of second and subsequent draws on the principal of this Note and at maturity. Security for Payment: Second lien deed of trust on property described in Exhibit A hereof. Maker promises to pay to the order of Payee at the place for payment and according to the terms of payment the principal amount plus interest at the rates stated above. All unpaid amounts shall be due by the final scheduled payment date. If Maker defaults in the payment of this note or in the performance of any obligation in any instrument securing or collateral to it, and the default continues after Payee gives Maker notice of the default and the time within which it must be cured, as may be required by law or by written agreement, then Payee may declare the unpaid principal balance and earned interest on this note immediately due. Maker and each surety, endorser, and guarantor waive all demands for payment, presentations for payment, notices of intention to accelerate maturity, notices of acceleration of maturity, protests, and notices of protest, to the extent permitted by law. If this note or any instrument securing or collateral to it is given to an attorney for collection or enforcement, or if suit is brought for collection or enforcement, or if it is collected or enforced through probate, bankruptcy, or other judicial proceeding, then Maker shall pay Payee all costs of collection and enforcement, including reasonable attorney's fees and court costs, in addition to other amounts due. Reasonable attorney's fees shall be 10% of all amounts due unless either party pleads otherwise. Interest on the debt evidenced by this note shall not exceed the maximum amount of nonusurious interest that may be contracted for, taken, reserved, charged, or received under law; any interest in excess of that maximum amount shall be credited on the principal of the debt or, if that has been paid, refunded. On any acceleration or required or permitted prepayment, any such excess shall be cancelled automatically as of the acceleration or prepayment or, if already paid, credited on the principal of the debt or, if the principal of the debt has been paid, refunded. This provision overrides other provisions in this and all other instruments concerning the debt. Each maker is responsible for all obligations represented by this note. When the context requires, singular nouns and pronouns include the plural. RETRACTABLE TECHNOLOGIES, INC. By: \s\ Thomas J. Shaw --------------------------------------- President PREPARED IN THE LAW OFFICE OF: Lionel E. Gilly EXHIBIT A TRACT ONE: Lots 1 and 2, Block A, of Retractable Technologies, Inc. Addition, an Addition to the City of Little Elm, Denton County, Texas, according to the Plat thereof recorded in volume M, Page 295, of the Plat Records of Denton County, Texas, SAVE AND EXCEPT: Being a 5 foot strip of land out of the John King Survey, Abstract Number 718, in Denton County, Texas, and being a portion of a tract of land deeded to Retractable Technologies, Inc., as recorded in CC# 96-5984 of the Deed Records of Denton County, Texas, and being situated in the Town of Little Elm, Texas and being more particularly described as follows: BEGINNING at a 1/2 inch iron rod found at the northeast corner of said Retractable Technologies, Inc. tract, said point also being in the west right of way line of Lobo Lane (a 100 foot right of way); Thence South 00 degrees 07 minutes 39 seconds East, along and parallel with the east property line of said Retractable Technologies, Inc. tract and the west right of way line of Lobo Lane, a distance of 5.00 feet, to a point for corner; Thence South 89 degrees 42 minutes 56 seconds West, leaving the east property line of said Retractable Technologies, Inc., tract and the west right of way line of Lobo Lane, parallel with the north property line of said Retractable Technologies, Inc. tract, a distance of 500.00 feet to a point for corner; Thence North 00 degrees 07 minutes 39 seconds West, a distance of 5.00 feet, to a point for corner, said point is lying in the north property line of said Retractable Technologies, Inc. tract; Thence North 89 degrees 42 minutes 56 seconds East, along and parallel with the north property line of said Retractable Technologies, Inc. tract, a distance of 500.00 feet to the Place of Beginning and containing 2,500 square feet or .0574 acres of land, more or less. TRACT TWO: Being a tract of land in the John King Survey, Abstract No. 718, situated in the City of Little Elm, Denton County, Texas, and being a part of that certain tract of land conveyed to Leonard V. Gumm and wife, Ruth Katherine Gumm by the United States of America by Quit Claim deed recorded in volume 466, Page 202 of the Deed Records of Denton County, Texas, and being more particularly described as follows: BEGINNING at a concrete monument at the Northwest corner of said Gumm tract, said point being on the property line of Garza-Little Elm Reservoir; Thence South 89 degrees 57 minutes 36 seconds East along the North line of the Gumm tract, 1706.34 feet to its Northeast corner; Thence South 0 degrees 01 minutes 08 seconds West along the East line of the Gumm tract, 444.69 feet; Thence North 89 degrees 57 minutes 36 seconds West, 1347.05 feet to a point on the property line of Garza-Little Elm Reservoir; Thence along the property line of Garza-Little Elm Reservoir as follows: North 52 degrees 58 minutes 52 seconds West, 328.64 feet to a concrete monument; North 21 degrees 23 minutes 02 seconds West, 265.34 feet to the PLACE OF BEGINNING, and containing 16.11 acres of land, more or less. GUARANTY This Guaranty made this 12 day of November, 2001 by THOMAS J. SHAW, an individual whose mailing address is 1510 Hillcrest Drive, Little Elm, Texas 75068, hereinafter called "Guarantor," for the benefit of KATIE PETROLEUM, INC., a Texas corporation with an office at 10325 Gaywood, Dallas, Texas 75229, hereinafter referred to as "Lender." RECITALS 1. Lender has entered into a Construction Loan Agreement dated November 12, 2001, with RETRACTABLE TECHNOLOGIES, INC., hereinafter referred to as "Borrower," whereby Lender has agreed to loan to Borrower up to Five Million Dollars ($5,000,000.00) for the payment of a Real Estate loan, working capital, and the construction of a warehouse facility to be used in Borrower's business operations; 2. As an inducement to Lender to make said loan to Borrower, Guarantor has agreed to guarantee the payment of the loan by Borrower to Lender. For the consideration stated above, the parties to this Guaranty hereby agree as follows: 1. Guarantor hereby unconditionally guarantees the prompt and full payment and performance, and promises to pay all of Borrower's present and future, joint and/or several, direct and indirect, absolute and contingent, express and implied, indebtedness, liabilities, obligations and covenants (cumulatively referred to herein as "indebtedness,") to Lender when due (whether upon maturity or by demand, acceleration or otherwise) . Guarantor's liabilities and obligations under this Guaranty agreement shall be unlimited and shall include all present and future written agreements between Borrower and Lender (whether executed for the same or different purposes than the foregoing), evidencing the indebtedness, together with all interest and all of Lender's expenses and costs incurred in connection with the indebtedness including any amendments, extensions, renewals, replacements or substitutions thereto, including, but not limited to, the indebtedness described above. 2. Guarantor's obligations hereunder are absolute and continuing and shall not be affected or impaired if Lender repeatedly and unconditionally amends, renews, extends, compromises, exchanges. Fails to exercise or perfect rights in, impairs or releases any collateral of any of the indebtedness owed by Borrower or collateral. 3. Guarantor's obligations are direct and unconditional and may be enforced without requiring Lender to exercise, enforce or exhaust any right or remedy against Borrower or any security or collateral. 4. Guarantor hereby waives notice of present and future extensions of credit and other financial accommodations by Lender to Borrower; notice of the obtaining or release of any guaranty, assignment, or other security for any of the indebtedness, notice or demand, notice of non-payment, notice of intention to accelerate, presentment, and notice of dishonor pertaining to the indebtedness and this Guaranty and all other notices and demands pertaining to the indebtedness and this Guaranty, as permitted by law. 5. This Guaranty is a guaranty of payment and not of collection, and Guarantor hereby waives the right to require that any action be brought first against Borrower or any security or collateral, or require that resort be made to any security or collateral. 6. An Event of Default shall occur under this Guaranty in the event that Guarantor: (a) fails to pay any amount under this Guaranty or any obligation to Lender when due (whether such amount is due by acceleration or otherwise; (b) fails to perform any obligation or breaches any warranty or covenant to Lender contained in any loan document or this Guaranty or any other present or future promissory note or written agreement; (c) has a garnishment, judgment, tax levy, attachment or lien entered or served against Guarantor; (d) dies, becomes legally incompetent, becomes insolvent, makes an assignment for the benefit of creditors, or becomes the subject of any bankruptcy, insolvency or debtor rehabilitation proceeding; (e) fails to provide Lender evidence of satisfactory financial condition; or (f) causes Lender to deem itself insecure due to a significant decline in the value of any collateral securing the indebtedness due to Lender. 7. If there is an Event of Default under this Guaranty, Lender shall be entitled to exercise one or more of the following remedies without notice or demand (except as required by law): (a) Declare Guarantor's obligations under this Guaranty immediately due and payable in full, such acceleration shall be automatic and immediate if the Event of Default is a filing under the Bankruptcy Code; (b) Collect the outstanding obligations under this Guaranty with or without resorting to judicial process; and (c) Exercise all other rights available to Lender under any other agreement or applicable law. 8. Guarantor is the owner of certain U.S. Patents used by Borrower in its business under a license agreement between Guarantor and Borrower. In the event of an Event of Default by Borrower, the result of which Lender becomes the owner of Borrower's land, buildings and equipment pledged as collateral to Lender, Guarantor agrees to enter into a nontransferable, nonexclusive license with Lender on the same terms as the license of Guarantor's patent by Borrower, so that utilizing the property securing the debt owed by Borrower, Lender can continue to operate the business of Borrower after Lender become the owner of Borrower's land, buildings and equipment. 9. Guarantor acknowledges the absolute and continuing nature of this Guaranty and voluntarily accepts the full range of risks associated herewith including, but not limited to, the risk that Borrower may incur future additional indebtedness to Lender. 10. This Guaranty shall remain in full force and effect until Lender executes and delivers to Guarantor a written release thereof. Notwithstanding the foregoing, Guarantor shall be entitled to terminate any unlimited guaranty of Borrower's future indebtedness to Lender following any anniversary of this Guaranty by providing Lender with sixty (60) or more days' written notice of termination by hand-delivery or certified mail. 11. The modification or waiver of any of Guarantor's obligations or Lender's rights under this Guaranty must be contained in writing signed by Lender. Lender may delay in exercising or failing to exercise any of its rights without causing a waiver of those rights. A waiver on one or more occasion shall not constitute a waiver on any other occasion. 12. This Guaranty shall be binding upon and inure to the benefit of Guarantor and Lender and their respective successors, assigns, trustees, receivers, administrators, personal representatives, legatees, and devisees. 13. Any notice or other communication to be provided under this Guaranty shall be in writing and sent to the parties at the addresses described in this Guaranty or such other addresses as the parties may designate in writing from time to time. 14. If any provision of this Guaranty is invalid, illegal or unenforceable, the validity and enforceability or the remaining provisions shall not in any way be affected or impaired thereby. 15. THIS GUARANTY SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND ALL APPLICABLE FEDERAL LAWS. 16. If Lender hires an attorney to assist in collecting any amount due or enforcing any right or remedy under this Guaranty, Guarantor agrees to pay Lender's reasonable attorneys' fees, legal expenses, and other costs permitted by law. 17. Guarantor acknowledges receipt of reasonably equivalent value in consideration for the execution of this Guaranty and represents that, after giving effect to this Guaranty, the fair market value of Guarantor's assets exceeds Guarantor's total liabilities, including contingent, subordinate and unliquidated liabilities, that Guarantor has sufficient cash flow to meet debts as they mature, and that Guarantor does not have unreasonably small capital. 18. Guarantor and Lender agree that time is of the essence. Guarantor will provide Lender with current financial statements and other financial information upon request. 19. GUARANTOR ACKNOWLEDGES THAT GUARANTOR HAS READ, UNDERSTANDS, AND AGREES TO THE TERMS AND CONDITIONS OF THIS GUARANTY. GUARANTOR HAS EXECUTED THIS GUARANTY WITH THE INTENT TO BE LEGALLY BOUND. GUARANTOR ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS GUARANTY. EXECUTED in multiple original copies on the day and year first above written. LENDER: GUARANTOR: KATIE PETROLEUM, INC. By: \s\ John Jackson \s\ Thomas J. Shaw ---------------------------------- ----------------------------------- President Thomas J. Shaw DEED OF TRUST Date: November 12, 2001 Grantor: RETRACTABLE TECHNOLOGIES, INC. Grantor's Mailing Address (including county): 511 Lobo Lane, Little Elm, Denton County, Texas 75068-0009 Trustee: James T. Langham, Jr. Trustee's Mailing Address (including county): 17341 Campbell Road, Dallas, Dallas County, Texas 75252 Beneficiary: KATIE PETROLEUM, INC. Beneficiary's Mailing Address (including county): 10325 Gaywood, Dallas, Dallas County, Texas 75229 Note(s) Date: November 12, 2001 Amount: One Million Dollars ($1,000,000.00) Maker: Grantor Payee: Beneficiary Final Maturity Date: November 12, 2002 Terms of Payment (optional): Property (including any improvements): As described in Exhibit A attached hereto. Prior Lien(s) (including recording information): Deed of Trust dated Feb. 18, 2000 to W.R. Kerr, Trustee, recorded in Vol. 4533, Page 0377, of tbe records of Other Exceptions to Conveyance and Warranty: Denton County, Texas For value received and to secure payment of the note, Grantor conveys the property to Trustee in trust. Grantor warrants and agrees to defend the title to the property. If Grantor performs all the covenants and pays the note according to its terms, this deed of trust shall have no further effect, and Beneficiary shall release it at Grantor's expense. -1- Grantor's Obligations Grantor agrees to: 1. keep the property in good repair and condition; 2. pay all taxes and assessments on the property when due; 3. preserve the lien's priority as it is established in this deed of trust; 4. maintain, in a form acceptable to Beneficiary, an insurance policy that: a. covers all improvements for their full insurable value as determined when the policy is issued and renewed, unless Beneficiary approves a smaller amount in writing; b. contains an 80% coinsurance clause; c. provides fire and extended coverage, including windstorm coverage; d. protects Beneficiary with a standard mortgage clause; e. provides flood insurance at any time the property is in a flood hazard area; and f. contains such other coverage as Beneficiary may reasonably require; 5. comply at all times with the requirements of the 80% coinsurance clause; 6. deliver the insurance policy to Beneficiary and deliver renewals to Beneficiary at least ten days before expiration; 7. keep any buildings occupied as required by the insurance policy; and 8. if this is not a first lien, pay all prior lien notes that Grantor is personally liable to pay and abide by all prior lien instruments. Beneficiary's Rights 1. Beneficiary may appoint in writing a substitute or successor trustee, succeeding to all rights and responsibilities of Trustee. 2. if the proceeds of the note are used to pay any debt secured by prior liens, Beneficiary is subrogated to all of the rights and liens of the holders of any debt so paid. 3. Beneficiary may apply any proceeds received under the insurance policy either to reduce the note or to repair or replace damaged or destroyed improvements covered by the policy. 4. If Grantor fails to perform any of Grantor's obligations, Beneficiary may perform those obligations and be reimbursed by Grantor on demand at the place where the note is payable for any sums so paid, including attorney's fees, plus interest on those sums from the dates of payment at the rate stated in the note for matured, unpaid amounts. The sum to be reimbursed shall be secured by this deed of trust. 5. If Grantor defaults on the note or fails to perform any of Grantor's obligations or if default occurs on a prior lien note or other instrument, and the default continues after Beneficiary gives Grantor notice of the default and the time within which it must be cured, as may be required by law or by written agreement, then Beneficiary may: a. declare the unpaid principal balance and earned interest on the note immediately due; -2- b. request Trustee to foreclose this lien, in which case Beneficiary or Beneficiary's agent shall give notice of the foreclosure sale as provided by the Texas Property Code as then amended; and c. purchase the property at any foreclosure sale by offering the highest bid and then have the bid credited on the note. Trustee's Duties If requested by Beneficiary to foreclose this lien, Trustee shall: 1. either personally or by agent give notice of the foreclosure sale as required by the Texas Property Code as then amended; 2. sell and convey all or part of the property to the highest bidder for cash with a general warranty binding Grantor, subject to prior liens and to other exceptions to conveyance and warranty; and 3. from the proceeds of the sale, pay, in this order: a. expenses of foreclosure, including a commission to Trustee of 5% of the bid; b. to Beneficiary, the full amount of principal, interest, attorney's fees, and other charges due and unpaid; c. any amounts required by law to be paid before payment to Grantor; and d. to Grantor, any balance. General Provisions 1. If any of the property is sold under this deed of trust, Grantor shall immediately surrender possession to the purchaser. If Grantor fails to do so, Grantor shall become a tenant at sufferance of the purchaser, subject to an action for forcible detainer. 2. Recitals in any Trustee's deed conveying the property will be presumed to be true. 3. Proceeding under this deed of trust, filing suit for foreclosure, or pursuing any other remedy will not constitute an election of remedies. 4. This lien shall remain superior to liens later created even if the time of payment of all or part of the note is extended or part of the property is released. 5. If any portion of the note cannot be lawfully secured by this deed of trust, payments shall be applied first to discharge that portion. 6. Grantor assigns to Beneficiary all sums payable to or received by Grantor from condemnation of all or part of the property, from private sale in lieu of condemnation, and from damages caused by public works or construction on or near the property. After deducting any expenses incurred, including attorney's fees, Beneficiary may release any remaining sums to Grantor or apply such sums to reduce the note. Beneficiary shall not be liable for failure to collect or to exercise diligence in collecting any such sums. -3- 7. Grantor assigns to Beneficiary absolutely, not only as collateral, all present and future rent and other income and receipts from the property. Leases are not assigned. Grantor warrants the validity and enforceability of the assignment. Grantor may as Beneficiary's licensee collect rent and other income and receipts as long as Grantor is not in default under the note or this deed of trust. Grantor will apply all rent and other income and receipts to payment of the note and performance of this deed of trust, but if the rent and other income and receipts exceed the amount due under the note and deed of trust, Grantor may retain the excess. If Grantor defaults in payment of the note or performance of this deed of trust, Beneficiary may terminate Grantor's license to collect and then as Grantor's agent may rent the property if it is vacant and collect all rent and other income and receipts. Beneficiary neither has nor assumes any obligations as lessor or landlord with respect to any occupant of the property. Beneficiary may exercise Beneficiary's rights and remedies under this paragraph without taking possession of the property. Beneficiary shall apply all rent and other income and receipts collected under this paragraph first to expenses incurred in exercising Beneficiary's rights and remedies and then to Grantor's obligations under the note and this deed of trust in the order determined by Beneficiary. Beneficiary is not required to act under this paragraph, and acting under this paragraph does not waive any of Beneficiary's other rights or remedies. If Grantor becomes a voluntary or involuntary bankrupt, Beneficiary's filing a proof of claim in bankruptcy will be tantamount to the appointment of a receiver under Texas law. 8. Interest on the debt secured by this deed of trust shall not exceed the maximum amount of nonusurious interest that may be contracted for, taken, reserved, charged, or received under law; any interest in excess of that maximum amount shall be credited on the principal of the debt or, if that has been paid, refunded. On any acceleration or required or permitted prepayment, any such excess shall be canceled automatically as of the acceleration or prepayment or, if already paid, credited on the principal of the debt or, if the principal of the debt has been paid, refunded. This provision overrides other provisions in this and all other instruments concerning the debt. 9. When the context requires, singular nouns and pronouns include the plural. 10. The term note includes all sums secured by this deed of trust. 11. This deed of trust shall bind, inure to the benefit of, and be exercised by successors in interest of all parties. 12. If Grantor and Maker are not the same person, the term Grantor shall include Maker. 13. Grantor represents that this deed of trust and the note are given for the following purposes: Construction of warehouse facility and related infrastructure for use in Grantor's business. RETRACTABLE TECHNOLOGIES, INC. By: /s/ Thomas J. Shaw ------------------------------------ President -4- EXHIBIT A TRACT ONE: Lots 1 and 2, Block A, of Retractable Technologies, Inc. Addition, an Addition to the City of Little Elm, Denton County, Texas, according to the Plat thereof recorded in volume M, Page 295, of the Plat Records of Denton County, Texas, SAVE AND EXCEPT: Being a 5 foot strip of land out of the John King Survey, Abstract Number 718, in Denton County, Texas, and being a portion of a tract of land deeded to Retractable Technologies, Inc., as recorded in CC# 96-5984 of the Deed Records of Denton County, Texas, and being situated in the Town of Little Elm, Texas and being more particularly described as follows: BEGINNING at a 1/2 inch iron rod found at the northeast corner of said Retractable Technologies, Inc. tract, said point also being in the west right of way line of Lobo Lane (a 100 foot right of way); Thence South 00 degrees 07 minutes 39 seconds East, along and parallel with the east property line of said Retractable Technologies, Inc. tract and the west right of way line of Lobo Lane, a distance of 5.00 feet, to a point for corner; Thence South 89 degrees 42 minutes 56 seconds West, leaving the east property line of said Retractable Technologies, Inc., tract and the west right of way line of Lobo Lane, parallel with the north property line of said Retractable Technologies, Inc. tract, a distance of 500.00 feet to a point for corner; Thence North 00 degrees 07 minutes 39 seconds West, a distance of 5.00 feet, to a point for corner, said point is lying in the north property line of said Retractable Technologies, Inc. tract; Thence North 89 degrees 42 minutes 56 seconds East, along and parallel with the north property line of said Retractable Technologies, Inc. tract, a distance of 500.00 feet to the Place of Beginning and containing 2,500 square feet or .0574 acres of land, more or less. TRACT TWO: Being a tract of land in the John King Survey, Abstract No. 718, situated in the City of Little Elm, Denton County, Texas, and being a part of that certain tract of land conveyed to Leonard V. Gumm and wife, Ruth Katherine Gumm by the United States of America by Quit Claim deed recorded in volume 466, Page 202 of the Deed Records of Denton County, Texas, and being more particularly described as follows: BEGINNING at a concrete monument at the Northwest corner of said Gumm tract, said point being on the property line of Garza-Little Elm Reservoir; Thence South 89 degrees 57 minutes 36 seconds East along the North line of the Gumm tract, 1706.34 feet to its Northeast corner; Thence South 0 degrees 01 minutes 08 seconds West along the East line of the Gumm tract, 444.69 feet; Thence North 89 degrees 57 minutes 36 seconds West, 1347.05 feet to a point on the property line of Garza-Little Elm Reservoir; Thence along the property line of Garza-Little Elm Reservoir as follows: North 52 degrees 58 minutes 52 seconds West, 328.64 feet to a concrete monument; North 21 degrees 23 minutes 02 seconds West, 265.34 feet to the PLACE OF BEGINNING, and containing 16.11 acres of land, more or less. -----END PRIVACY-ENHANCED MESSAGE-----