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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO
SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
BIONUTRICS, INC.
(Exact Name of Registrant Specified in Charter)
Nevada 86-0760991
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2425 E. Camelback Road, Suite 650, Phoenix, Arizona 85016
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (602) 508-0112
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
(Title or Class)
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ITEM 1. BUSINESS.
GENERAL
Bionutrics, Inc. ("Bionutrics" or the "Company") was founded to address
the incidence of heart attack and stroke, which are among the largest
health-care market issues in the western world: the cause of one out of every
two adult deaths. The Company has developed a new all-natural product that has
been shown to be effective in promoting normal cardiovascular health. The new
product is called TRF(25) and will be marketed under the trade name
"Clearesterol(TM)". It is based on a patented novel compound
(P(25)-tocotrienol), a vitamin-E like complex derived from rice bran. This
proprietary vitamin-E replacement has been shown to promote elements associated
with normal cardiovascular circulation by lowering LDL cholesterol levels,
providing cardiovascular antioxidant protection and encouraging normal blood
flow.
The marketing and sales strategy for the Company is first to launch a
new dietary supplement product (trade name evolvE(TM)). evolvE(TM) can be
introduced into the U.S. market without the delays associated with the
regulatory approval required for food additives and drugs. Once the brand is
established, the Company will sell the active ingredient Clearesterol(TM) as a
branded ingredient in other companies' products. The Company will employ a
strategy similar to the successful NutraSweet(R) branding strategy for the
product Equal(R) in which NutraSweet(R) is the proprietary ingredient. The next
goal is to explore opportunities to add strategic distribution partners in
Europe, the Middle East and Asia. The international market not only represents
an opportunity to expand revenue, but also allows the Company to spread the
lower regulatory and market risks.
The Company is currently conducting testing and marketing activities
relating to the Company's two principal products, evolvE(TM) and
Clearesterol(TM). To date, the Company has made no sales of its products and has
had no revenue from sales. Accordingly, there is limited historical financial
information about the Company. The Company has generated an accumulated deficit
of approximately $5,139,991 through October 1996, and expects to incur a loss in
fiscal year 1997. The Company currently does not have firm purchase orders for
any of its products. The Company expects to transition from the development
stage to the operating stage in the second and third quarters of calendar 1997.
The research and development relating to the product and production
technology began in 1990 and resulted in the formation of LipoGenics, Inc., a
Delaware corporation ("LipoGenics") in July 1992. LipoGenics formed NutraGenics,
Inc., a Delaware corporation ("NutraGenics (Delaware)") in April 1994 to engage
in manufacturing and marketing of the technology developed by LipoGenics
pursuant to a licensing arrangement. NutraGenics (Delaware) merged in December
1994 into Nutrition Technology Corporation, a Nevada corporation and wholly
owned subsidiary of ERBA Corporation ("ERBA"), a publicly traded Nevada
corporation incorporated in 1983. Nutrition Technology Corporation survived the
merger and ERBA changed its name to NutraGenics, Inc. NutraGenics, Inc.
subsequently changed its name to Bionutrics, Inc. on December 26, 1996.
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Bionutrics completed a merger with LipoGenics on October 31, 1996 and
LipoGenics became a wholly owned subsidiary of the Company. Pursuant to the
merger, Bionutrics obtained ownership of the proprietary rights previously
licensed to it by LipoGenics.
As used herein, the terms "Bionutrics" and the "Company" refer to
Bionutrics, Inc., a Nevada corporation and its subsidiaries, Nutrition
Technology Corporation, LipoGenics, Inc., and Bionutrics Health Products, Inc.
The Company maintains its principal offices at 2425 East Camelback Road, Suite
650, Phoenix, Arizona and its telephone number is (602) 508-0112.
THE COMPANY'S PRODUCTS
Bionutrics' proprietary ingredient, Clearesterol(TM), has been shown in
animal tests and human trials to promote elements associated with cardiovascular
health by altering cholesterol metabolism. Clearesterol(TM) has been shown in
animal and human trials to reduce high LDL cholesterol levels, act as a strong
cholesterol antioxidant and promote normal circulation by inhibiting clot
formation.
By attacking these three events, TRF(25) and its components have
possible application in dietary supplement, drug and food additive products.
Because Bionutrics is able to market Clearesterol(TM) as a dietary supplement
and advertise, to a certain degree, its functional benefits without FDA
approval, the dietary supplement market is the Company's first market priority,
ahead of drug and food uses. See "Market and Competition" and "Government
Regulations."
Six years of research created the product and manufacturing technology
on which Bionutrics has based its new product. evolvE(TM) is an all natural
product extracted from rice bran through a proprietary processing method. Rice
bran is a low cost by-product of rice milling. Rice bran has been reported in
scientific literature to contain a variety of cholesterol lowering agents with
varying degrees of efficacy, including beta-sitosterol, ferulic acid, phytic
acid, gamma-oryzanol, soluble fiber and tocotrienols. evolvE(TM) is comprised of
a class of compounds that are called tocotrienols, which are in turn part of a
larger class of compounds called tocols. Vitamin E ([alpha]-tocopherol) is part
of this larger class. All tocols, to varying degrees, are antioxidants. Many,
but not all tocotrienols, lower cholesterol. evolvE(TM) compounds, in particular
TRF(25), have been shown to be the most active antioxidant and cholesterol
lowering agents of all natural tocols -- tocotrienols or tocopherols.
Vitamin E ([alpha]-tocopherol) was discovered in 1922 and identified as
essential for normal spermatogenesis. The name tocopherol is derived from the
Greek words tokos and pherein, meaning to bring forth childbirth. Since then
numerous physiologic associations have been identified with vitamin E
deficiency, such as muscular dystrophy, exudative diathesis, megaloblastosis,
pulmonary degeneration, nephrosis and liver necrosis. More generally, vitamin E
is the term used for eight naturally occurring essential fat-soluble nutrients.
The series are composed of four compounds with a tocopherol structure bearing a
phytyl C(16) saturated side chain ([alpha]-,[beta]-, [gamma]-, [delta]-
tocopherol) and four
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compounds with a tocotrienol structure having an unsaturated phytyl side chain
bearing three double bonds ([alpha]-,[beta]-, [gamma]-, [delta]-tocotrienol).
Until recently, very little information was available about the
biological activity of tocotrienols. Dr. Asaf Qureshi, while employed at the
Wisconsin Alumni Research Foundation ("WARF"), University of Wisconsin, Madison,
Wisconsin, led research that demonstrated the cholesterol lowering ability of
[alpha]-tocotrienol. A patent was received by WARF for the use of
[alpha]-tocotrienol in lowering cholesterol and the patent is now owned by the
Company. Subsequent work has shown the other known tocotrienols to be of varying
degrees of effectiveness in lowering cholesterol. P(25)-tocotrienol, a new,
particularly active, isomer or type of tocotrienol, is found in rice bran as
part of a tocotrienol rich fraction (TRF(25)) and a patent on this proprietary
ingredient has been granted to the Company by the U.S. Patent and Trademark
Office, Patent No. 5,591,772. TRF(25) is extracted from rice bran by a
proprietary process and is the primary ingredient in Clearesterol(TM).
Initial research with TRF(25) was conducted on the modification of
blood lipid chemistry, including lowering serum cholesterol, and resulted in
identification of the proprietary compounds that demonstrate significant blood
cholesterol lowering (hypocholesterolemic) efficacy. A variety of industry and
academic studies have shown a correlation of the lowering of blood serum
cholesterol levels with a reduction in coronary heart disease caused death. This
lowering of cholesterol levels, combined with high antioxidant vitamin E levels
in the blood, has been reported to reduce predictive mortality. In animal tests,
the Company has achieved P(25)-tocotrienol reduced LDL of approximately 60%. A
physician controlled and independently administered double-blind human trial
conducted by the Company with TRF(25) demonstrated the effectiveness of this
dietary supplement. Results from this study support the earlier animal findings
of significant LDL reduction, combined with an improvement of the LDL to HDL
ratio, by an average reduction in humans of 16% after only 4 weeks and 22% when
combined with a pre-treatment low fat diet.
Tocol-like antioxidants (including vitamin-E and Clearesterol(TM)) in
blood appear to reduce damage caused by oxidizing or "free radical" agents to
normal cholesterol and blood vessel wall cells. Clearesterol(TM) research
indicates that it is a more effective antioxidant than vitamin-E
([alpha]-tocopherol) or any other known tocols. The research also indicates that
unlike the antioxidants vitamin-E or beta-carotene, Clearesterol(TM) may reduce
blood cholesterol levels substantially and may reduce the ratio of low density
lipoprotein cholesterol ("LDL," commonly referred to as "bad" cholesterol) to
high density lipoprotein cholesterol ("HDL," commonly referred to as "good"
cholesterol). This combination of high antioxidant activity and lowering of
cholesterol levels while reducing the LDL to HDL ratio is a claim not made by
any currently approved hypocholesterolemic prescription drug. Clearesterol(TM)
appears also to interrupt elements of blood coagulation similar to a therapy
with low levels of aspirin but without the side effects of aspirin. For these
reasons, the Company believes Clearesterol(TM) represents an important
advancement in dietary supplement technology as a potent cholesterol lowering
antioxidant which significantly outperforms vitamin-E.
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PATENTS AND LICENSING
LipoGenics has one patent application pending for a method of
manufacturing Clearesterol(TM) dietary supplements ("Processing" claims) and
Clearesterol(TM) products derived via the proprietary methods ("Products by
Process" claims), and has a recently issued U.S. patent, Patent No. 5,591,772,
for chemical composition of key compounds in Clearesterol(TM) ("Composition of
Structure" claims) and the use of the proprietary Clearesterol(TM) product and
its compounds ("Utility" claims). In addition it has corresponding international
patent applications as follows:
<TABLE>
<CAPTION>
International
Applications # Inventors Title
<S> <C> <C>
1. WO 9117985 A. Qureshi, K. Processes for recovering tocotrienols,
Becker, tocopherols and tocotrienol-like compounds
M. Wells, R. Lane
2. WO 930977 R. Lane, A. Qureshi, Tocotrienols and tocotrienol-like compounds
W. Salser and methods for their use
</TABLE>
In addition, LipoGenics owns a patent originally owned by Wisconsin
Alumni Research Foundation entitled "Cholesterol Lowering Method of Use" Patent
No. 4,603,142.
In October 1994, Bionutrics entered into a Licensing Agreement (the
"License") with LipoGenics, which was modified in October 1995. The License
granted Bionutrics the exclusive license to manufacture and market dietary
supplements which are based upon the proprietary rights covered by the
LipoGenics patent applications. The License also granted Bionutrics a
non-exclusive license to use the technology in connection with manufacturing and
marketing of certain other health and/or diet products. The License provided
that Bionutrics would pay LipoGenics royalties, which royalty obligations have
been negated by the merger of LipoGenics into the Company and the acquisition of
ownership of the proprietary rights covered by the patent and patent
applications.
MARKET AND COMPETITION
The Company will compete within the health and natural food market in
the United States. This market increased from an estimated $7.6 billion of sales
in 1994 to an estimated $9.2 billion of sales in 1995. Within this market,
dietary supplement sales in 1995 amounted to approximately $3.1 billion, of
which approximately $2.0 billion were sales of vitamins. Of the $2.0 billion
vitamin market, antioxidants are clearly the growth leader, with Vitamin-E
showing extraordinary market gain, resulting in estimated retail sales in excess
of $500 million in 1995. Because the Company has not yet commenced its
manufacturing and sales activities, it currently does not have a share of any of
these markets.
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The Company believes that its products will compete with four other
types of compounds: (1) vitamin-E ([alpha]-tocopherol), (2) non-TRF(25)
tocotrienols, (3) other products claiming to demonstrate benefits similar to
evolvE(TM), and (4) potential over-the-counter switches of past-generation
cholesterol-lowering drugs.
Vitamin-E is established in the market and has accelerating sales.
Vitamin-E is manufactured from both natural and chemically synthesized sources.
The least expensive forms of vitamin-E tend to be synthetic. Clearly, vitamin-E,
especially synthetic vitamin-E, has a price advantage. However, Clearesterol(TM)
is believed to be a more effective antioxidant than vitamin-E and it is
anticipated that research supporting this fact will be published. In addition,
vitamin-E does not lower cholesterol, no matter how much is consumed and no
matter how inexpensive it is. Informing the consumer of the evolvE(TM)
difference and the importance of that difference will directly impact
Bionutrics' marketing success. Several multi-billion dollar manufacturers,
including Hoffmen LaRoche, ADM, Henkel, and BASF, market vitamin E.
Introduction of other non-TRF(25) tocotrienol or tocol-like products by
competitors is currently in process. The Company believes evolvE(TM) has
advantages over these other products, including a greater base of scientific
support and a product source that may be more attractive to consumers (rice bran
versus palm oil). Solgar and Tree of Life market a generic tocotrienol product
with no health claims. The Company does not expect substantial volumes of other
tocotrienol products to be available as a dietary supplement for at least one
year.
Other dietary supplement products, including Pycnogenol, deodorized
garlic and Co-Enzyme-Q-10, all have customer overlap with evolvE(TM). The
Company believes that these products do not have the same benefit profile of
evolvE(TM).
With respect to ethical drugs, there is the possibility that
past-generation cholesterol-lowering prescription drugs could switch to
over-the-counter in the next 18 to 36 months. The Company believes evolvE(TM)'s
broader, natural, more complete cardiovascular positioning should help to set it
apart from the more narrowly positioned past-generation cholesterol-lowering
drugs. The Company does not believe it competes directly with current
cholesterol-lowering prescription drugs such as Lovastatin (Mevacor) and Zocor
by Merck & Co. The Company believes that current prescription drugs constitute a
separate market and the Company will not compete directly in such market unless
the Company enters the drug market by licensing proprietary TRF(25) compounds to
drug manufacturers and marketers.
MARKETING STRATEGY
Bionutrics intends to promote sales through its marketing plan designed
to cultivate customer loyalty and brand identification. The Company is applying
for worldwide trademarks for evolvE(TM) and Clearesterol(TM). The trademarks
will be used to identify the Company's proprietary and novel
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TRF(25) tocol complex and build brand recognition. Marketing efforts will
initially focus on the United States.
The Company believes that the end users of its products will
principally be consumers concerned about nutrition and health. Individuals with
high cholesterol, or who otherwise have cardiovascular concerns, are prime
marketing targets because of their concern about their possible declining
health. It is estimated that over 50 million people in the United States suffer
from high cholesterol.
As the first step in its United States marketing efforts, the Company
intends to produce and market Clearesterol(TM) as its own branded dietary
supplement, evolvE(TM). evolvE(TM) will be brought to the marketplace in a
gelcap form (7.5 clear oval) with a dosage of 25 mg. There will be several
package sizes with different capsule counts from which to choose. The active
ingredient, Clearesterol(TM), will be highlighted in the marketing of
evolvE(TM).
As the evolvE(TM) and Clearesterol(TM) brands become recognized, the
Company intends to implement the second step of its United States marketing
plan. In this phase, the Company will sell Clearesterol(TM) as a branded
ingredient for use in other companies' products. The Company anticipates that
Clearesterol(TM) will be sold in a bulk form for use in such produces as
multi-vitamins, specially formulated dietary supplements and other dietary
supplement applications.
In addition, after it has commenced both phases of its United States
marketing efforts, the Company anticipates that it will explore marketing
opportunities in Europe, the Middle East and Asia. The international market
represents an opportunity to increase revenue and spread and decrease regulatory
and market risks.
In all three phases of its marketing plan, the Company will utilize its
internal resources for marketing activities in two ways. First, it will seek to
establish networks of independent distributors and retailers in various
submarkets, who will in turn promote sales of the Company's products. Second, it
will implement an educational and advertising campaign to create public
awareness of Clearesterol(TM), its health benefits and its brand name.
Bionutrics intends to develop its U.S. market by working through the
various submarkets characterizing the dietary supplement business. Such
submarkets include retailers (health food stores and mass merchandise
retailing), alternative medicine practitioners, multi-level marketing,
telemarketing and catalogs. Bionutrics intends to structure its market strategy
around a core business of the mass merchandise and health food retailers. The
mass merchandise and health food stores marketing program will be directed and
managed by Bionutrics' staff primarily through brokers. Clearesterol(TM) will be
marketed under Bionutrics' label as well as third party private labels with
Clearesterol(TM) identified by logo. Other markets will be approached through
potential relationships with partners, brokers, joint venturers or license
arrangements. It is currently planned that all
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products sold will be identified by the Clearesterol(TM) logo, even if it is
sold through independent organizations under their private label.
Retail. Bionutrics believes that its core business will be found in the
mass merchandise and large health food retailers and primary marketing efforts
will focus on penetrating this market. Market development will prioritize in the
sequence of (i) mass merchandise markets (136,000 stores), (ii) health food
chains (2,600 stores) and (iii) small health food stores (6,600 stores). The
Company believes it can obtain a faster introduction of its products and greater
market penetration by concentrating on the larger health food chains and mass
merchandise retailers.
Health Care Practitioners. The alternative medicine market reportedly
comprises in excess of 30,000 practitioners in the United States and includes
medical doctors, chiropractors, acupuncturists and many osteopathic doctors.
Direct sales by these practitioners of dietary supplements to their patients is
common and represents a significant portion of the dietary supplement market.
Bionutrics intends to market directly with in-house sales representatives to
these practitioners with a specially formulated Clearesterol(TM) product.
Multi-Level Marketing. United States sales of all products by
multi-level marketing organizations reportedly exceeds $12 billion annually and
is showing a 30% growth rate according to the Multilevel Marketing International
Association. There are an estimated 1,200 multi-level marketing companies with
an estimated 10 million "distributors". Dietary supplements, personal care and
household products represent the primary sales categories for this industry.
Bionutrics intends to attempt to contract with leading firms to market a
specially formulated series of Clearesterol(TM) derivative products under their
private labels displaying the Clearesterol(TM) logo.
Catalog/Mail Order. Catalog sales have had a long and important history
in merchandising. Because of convenience and price, catalogs and mail-order have
been important for health and personal care merchandising. AARP (American
Association of Retired People) leads the current catalog outlets selling dietary
supplements with 20 million members. Demographically, AARP is ideally situated
for dietary supplement sales. In addition to AARP, there are numerous mail-order
houses of virtually all sizes. The advantage of mail-order to Bionutrics is
simplicity, bulk sales and cost advantage. Bionutrics intends to entertain both
contracts with established and successful catalog houses for private label
products (with the Clearesterol(TM) logo) as well as the development of its own
label for such marketing.
Bionutrics' educational and advertising efforts will focus on educating
consumers about the Company's product benefits within the guidelines established
by the Dietary Supplement Health and Education Act of 1994 ("DSHEA"). See
"Government Regulation" below. The Company intends to disseminate three related
types of information: normal cardiovascular circulation; the relevance of diet
and exercise; and the significance of Clearesterol(TM) to normal cardiovascular
circulation, good health and quality of life. Three elements that help explain
the relationship between normal
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cardiovascular circulation and evolvE(TM) are already familiar to a certain
extent with the target population: (1) LDL/HDL-cholesterol, (2) antioxidants,
and (3) aspirin-anticoagulant circulation therapy. The Company will use these
elements, correctly stated within the guidelines of DSHEA, as a foundation to
communicate its "story" about the importance of evolvE(TM) as a dietary
supplement. The Company intends to utilize scientific and medical journals,
health and general publications and electronic media to help develop an evolving
story with new research findings constantly being reported to keep evolvE(TM)
highly visible to the consumer. The Company also plans to sponsor continuing
independent research to demonstrate the effects of the active ingredient,
TRF(25) on critical aspects of normal cardiovascular circulation in a logical
and systematic way.
OPERATIONS AND PRODUCTION
The Company's manufacturing operation involves conversion of raw rice
bran into Clearesterol(TM) encapsulated in a soft gel. The proprietary process
involves "stabilizing" and selective extraction and concentration of the rice
bran followed by encapsulation. The Company contracts processing services to
perform most of the requisite steps in manufacturing Clearesterol(TM). The
technically most sensitive steps will be undertaken directly by Bionutrics and
its business partners. The Company plans to continue to optimize the
manufacturing process with a proprietary system and believes this system could
reduce manufacturing costs significantly over the next few years. In addition,
the Company has entered into a joint venture with Incon Technologies, LLC, that
provides for the research and development of non-proprietary dietary
supplements, non-proprietary nutritional and health-promoting products, and for
the manufacture and sale of existing as well as newly developed supplements and
products.
The supplies used in Bionutrics' manufacturing process are widely
available. The raw material for Clearesterol(TM) is rice bran, a rice milling
byproduct in abundant supply. Bionutrics is currently negotiating a supply
agreement with millers of retail rice products in the U.S. The Company intends
to obtain the appropriate rice bran in a raw form. There is sufficient rice bran
produced in the U.S. to exceed Bionutrics' projected needs by several orders of
magnitude. The bran will have to be processed to a limited degree as it is
milled. Cost of the raw bran varies seasonally, but is anticipated to be less
than $150 per ton on average.
Bionutrics places the highest importance on the quality of its product.
One of the particularly difficult aspects for "natural" health oriented products
is that the composition of raw products is not consistent. Contents of key plant
molecules that are the focus of production vary from plant to plant, batch to
batch and harvest to harvest. The Company will very tightly monitor processing,
control quality and Clearesterol(TM) concentration. The Company will maintain a
fully equipped analytical laboratory to provide quality assurance and control
output from one batch to the next. Bionutrics' production strategy and methods
are also designed specifically to insure consistency and the necessary quality
control.
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EMPLOYEES
The Company currently employs 19 people, including five people with
consulting agreements. Of the current employees and consultants, five are
involved in marketing and sales, seven in operations and seven in corporate and
general administration.
RISK FACTORS
Limited Operating History; Accumulated Deficit; Possible Need for
Additional Capital. The Company began its current business activity in 1994. The
Company has made no sales of its products and the Company has had no revenue
from sale of its products. Accordingly, there is limited historical financial
information about the Company upon which to base an evaluation of the Company's
performance or to make a decision regarding an investment in shares of the
Company's Common Stock. The Company has generated an accumulated deficit of
approximately $5,139,991 through its fiscal year ended October 1996, and expects
to incur a loss in fiscal year 1997. The Company's operations to date have
related primarily to research and development activities. The Company is
currently conducting testing and marketing activities relating to the Company's
two principal products, evolvE(TM), a vitamin E replacement dietary supplement,
and the active ingredient, Clearesterol(TM). The Company currently does not have
firm purchase orders for any of its products, and there can be no assurance that
its products will ever be sold or that those products that are sold will achieve
significant levels of market acceptance. As a result, the Company's business
will be subject to all of the problems, expenses, delays and risks inherent in
the establishment of a new business enterprise including limited capital, delays
in product development, possible cost overruns due to price and cost increases
in raw product and manufacturing processes, uncertain market acceptance and the
absence of an operating history. Therefore, there can be no assurance that the
Company's business or products will be successful or that the Company will be
able to achieve or maintain profitable operations. No assurance can be given
that the Company will not encounter unforeseen difficulties that may deplete its
capital resources more rapidly than anticipated.
To become and remain competitive, the Company may be required to make
significant investments in research and development on an ongoing basis. The
Company from time to time may seek additional equity or debt financing to
provide for the capital required to maintain or expand the Company's marketing
and production capabilities. The timing and amount of any such capital
requirements cannot be predicted at this time. There can be no assurance that
any such financing will be available on acceptable terms. If such financing is
not available on satisfactory terms, the Company may be unable to develop and
expand its business, develop new products, or develop new markets at the rate
desired and its operating results may be adversely affected. Debt financing
increases expenses must be repaid regardless of operating results. Equity
financing could result in additional dilution to existing shareholders.
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Market Risks of a New Business. The Company has formulated its business
plans and strategies based on certain assumptions regarding the size of the
dietary supplement market, the Company's anticipated share of this market, and
the estimated price and acceptance of the Company's products. These assumptions
are based on the best estimates of the Company's management. There can be no
assurance that the Company's assessments regarding market size, potential market
share attained by the Company, the price at which the Company will be able to
sell its products, market acceptance of the Company's products or a variety of
other factors will prove to be correct. Any future success that the Company
might enjoy will depend upon many factors including factors which may be beyond
the control of the Company or which cannot be predicted at this time. These
factors may include changes in the dietary supplement industry, governmental
regulation, increased levels of competition including the entry of additional
competitors and increased success by existing competitors, changes in general
economic conditions, increases in operating costs including costs of production,
supplies, personnel, equipment, and reduced margins caused by competitive
pressures and other factors.
Competition. Competition in the nutritional supplement industry is
vigorous with a large number of businesses engaged in the industry. The Company
anticipates marketing to mass merchandise and high volume health-food retailers
and will face competition from vitamin and other health related products that
will be competing for the same shelf space. Many of the competitors have
established reputations for successfully developing and marketing dietary
supplement products. Many of such companies have greater financial, managerial,
and technical resources than the Company, which may put it at a competitive
disadvantage. For example, such channels of distribution also often require the
expenditure of significant up front capital to capture shelf space, which may
put the Company at a competitive disadvantage to better capitalized firms. If
the Company is not successful in competing in this market, it may not be able to
recognize its business objectives.
Governmental Regulation. The processing, formulation, packaging,
labeling and advertising of the Company's products are subject to regulation by
one or more federal agencies. Although Congress has recently recognized the
potential impact of dietary supplements in promoting the health of U.S. citizens
by enacting the Dietary Supplemental Health Education Act of 1994 ("DSHEA"),
which severely limits the Food and Drug Administration's jurisdiction in
regulating dietary supplements, there is no way to predict the potential effect
of DSHEA. Further, because of the technical requirements imposed by DSHEA, it
may be difficult for any company manufacturing or marketing dietary supplements
to remain in strict compliance. The Food and Drug Administration ("FDA") has
recently proposed regulations with the purpose of implementing DSHEA and
proposals have been made to modify or change the provisions of DSHEA. It is
impossible to predict whether those regulations or proposed changes will become
law or the effect that such regulations or proposed changes, if implemented,
will have on the business and operations of the Company.
Reliance on Limited Number of Products. The Company's only products are
based on one vitamin E-like complex, TRF(25) derived from rice bran. The Company
will market a dietary
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supplement and the active ingredient for inclusion in other company's products.
The dependence on one product increases the risk since a decline in the market
demand for the Company's products as well as the products of other companies
utilizing the Company's product could have a significant adverse impact on the
Company.
Dependence on Marketing Efforts. The Company is dependent on its
ability to market its product to large mass merchandise and health food
retailers and to other companies for use in their products. The Company does not
anticipate that it will have long-term contractual relationships with any of its
customers. The Company must increase the level of awareness of dietary
supplements in general and the Company's products in particular. The Company
will be required to devote substantial management and financial resources to
this marketing and advertising effort and there can be no assurance that these
efforts will be successful.
Science and Technology. The Company has invested six years in research
and development to demonstrate the potential value of its technology. The
Company has chosen to apply for patent protection of strategic elements of this
technology. There is no assurance that the science upon which the technology is
based will not be refuted or otherwise drawn into question by further research
conducted by the Company or independent laboratories.
Dependence on Management. The Company is dependent on its management,
particularly Dr. Ronald Lane, a founder and the chief executive officer, for all
its business activities, including the advancement of the Company's identity and
recognition in the dietary supplement industry. The Company is dependent on its
ability to attract, retain and motivate additional qualified personnel. There
are no long-term employment or other agreements with any executive officer or
key employee. The loss of the services of Dr. Lane or other key employees could
have a material adverse effect on the business of the Company.
Dependence on Manufacturers. The Company intends to enter into
manufacturing agreements with third-party manufacturers that are not anticipated
to be long-term. The Company may be adversely impacted by any difficulties
encountered by third-party manufacturers that result in product defects,
production delays or the inability to fulfill orders on a timely basis. In the
event that a manufacturer can not meet the Company's manufacturing and delivery
requirements at some time in the future, the Company may suffer interruptions of
delivery while it arranges for alternative manufacturing sources. This can be
delayed in the event that the Company must complete a review of a manufacturer's
quality control and manufacturing capabilities.
Patents, Licenses and Intellectual Property Claims. The Company's
success depends in part on its ability to obtain patents, licenses and other
intellectual property rights covering its products. The Company's intellectual
property rights and patents are held by its subsidiary, LipoGenics. LipoGenics
has one U.S. patent application pending and two international applications
pending. The process of seeking patent protection can be long and expensive, and
there can be no assurance that
11
<PAGE> 13
all patents will issue from currently pending or future applications or that any
of the patents when issued will be of sufficient scope or strength to provide
meaningful protection or any commercial advantage to the Company. The Company
may be subject to or may initiate interference proceedings in the U.S. Patent
and Trademark Office. Such proceedings could demand significant financial and
management resources. The Company may in the future receive communications
alleging possible infringement of patents or other intellectual property rights
of others. The Company believes that in most cases it could obtain any necessary
licenses or other rights on commercially reasonable terms, but no assurance can
be given that licenses would be available on acceptable terms, that litigation
would not ensue or that damages for any past infringements would not be
assessed. Litigation, which could result in substantial cost to and diversion of
effort by the Company, may be necessary to enforce patents or other intellectual
property rights of the Company or to defend the Company against claimed
infringement of the rights of others. The failure to obtain necessary licenses
or other rights or litigation arising out of infringement claims could have a
material adverse effect on the Company.
Thin Market; Possible Volatility of Stock Price. There has been a
limited public market for the Common Stock of the Company. There can be no
assurance that an active public market will be developed or sustained. The
Company is a development stage company whose success is dependent on certain
intangible intellectual property and the Company may therefore not meet
established criteria for valuation of its Common Stock such as book value,
assets or net worth. The stock markets have experienced extreme price and volume
fluctuations during certain periods. These broad market fluctuations and other
factors may adversely affect the market price of the Common Stock.
Shares Eligible for Sale. Of the 15,067,979 shares outstanding as of
October 31, 1996, 9,331,807 are eligible for resale in the public markets. Of
these eligible shares, 7,384,066 shares are eligible for resale in the public
markets subject to compliance with Rule 144 under the Securities Act of 1933, as
amended (the "1933 Act"), and 1,947,741 are eligible for resale in the public
markets either as unrestricted shares or pursuant to Rule 144(k). In general,
under Rule 144 as currently in effect, any person (or persons whose shares are
aggregated for purposes of Rule 144) who beneficially owns restricted securities
with respect to which at least two years have elapsed since the later of the
date the shares were acquired from the Company or from an affiliate of the
Company, is entitled to sell within any three-month period a number of shares
that does not exceed the greater of 1% of the then outstanding shares of Common
Stock of the Company, or, if the Common Stock is quoted on Nasdaq or a stock
exchange, the average weekly trading volume in Common Stock during the four
calendar weeks preceding such sale. Sales under Rule 144 also are subject to
certain manner-of-sale provisions and notice requirements and to the
availability of current public information about the Company. A person who is
not an affiliate, who has not been an affiliate within three months prior to
sale, and who beneficially owns restricted securities with respect to which at
least three years have elapsed since the later of the date the shares were
acquired from the Company or from an affiliate of the Company, is entitled to
sell such shares under Rule 144(k) without regard to any of the volume
limitations or other requirements described above.
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<PAGE> 14
GOVERNMENT REGULATION
The manufacturing, packaging, labeling, advertising, distribution and
sale of the Company's products are subject to regulation by one or more federal
agencies.
The FDA, the most active regulatory authority exercising jurisdiction
over vitamins, minerals and other dietary supplements, regulates the Company's
products under the FDCA and regulations promulgated by the FDA to implement this
statute. In 1976, the FDA's ability to regulate the composition of dietary
supplements was restricted in several material respects by the Proxmire
Amendment to the FDCA. Under this Amendment, the FDA is precluded from
establishing maximum limits on the potency of vitamins, minerals and other
dietary supplements, from limiting the combination or number of any vitamins,
minerals or other food ingredients in dietary supplements, and from classifying
a vitamin, mineral, or combination of vitamins and minerals as a drug solely
because of its potency. However, the Proxmire Amendment did not affect the FDA's
authority to determine that a vitamin, mineral or other dietary supplement is a
new drug on the basis of drug claims made in the product's labeling. Such a
determination would require deletion of the drug claims, or the Company's
submission and the FDA's approval of a new drug application, which entails
costly and time-consuming clinical studies.
In 1990, the FDA's authority over dietary supplement labeling was
expanded in several respects by the Nutrition Labeling and Education Act
("NLEA"). This statute amended the FDCA by establishing a requirement for the
nutrition labeling of most foods, including dietary supplements. In addition,
the NLEA prohibits the use of any health benefit claim ("health claim") in
dietary supplement labeling unless the claim is supported by significant
scientific agreement and is pre-approved by the FDA. Interested companies may
petition the FDA for the approval of health claims. To date, the FDA has
approved health claims for dietary supplements only in connection with the use
of calcium for prevention of osteoporosis and the use of folic acid for
prevention of neural tube defects. The NLEA also allows nutrient content claims
characterizing the level of a particular nutrient in a dietary supplement (e.g.,
"high in," "low in," "source of") if they are in compliance with definitions
issued by the FDA. Significantly, the NLEA precludes any state from mandating
nutritional labeling, nutrient content claim or health claim requirements which
differ from those established under the NLEA, as a result of which the Company's
products will not be subject to inconsistent labeling requirements.
In October 1994, the FDCA was amended by enactment of the DSHEA, which
introduced a new statutory framework governing the composition and labeling of
dietary supplements which, in the Company's judgment, is in some parts favorable
to the dietary supplement industry while imposing additional burdens in other
parts. With respect to composition, the DSHEA creates a new class of "dietary
supplements," dietary ingredients consisting of vitamins, minerals, herbs, amino
acids and other dietary substances for human use to supplement the diet, as well
as concentrates, metabolites, extracts or combinations of such dietary
ingredients. Generally, under the DSHEA, dietary
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<PAGE> 15
ingredients on the market before October 15, 1994 may be sold without obtaining
the FDA pre-approval and without notifying the FDA. On the other hand, a new
dietary ingredient (one not on the market before October 15, 1994) requires
proof that it has been used as an article of food without being chemically
altered, or evidence of a history of use or other evidence establishing that it
is reasonably expected to be safe. The FDA must be supplied with such evidence
at least 75 days before the initial use of a new dietary ingredient. There can
be no assurance, however, that the FDA will accept the evidence of safety for
any new dietary ingredients the Company may decide to use, and the FDA's refusal
to accept such evidence could result in judicial proceedings by the FDA to
prevent the sale of products containing the new dietary ingredient as being
adulterated.
As for labeling, the DSHEA permits "statements of nutritional support"
for dietary supplements without FDA pre-approval. Such statements may describe
how particular dietary ingredients affect the structure, function or general
well-being of the body, or the mechanism of action by which a dietary ingredient
may affect body structure, function or well-being (but may not state that a
dietary supplement will diagnose, mitigate, treat, cure or prevent a disease),
nor can a claim be made which would be interpreted as a health claim under NLEA.
A company making a statement of nutritional support must possess substantiating
evidence for the statement, disclose on the label that the FDA has not reviewed
the statement and that the product is not intended for use for a disease, and
notify the FDA of the statement within 30 days after its initial use. However,
there can be no assurance that the FDA will not determine that a given statement
of nutritional support the Company decides to make is a drug claim rather than
an acceptable nutritional support statement. Such a determination would require
deletion of the drug claim or the submission by the Company and the approval by
the FDA of a new drug application, which would entail costly and time-consuming
clinical studies. In addition, if the FDA takes the position that a claim is a
"health claim," rather than a statement of material support, the Company would
need prior agency approval. There can be no assurance that the FDA will accept
as adequate such substantiation as is provided for nutritional support claims.
The DSHEA allows the dissemination of "third party literature", publications
such as reprints of scientific articles that link particular dietary ingredients
with health benefits. Third party literature may be used in connection with the
sale of dietary supplements to consumers. Such a publication may be so
distributed if it is not false or misleading, if no particular manufacturer or
brand of dietary supplement is mentioned, if the publication is presented in
such manner so as to offer a balanced view of available scientific information
on the subject matter, if it is physically separated from products when used in
a retail establishment and if it does not have any other information appended to
it. There can no assurance, however, that all pieces of third party literature
that may be disseminated in connection with the Company's products will be
determined by the FDA to satisfy each of these requirements, and any such
failure to comply could subject the product involved to regulation as a new
drug.
In December 1995, the FDA proposed regulations to implement certain
DSHEA labeling provisions, which were expected to be finalized in late 1996 and
to become effective by January 1, 1997 (although the FDA has indicated that it
may delay the effective date until January 1, 1998). The
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<PAGE> 16
DSHEA also requires that dietary supplements be prepared, packed and held under
conditions which meet the good manufacturing practice ("GMP") regulations to be
promulgated by the FDA with respect to dietary supplements. The FDA has not yet
proposed GMP regulations for dietary supplements. Therefore, there can be no
assurance that the Company's proposed production facilities will meet all of the
GMP regulations when issued by the FDA with respect to dietary supplements, and
the Company may be required to expend resources to take appropriate action to
comply with such regulations.
The FTC, which exercises jurisdiction over the advertising of dietary
supplements, has in the past several years instituted enforcement actions
against several dietary supplement companies for false and misleading
advertising of certain products. These enforcement actions have resulted in
consent decrees, agency cease and desist orders, judicial injunctions and the
payment of fines by the companies involved. In addition, the FTC has increased
its scrutiny of infomercials. There can be no assurance that the FTC will not
question the Company's advertising in the future. The FTC has been very active
in enforcing its requirements that companies possess adequate substantiation in
their files for claims in product advertising.
The Company intends to manufacture certain products pursuant to
contracts with customers who will distribute the products under their own or
other trademarks. Such customers are subject to the governmental regulations
discussed in this section in connection with their purchase, marketing,
distribution and sale of such products, and the Company will be subject to such
regulations in connection with the manufacture of such products and its delivery
of services to such customers. However, the Company's contract manufacturing
customers are independent companies, and their labeling, marketing and
distribution of such products is beyond the Company's control. The failure of
these customers to comply with applicable laws or regulations could have a
material adverse effect on the Company. Governmental regulations in foreign
countries where the Company plans to sell products may prevent or delay entry
into the market or prevent or delay the introduction, or require the
reformulation, of certain of the Company's products. Compliance with such
foreign governmental regulations generally will be the responsibility of the
Company's customers in those countries. Those customers are independent
companies over which the Company will have no control.
The FDA has broad authority to enforce the provisions of the FDCA
applicable to dietary supplements, including the power to seize adulterated or
misbranded products or unapproved new drugs, to request their recall from the
market, to enjoin their further manufacture or sale, to publicize information
about a hazardous product, to issue warning letters, and to institute criminal
proceedings. The Company may be subject to additional laws or regulations
administered by the FDA or other regulatory authorities, the repeal of laws or
regulations which the Company might consider favorable, or more stringent
interpretations of current laws or regulations, from time to time in the future.
The Company is unable to predict the nature of such future laws, regulations,
interpretations or applications, nor can it predict what effect additional
governmental regulations or administrative orders, when and if promulgated,
would have on its business in the future. They could, however,
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<PAGE> 17
require the reformulation of certain products to meet new standards, the recall
or discontinuance of certain products not able to be reformulated, imposition of
additional recordkeeping requirements, expanded documentation of the properties
of certain products, expanded or different labeling, and/or scientific
substantiation. Any or all of such requirements could have a material adverse
effect on the Company's results of operations and financial condition.
ITEM 2. FINANCIAL INFORMATION.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with the Company's consolidated financial statements and the related notes and
with the Company's management's discussion and analysis of financial condition
and results of operations, provided elsewhere herein. See Item 15. "Financial
Statements and Exhibits" for the historical financial statements of, and other
financial information regarding, the Company.
STATEMENT OF EARNINGS DATA
<TABLE>
<CAPTION>
JULY 13, 1992
TEN MONTH (DATE OF INCEPTION)
YEAR ENDED PERIOD ENDED TO OCTOBER 31,
OCTOBER 31, 1996 OCTOBER 31, 1995 1996
---------------- ---------------- -------------------
<S> <C> <C> <C>
Revenue $ 20,000 $ 50,000 $ 72,448
Operating Expense 2,996,880 341,900 4,965,674
Other Income (Expense) (30,667) (39,585) (246,765)
Net Loss (3,007,547) (331,485) (5,139,991)
Loss per share(1) (.26) (.03)
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
OCTOBER 31, 1996 OCTOBER 31, 1995
---------------- ----------------
<S> <C> <C>
Working capital $4,739,882 $ 184,546
Total assets 6,217,348 1,099,521
Total liabilities 936,478 544,654
Stockholders equity 5,280,870 554,867
</TABLE>
(1) Loss per share based upon total weighted average shares outstanding for
the period of 11,564,327 as of October 31, 1996 and 9,853,970 as of
October 31, 1995. These shares do not include an aggregate of 2,128,144
of additional shares of Common Stock as of October 31, 1996 and 800,288
of additional shares as of October 31, 1995, respectively, that may be
issued upon exercise of outstanding stock options, warrants and
conversion of debt.
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<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The following discussion presents information about the financial
condition, liquidity and capital resources, and results of operations of the
Company as of and for the year ended October 31, 1996. This information should
be read in conjunction with the audited consolidated financial statements of the
Company and the notes thereto.
The Company reported a net loss of $3,007,547 for the 12 months ended
October 31, 1996. The net loss resulted from expenses of $2,996,880 including
$626,735 for research and development and $452,688 in product testing. Revenue
for the twelve months ended October 31, 1996 was $20,000.
As discussed in Note 1, the Company is a development stage company. Its
planned operations are the development, manufacturing, marketing and selling of
dietary supplements using proprietary technology. As of October 31, 1996 its
wholly owned subsidiaries were Nutrition Technologies Corporation and
LipoGenics, Inc. LipoGenics was acquired, effective October 31, 1996, through
the exchange of the Company's Common Stock for all the outstanding stock of
LipoGenics. Subsequent to October 31, 1996, the Company changed its name to
Bionutrics, Inc. and created a new subsidiary, Bionutrics Health Products, Inc.,
to market the Company's products.
FINANCIAL CONDITION
The Company's working capital was $4,739,882 as of October 31, 1996.
It's current ratio was 6.06 as of October 31, 1996.
As discussed in Note 1, the Company is in the development stage and
there was no inventory as of October 31, 1996. Management plans to transition
the Company from the development stage to the operating stage in the second and
third quarters of calendar 1997. The Company does not anticipate a significant
change in the number of employees.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements have primarily related to the need to
pay fees to professionals in the course of research and development of the
proprietary product, to develop manufacturing capability, and to build the
marketing organization for the purpose of selling the proprietary product.
The Company has funded its development stage costs primarily through
the proceeds of private placements of Common Stock, and has the liquidity to
meet its business needs for the next
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<PAGE> 19
year. The primary business need is the investment in manufacturing equipment
and personnel. On October 31, 1996, the Company completed a Regulation S
offering in the amount of $5,000,000 to one overseas investor.
The Company had no long-term debt as of October 31, 1996.
As discussed in Note 1, the Company's continuation as a going concern
is dependent upon its ability to evolve from a development stage to an operating
stage company. To achieve the operating stage, management has developed a plan
which, if successful, will allow for the Company to generate sufficient cash
flow to meet its obligations on a timely basis, secure agreements regarding the
manufacturing and distribution of the dietary supplement product, obtain
additional equity financing as may be required, and ultimately, attain
profitable operations.
RESULTS OF OPERATIONS
The Company reported a net loss of $3,007,547 on revenue of $20,000 for
the 12 months ended October 31, 1996. The Company reported a net loss of
$331,485 on revenue of $50,000 for the 10 months ended October 31, 1995. The
Company reported a cumulative net loss of $5,139,991 on cumulative revenue of
$72,448 from July 13, 1992 (the date of the combined Company's inception) to
October 31, 1996.
Consulting, research and development, and other operating expenses were
$2,996,880 for the 12 months ended October 31, 1996. Consulting research and
development, and other operating expenses were $341,900 for the 10 months ended
October 31, 1995. Cumulative consulting, research and development, and other
operating expenses were $4,965,674 from July 13, 1992 (the date of the combined
Company's inception) to October 31, 1996.
Interest expense was $45,019 and interest income was $14,352 for the 12
months ended October 31, 1996. Interest expense was $52,391 and interest income
was $12,806 for the 10 months ended October 31, 1995. Interest expense was
$283,913 and interest income was $37,148 from July 13, 1992 (the date of the
combined Company's inception) to October 31, 1996.
ITEM 3. PROPERTIES.
FACILITIES AND EQUIPMENT
The Company leases its principal executive offices in Phoenix, Arizona.
The total rental expense for fiscal year 1996 was $96,000. The Company also
leases a small production and storage facility in Louisiana.
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<PAGE> 20
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of January 15, 1997 by (i)
each executive officer of the Company, (ii) each director of the Company, (iii)
certain key employees, (iv) all directors, executive officers and key employees
of the Company as a group, and (v) each person known by the Company to be the
beneficial owner of more than five percent of the Common Stock.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER AMOUNT BENEFICIALLY PERCENT
- ------------------------ OWNED(1)(2) -------
-----------
<S> <C> <C>
Ronald H. Lane, Ph.D.(3)(4) 3,200,469 20.98%
George E. Duck, Jr.(3) --- *
Steven H. Friedman(3) --- *
D. Michael Wells(3) 398,216 2.61%
Richard M. Feldheim(3)(5) 934,182 6.12%
Ian R. Ferrier, M.D., Ph.D.(3) 110,949 *
Steve Henig, Ph.D.(3)(6) 670,666 4.40%
C. Everett Koop, M.D., Sc.D.(3)(7) 200,000 1.31%
William M. McCormick(3)(8) 391,667 2.57%
Milton Okin(3)(9) 550,000 3.60%
Frederick Rentschler(3) 162,092 1.06%
Winston A. Salser, Ph.D.(3)(10) 861,299 5.65%
Total Directors, Officers 7,479,540 49.02%
and Key Employees
(12 persons)(11)
Other 5% Shareholders:
LipoGenics, Inc.(12) 1,202,886 7.88%
Spanswick(13) 1,000,000 6.55%
</TABLE>
* Less than 1% of the outstanding shares of Common Stock.
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<PAGE> 21
(1) Except as indicated, and subject to community property laws when
applicable, the persons named in the table above have sole voting and
investing power with respect to all shares of Common Stock shown as
beneficially owned by them.
(2) Includes shares of Common Stock issuable to the identified person
pursuant to stock option or warrants that may be exercised within 60
days after January 15, 1997. In calculating the percentage of
ownership, such shares are deemed to be outstanding for the purpose of
computing the percentage of shares of Common Stock owned by such
person, but are not deemed to be outstanding for the purpose of
computing the percentage of shares of Common Stock owned by any other
stockholders.
(3) Each of such persons may be reached through the Company at 2425 E.
Camelback Road, Suite 650, Phoenix, Arizona 85016.
(4) Represents shares held of record by R.H. Lane Limited Partnership of
which Mr. Lane is the general partner.
(5) Includes 133,280 shares held of record by Millrich Corporation, a
company controlled by Mr. Feldheim, 19,826 shares held of record by
Abby's, Inc., a corporation controlled by Mr. Feldheim, and 781,076
shares held of record by the R. M. Feldheim Limited Partnership of
which Mr. Feldheim is the general partner. He shares voting power over
the shares held by Millrich Corporation and Abby's, Inc.
(6) Represents 560,522 shares and 110,144 shares issuable upon exercise of
an option held by Hunt-Wesson, Inc., of which Mr. Henig disclaims
beneficial ownership.
(7) Includes 180,000 shares issuable upon exercise of options granted by
the Company.
(8) Includes 300,000 shares issuable upon exercise of warrants. Does not
include 30,000 shares held by Mr. McCormick's wife or 20,000 shares
held by Mr. McCormick's minor children, of which shares he disclaims
beneficial ownership.
(9) Does not include 100,000 shares held by family members of Mr. Okin, of
which shares he disclaims beneficial ownership.
(10) Includes 100,000 shares held by the Salser Family Partnership No. 1.
Mr. Salser shares voting power with respect to these shares with other
family members.
(11) Includes 590,144 shares issuable upon the exercise of options and
warrants within 60 days of December 20, 1996.
(12) The address of LipoGenics is 2425 E. Camelback Road, Suite 650,
Phoenix, Arizona 85016. LipoGenics is a wholly owned subsidiary of the
Company.
(13) The address of Spanswick is P.O. Box 71, Craigmuir Chambers, Roadtown,
Tortola, BVI.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The officers, directors and significant employees of Bionutrics are as
follows:
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<PAGE> 22
TERM AS
DIRECTOR
NAME AGE POSITION EXPIRES
Ronald H. Lane, Ph.D. 52 Chairman of the Board, Chief 1997
Executive Officer and
President
George E. Duck, Jr. 39 Vice President, Chief
Financial Officer, Secretary
and Treasurer
Steven H. Friedman 51 Executive Vice President,
Marketing and Sales of
Bionutrics Health Products,
Inc.
D. Michael Wells 47 President of Nutrition 1997
Technology Corporation and
Director
William M. McCormick 56 Vice Chairman of the Board 1997
Richard M. Feldheim 56 Director 1998
Ian R. Ferrier, M.D., Ph.D. 53 Director 1997
Steve Henig, Ph.D. 54 Director 1998
C. Everett Koop, M.D., Sc.D. 80 Director 1999
Milton Okin 81 Director 1999
Frederick B. Rentschler 57 Director 1999
Winston A. Salser, Ph.D. 57 Director 1998
RONALD HOWARD LANE, PH.D. has served as Chairman of the Board, Chief Executive
Officer and President of the Company since December 1994 and its predecessor,
NutraGenics (Delaware) since April 1994 and has served as director, President
and Chief Executive Officer of LipoGenics since July 1992. Dr. Lane received a
Ph.D. and post-doctorate NIH fellowship from the University of Wisconsin
(Madison) in Neurophysiology and is responsible for directing Bionutrics'
corporate development and growth. Dr. Lane spearheaded the development of the
technology at LipoGenics and has been employed previously with Norcap Financial
Corporation, The National Western Group, Inc. (an investment company), and
Taylor Pierson Corporation.
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<PAGE> 23
STEPHEN FRIEDMAN has served as Executive Vice President Marketing and Sales of
Bionutrics since November 1996. Mr. Friedman is a graduate of Syracuse
University and holds an MBA from Suffolk University in Boston. He served as Vice
President Marketing and Sales and Group Vice President Personal and Diagnostic
Products at Carter Wallace from 1977 to 1996 with responsibility for leading
healthcare and health and beauty aids products. Prior to Carter Wallace he has
held officer positions in consumer marketing and sales at Lever Brothers.
GEORGE E. DUCK, JR. has served as Executive Vice President and Chief Financial
Officer of the Company since October 1996 and has served as director, Vice
President, Secretary and Treasurer of LipoGenics since November 1996. Mr. Duck,
who is a CPA, was Vice President and Chief Financial Officer of the Custom Foot
Corporation from March 1996 to October 1996. He was Vice President and Chief
Financial Officer of the Coca Cola Bottling Company of New York, Inc. from March
1992 to March 1996 and its Treasurer from 1986 to 1992. Previously he had been
Controller for Joyce Beverages, a 7-Up/Royal Crown Cola Bottler and Distributor
as well as Manager of Accounting for Pepsico, Inc. Mr. Duck began his career at
the firm of Coopers & Lybrand upon graduation from Pace University.
D. MICHAEL WELLS has served as President of Nutrition Technology Corporation
since November 1996. He also has served as director of the Company and its
predecessor NutraGenics (Delaware) since December 1994 and served as Secretary
and Treasurer of the Company and NutraGenics (Delaware) from April 1994 to
October 1996. Mr. Wells served as a director for LipoGenics from July 1992 until
October 1996. He served as General Manager of Zapata Protein (USA), Inc. from
1995 to 1996 and is an inventor of portions of the technology. Mr. Wells was
previously employed by Riviana Foods, Inc. of Houston, Texas as a General
Manager of their Abbeville, Louisiana rice milling operations. Mr. Wells
received a B.S. in chemistry from Southeastern Oklahoma State University and
undertook graduate work in physical organic chemistry at East Texas State
University. Previously, Mr. Wells was employed as Director of Technical Affairs
for Conway Oil and Division Quality Assurance Manager for Safeway Stores, Inc.,
which included new product development management.
WILLIAM M. MCCORMICK is the Vice Chairman of the Company's Board and has been a
member of the Board of Directors since May 1996. Mr. McCormick was President,
Chief Executive Officer and a director of PennCorp Financial Group, Inc., a NYSE
company, from 1990 to 1995 and remains a director. Prior thereto, Mr. McCormick
was employed by the American Express Company. His titles ranged from Senior Vice
President Finance, Systems & Operations of the American Express International
Banking Corporation to President of American Express' Travel Related Services
Company. Mr. McCormick then spent five years as Chairman and CEO of Fireman's
Fund Insurance. After graduating from Yale, Mr. McCormick spent his early years
in investment banking and management consulting with Donaldson, Lufkin &
Jenrette and McKinsey & Company, Inc., respectively.
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<PAGE> 24
C. EVERETT KOOP, M.D., SC.D. is the former Surgeon General of the United States
and has been a member of the Board of Directors since October 1995. Dr. Koop's
past and present committee and board of director elections include the World
Health Organization, Pan American Health Organization, American College of
Surgeons, National Library of Medicine, Association of Military Surgeons of the
United States, Biopure Corporation, Neurocrine, Aprex, and the Carnegie Council.
Faculty appointments include Professor of Pediatrics at University of
Pennsylvania School of Medicine, Elizabeth DeCamp McInery Professor, Dartmouth,
Senior Scholar of C. Everett Koop Institute at Dartmouth, and Distinguished
Scholar at Carnegie Foundation for the Advancement of Teaching. Dr. Koop's
hospital and administrative appointments include President of the Children's
Hospital of Philadelphia and Pediatric Surgical Consultant of the U.S. Naval
Hospital of Philadelphia. Dr. Koop received an M.D. at Cornell University
Medical College and a Sc.D. from the University of Pennsylvania (Medicine).
MILTON OKIN has been a member of the Board of Directors since October 1995. Mr.
Okin has many years of diet and health food development experience, having
created Weight Watchers low calorie foods that he subsequently sold to Weight
Watchers International. Mr. Okin developed a unique all natural Vitamin C from
acerola berry grown in plantations in Puerto Rico and Florida. The acerola
operation was sold to Booker McConnell Ltd. of England in 1978. Mr. Okin has
owned and operated a chain of health food related retail stores including
outlets in Sears Roebuck and Company, and presently owns a mail order vitamin
and health products business in Hastings, N.Y. Mr. Okin is a biochemist graduate
of New York City College with graduate research at Mount Sinai Hospital in
lipids, cholesterol and vitamins.
IAN R. FERRIER, M.D., PH.D. has been a member of the Board of Directors since
October 1995 and was a director of NutraGenics (Delaware) from April 1994 until
December 1994 and a director of LipoGenics from July 1992 until October 1996. He
is a founder of Bogart Delafield Ferrier, Inc., a pharmaceutical and food
industry consulting firm and has been with that firm since 1980. He serves on
the board of directors of Nastech, Inc. and Dynagen, Inc. and on the
compensation committee of Nastech, Inc. Dr. Ferrier has had over two decades of
management and marketing experience in international healthcare, ethical
pharmaceuticals, diagnostics and devices, generic drugs, and animal health. Dr.
Ferrier has guided the growth of several multinational pharmaceutical companies
through both internal development and acquisitions and has had senior level
responsibility for technical development, commercialization and marketing of new
healthcare products in the global marketplace. Dr. Ferrier was previously
affiliated with ICI Pharmaceuticals, Kalichemie (Solvay et Cie); McCann
Healthcare; Covington Group; Monadnock Medical; University of Edinburgh Teaching
Hospitals; University of Bristol Teaching Hospitals. He earned his M.D. at the
University of Edinburgh School of Medicine and holds a Ph.D. in Pharmacology
(University of Edinburgh).
STEVE HENIG, PH.D. has been a member of the Board of Directors since October
1995 and served as a director of LipoGenics from August 1992 until October 1996.
He has served as Senior Vice President of Technology and Marketing Services for
Hunt-Wesson, Inc. since 1992. He joined
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Hunt-Wesson in 1983 as Vice President of Research and Development. His previous
position was Vice President of Corporate Research & Development and Corporate
Engineering for Land O'Lakes, Inc. in Minneapolis, Minnesota. Prior to that he
held positions with Pillsbury Company and General Foods Corporation. Dr. Henig
received his Bachelor of Science Degree in Chemical Engineering and a Master of
Science Degree in Food and Biotechnology from the Technion-Israel Institute of
Technology. He earned his Ph.D. Degree in Food Science from Rutgers University,
New Brunswick, New Jersey.
FREDERICK B. RENTSCHLER has been a member of the Board of Directors since
October 1995 and served as a director of LipoGenics from January 1993 until
October 1996. He is Chairman of the Board of the Salk Institute in La Jolla,
California. He serves on the board of directors and compensation committee of
International Game Technology, a NYSE company. He served as President and Chief
Executive Officer of Beatrice Companies from 1987 to 1990, having completed a
leveraged buyout of Beatrice Companies in 1986 with the firm of Kohlberg,
Kravis, Roberts & Company. Prior to Beatrice, Mr. Rentschler was employed as
President/Chief Executive Officer of Armour-Dial and, subsequently had the same
responsibility at Hunt-Wesson. Following his retirement from Beatrice, he served
as President/Chief Executive Officer of Northwest Airlines and remains on their
Board of Directors. Mr. Rentschler's current affiliations in addition to the
Salk Institute include: ESCAgenetics Corporation, Woods Hole Oceanographic
Institution (Massachusetts), and Hamilton Foundry and Machine Company. In
addition, he is President of the Heard Museum National Advisory Board (Arizona),
and a member of the Alumni Board of Vanderbilt University and Advisory Board of
Canned Foods, Inc. (California). Mr. Rentschler received his B.A. in Economics
and History from Vanderbilt University and MBA from Harvard Business School.
RICHARD M. FELDHEIM has been a director of the Company since October 1995. He
served as a director, Secretary and Chief Financial Officer of LipoGenics from
July 1992 until October 1996. Mr. Feldheim has served as Chairman and Co-Chief
Executive Officer of Abby's, a restaurant chain in Oregon since 1991. He was in
private place as a lawyer prior thereto, has previously been employed with
Goldman Sachs & Co.; Donaldson, Lufkin & Jenrette; J. Aron Company; and Price
Waterhouse, and was President of Norcap Financial Corporation. Mr. Feldheim
received a B.S., B.A., a Master's Degree in Accounting, and a J.D. from the
University of Arizona, as well as an LL.M. in Taxation from New York University.
He is a Certified Public Accountant.
WINSTON A. SALSER, PH.D. has served as a member of the Board of Directors since
October 1995, served as a director of LipoGenics from August 1992 until October
1996 and is Chairman of Bionutrics' Scientific Advisory Board. Dr. Salser has
been a Professor of Molecular Biology at the University of California, Los
Angeles since 1968. Dr. Salser was the founding President of Amgen, Inc. and
formed its Scientific Advisory Board. He received a B.S. from the University of
Chicago in physics, a Ph.D. from the Massachusetts Institute of Technology in
molecular biology, and was a Helen Hay Whitney Foundation Postdoctoral Fellow.
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<PAGE> 26
SCIENTIFIC ADVISORY BOARD
In addition to Dr. Salser, Dr. Asaf A. Qureshi serves on the Company's
Scientific Advisory Board and is a consultant to the Company. Dr. Qureshi is a
principal international researcher in vitamin E like compounds. He has been
conducting analytical chemistry and biochemistry research for LipoGenics since
1989 and presently performs proprietary work for Bionutrics. Dr. Qureshi is the
President of Advanced Medical Research in Madison, Wisconsin, and conducts
independent contract chemical analysis and experimentation. He received a
Bachelor of Pharmacy from the University of Punjab in Lahore, Pakistan; a Ph.D.
in Organic and Analytical Chemistry from Manchester University; and was
Postdoctoral Fellow at Sussex University and Yale University. Dr. Qureshi has
published well over 100 articles and chapters of books on biochemistry and
analytical chemistry.
ITEM 6. EXECUTIVE COMPENSATION
SUMMARY OF CASH AND OTHER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation earned by the Company's
Chief Executive Officer (the named executive officer) for services rendered to
the Company for the last three completed fiscal years. No other executive
officer of the Company earned more than $100,000 during such prior fiscal years.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
------------------- ------
SECURITIES
OTHER ANNUAL UNDERLYING
YEAR SALARY($)(1) BONUS($) COMPENSATION OPTIONS(#)
---- ------------ -------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Ronald H. Lane 1996 $211,756 $250,000(2) $167,884(3) 760,000
Chairman of the 1995 $103,282 -- -- --
Board, Chief
Executive Officer
and President
</TABLE>
(1) Mr. Lane received certain perquisites, the value of which did not
exceed 10% of his salary and bonus.
(2) Awarded and accrued but not yet paid.
(3) A promissory note in the amount of $147,000 and accrued interest owed
to the Company by Mr. Lane was converted to compensation.
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OPTION GRANTS
The following table provides information on stock options granted to
the Company's named executive officer during the fiscal year ended October 31,
1996.
OPTION GRANTS IN LAST FISCAL YEAR
(Individual Grants)
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#)(1) FISCAL YEAR ($/SH) DATE
- ---- -------------- ----------- ------ ----
<S> <C> <C> <C> <C>
Ronald H. Lane 760,000 61.39% $ 5.00 10/31/01
Chairman of the Board,
Chief Executive Officer
and President
</TABLE>
(1) The options vest with respect to one-third of the shares on each of the
first, second and third anniversaries of the grant date.
1996 STOCK OPTION PLAN
General. The Company's 1996 Stock Option Plan (the "1996 Plan"),
provides for the granting of options to acquire Common Stock of the Company
("Options"), the direct granting of Common Stock ("Stock Awards"), the granting
of stock appreciation rights ("SARs"), and the granting of other cash awards
("Cash Awards") (Stock Awards, SARs, and Cash Awards are collectively referred
to herein as "Awards"). The 1996 Plan is intended to comply with Rule 16b-3 as
promulgated under the Securities Exchange Act of 1934 with respect to persons
subject to Section 16 of such Act. The Company believes that the 1996 Plan is
important in attracting and retaining executives and other key employees and
constitutes a significant part of the compensation program for key personnel,
providing them with an opportunity to acquire a proprietary interest in the
Company and giving them an additional incentive to use their best efforts for
the long-term success of the Company. The 1996 Plan will remain in effect until
October 31, 2006. The Company reserved 1,900,000 shares of Common Stock issuable
pursuant to the 1996 Plan. On October 31, 1996, an aggregate of 1,238,000
Options were granted to employees, consultants and directors with a five year
exercise period, which vest equally over a three year period.
If any Option or SAR terminates or expires without having been
exercised in full, stock not issued under such Option or SAR will again be
available for the purposes of the 1996 Plan. If any change is made in the stock
subject to the 1996 Plan, or subject to any Option or SAR granted under the 1996
Plan (through merger, consolidation, reorganization, recapitalization, stock
dividend, split-
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<PAGE> 28
up, combination of shares, exchange of shares, change in corporate structure, or
otherwise), the 1996 Plan provides that appropriate adjustments will be made as
to the maximum number of shares subject to the 1996 Plan and the number of
shares and exercise price per share of stock subject to outstanding Options.
Eligibility and Administration. Options and Awards may be granted only
to persons ("Eligible Persons") who at the time of grant are either (i) key
personnel, including officers and directors of the Company or its subsidiaries,
or (ii) consultants and independent contractors who provide valuable services to
the Company or to its subsidiaries. Options that are incentive stock options may
only be granted to key personnel of the Company who are also employees of the
Company (or its subsidiaries). To the extent that granted Options are incentive
stock options, the terms and conditions of those Options must be consistent with
the qualification requirements set forth in the Internal Revenue Code. Employees
of the Company may not receive grants of Options or Awards representing more
than 50 percent of the shares of Common Stock issuable under the 1996 Plan.
The Eligible Persons under the 1996 Plan are divided into two groups,
and there is a separate administrator (each a "Plan Administrator") for each
group. One group consists of Eligible Persons who are executive officers and
directors of the Company and all persons who own 10% or more of the Company's
issued and outstanding stock. The power to administer the 1996 Plan with respect
to those persons rests with the Board of Directors or a committee comprised of
two or more non-employee directors who are appointed by the Board of Directors.
The power to administer the 1996 Plan with respect to the remaining Eligible
Persons is vested with the Board of Directors or a committee appointed by the
Board of Directors. Each Plan Administrator determines (i) which of the Eligible
Persons in its group will be granted Options and Awards; (ii) the amount and
timing of the grant of such Options and Awards; and (iii) such other terms and
conditions as may be imposed by the Plan Administrator consistent with the 1996
Plan. To the extent that granted Options are incentive stock options, the terms
and conditions of those Options must be consistent with the qualification
requirements set forth in the Internal Revenue Code.
Exercise of Options. The expiration date, maximum number of shares
purchasable and other provisions of the Options, including vesting, are
established at the time of grant. Options may be granted for terms of up to 10
years. The exercise prices of Options are determined by the Plan Administrator,
but if the option is intended to be an incentive stock option may not be less
than 100% (110% if the option is granted to a stockholder who at the time the
option is granted owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of its subsidiaries) of
the fair market value of the Common Stock at the time of the grant.
To exercise an Option, the optionholder will be required to deliver to
the Company full payment of the exercise price for the shares as to which the
option is being exercised. Generally, options can be exercised (i) by delivery
of cash or bank cashier's check to the Company; (ii) payment
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<PAGE> 29
in other shares of previously owned stock of the Company; or (iii) a sale and
remittance procedure by the optionholder whereby the shares are immediately sold
and funds to cover the aggregate exercise price are remitted to the Company.
The Plan Administrator may authorize the grant of reload Options.
Reload Options shall equal (i) the number of shares of previously owned stock
used to exercise the underlying Options and (ii) the number of shares withheld
or the number of shares of previously owned stock used to satisfy tax
withholding requirements incident to the exercise of the underlying Options. The
exercise price of the reload Options shall be the fair market value on the date
of grant of the reload Options and such Options shall have a term equal to the
remaining term of the underlying Options. No reload Options shall be granted
when the exercise of the underlying Options occurs following termination of the
Optionholder's employment.
Unless otherwise authorized by the Board of Directors in its sole
discretion, Options granted under the 1996 Plan are nontransferable other than
by will or by the laws of descent and distribution upon the death of the
optionholder and, during the lifetime of the optionholder, are exercisable only
by such optionholder. Unless the terms of the stock option agreement otherwise
provide, in the event of the death or termination of the employment or services
of the participant (but never later than the expiration of the term of the
Option) Options may be exercised within a three month period. If termination is
by reason of disability, however, Options may be exercised by the optionholder
or the optionholder's estate or successor by bequest or inheritance during the
period ending one year after the optionholder's retirement (but not later than
the expiration of the term of the option). Termination of employment at any time
for cause immediately terminates all Options held by the terminated employee.
Awards. The Plan Administrator also may grant Awards to Eligible
Persons under the 1996 Plan. SARs entitle the recipient to receive a payment
equal to the appreciation in market value of a stated number of shares of Common
Stock from the price stated in the award agreement to the market value of the
Common Stock on the date first exercised or surrendered. Stock Awards entitle
the recipient to directly receive Common Stock. Cash Awards entitle the
recipient to receive direct payments of cash depending on the market value or
the appreciation of the Common Stock or other securities of the Company. The
Plan Administrator may, consistent with the 1996 Plan, determine such other
terms, conditions, restrictions and limitations, if any, on any Awards.
DIRECTORS' COMPENSATION
The Company pays its directors $1,000 for attendance at each meeting of
the Company's directors. In addition, directors may be reimbursed for certain
expenses in connection with attendance at board and committee meetings. The
Company granted each of its directors options to purchase 10,000 shares of
Common Stock on October 31, 1996. The Company issued additional options to
purchase 100,000 shares of stock to Mr. Wells on October 31, 1996 in connection
with
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<PAGE> 30
his employment at the Company. The options have a five year term and vest with
respect to one-third of the shares on each of the first, second and third
anniversaries of the grant date. See Item 7. "Certain Relationships and Related
Transactions" with respect to consulting services and grant of warrants to
William M. McCormick, a director, in fiscal 1996.
BOARD COMMITTEES
The Compensation Committee consists of Messrs. Henig and Rentschler.
The Compensation Committee establishes salaries, incentive and other forms of
compensation for officers and other employees, administers incentive
compensation and benefit plans, including the Company's 1996 Stock Option Plan,
and recommends policies relating to such plans. Mr. Henig is a Senior Vice
President of Hunt-Wesson Inc., which holds an option granted by LipoGenics in
July 1992 for the purchase of 110,144 shares of the Company at a price of
$150,000.
The Audit Committee consists of Messrs. Feldheim and Ferrier. The Audit
Committee will meet periodically with management and the Company's independent
auditors and will review the results and scope of the audit and other services
provided by the Company's independent auditors, and the adequacy of internal
controls.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 5, 1995, Mr. Okin, a director, and the Company entered into
an agreement pursuant to which: (i) Mr. Okin and his children purchased a total
of 250,000 shares of restricted Common Stock of the Company at $1.00 per share;
(ii) Mr. Okin agreed to loan the Company funds to pay certain legal fees, which
were to be repaid in 12 months without interest; and (iii) Mr. Okin agreed to
loan the Company $250,000 secured by various assets. The term of the $250,000
loan is for two years with a variable rate of interest based upon six-month
interbank offered rate (LIBOR) plus the spread of 1.5 points above LIBOR. Mr.
Okin at his sole option, may elect to receive all or part of any repayment of
such secured loan as well as any loan advanced for legal fees in Common Stock of
the Company at a price of $1.50 per share. The proceeds from the purchase of
shares and the secured loan are to be used for the manufacture, marketing and
sales of the product. The secured loan was subsequently converted into Common
Stock in October 1996. There were no loans to the Company to pay legal fees.
On March 1, 1996, an additional secured loan was entered into between
the Company and Mr. Okin. The additional loan was for an aggregate amount of
$350,000 and was advanced in stages to the Company from March 1, 1996 to June 1,
1996. This loan also permitted conversion of the loan into Common Stock of the
Company at a price of $1.50 per share and also carried a variable interest rate
on the unpaid balance based upon LIBOR plus 1.5 points. This loan was
subsequently converted into Common Stock in October 1996.
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<PAGE> 31
The Company loaned Ronald Lane, Chairman, President and Chief Executive
Officer, $147,000 pursuant to a note dated July 1994 bearing interest at 8% per
annum and due July 1997. The note plus accrued interest was forgiven and
converted to compensation in fiscal 1996. An additional $50,000 was advanced in
1995 on the same terms.
C. Everett Koop, M.D., entered an agreement with the Company on October
31, 1995 to serve on the Board of Directors of the Company and in return
received options exercisable within three years to purchase 180,000 shares of
the Company's restricted Common Stock at a price of $1.50 per share.
Simultaneously with the execution of such agreement, Dr. Koop purchased 20,000
restricted shares of Common Stock of the Company at $1.00 per share.
In consideration for consulting services rendered or to be rendered to
the Company, William M. McCormick, a director, was granted a warrant in May 1996
for the purchase of 250,000 shares of restricted common stock at the price of
$2.50 per share. He also was granted unvested warrants that become exercisable
at the rate of 50,000 shares per quarter commencing in November 1996 to May 1998
for a total of 350,000 shares. The exercise price of such warrants is $2.50 per
share for the first 50,000 and $4.00 per share for the remaining 300,000. All
warrants have 10 year exercise periods upon becoming exercisable.
The shareholders of LipoGenics approved a merger of a wholly owned
subsidiary of Bionutrics with and into LipoGenics wherein LipoGenics survived
the merger and became a wholly owned subsidiary of Bionutrics. The consideration
paid by Bionutrics in the merger was 2,092,743 restricted shares of Common Stock
of Bionutrics. The shareholders of LipoGenics received the shares of Bionutrics
in a nontaxable exchange. The effect of the merger ended the royalty obligations
under the License Agreement to LipoGenics and resulted in Bionutrics acquiring
full rights to the technology. The merger was completed in October 1996. The
directors of LipoGenics were directors of the Company at the time of the merger
and all of LipoGenics's's shareholders were also shareholders of the Company.
Winston A. Salser through a family limited partnership acquired 100,000
shares of the Company's Common Stock in November 1996 at a purchase price of
$7.00 per share.
ITEM 8. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceedings.
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<PAGE> 32
ITEM 9. MARKET PRICE OF, AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the NASDAQ OTC Bulletin Board
under the symbol NTGI. The Company is currently seeking a new symbol. The high
and low closing bid information for the Company's Common Stock during the year
ended October 31, 1995 and year ended October 31, 1996, is based on OTC Bulletin
Board information.
High Low
Year Ended October 31, 1995
First Quarter................................. 1 1
Second Quarter................................ 2 1
Third Quarter................................. 2 1/2 2
Fourth Quarter................................ 2 1/2 1 1/2
Year Ended October 31, 1996
First Quarter................................. 1 1/2 1/2
Second Quarter................................ 2 1/4 1/4
Third Quarter................................. 6 3 1/2
Fourth Quarter................................ 8 4 7/8
Such quotations reflect inter-dealer bids, without retail mark-up,
mark-down or commissions, and may not reflect actual transactions.
On January 16, 1997 the closing price of the Common Stock was 10 1/2.
As of January 15, 1997 there were 206 holders of record of the Company's Common
Stock.
The Company has not declared or paid any cash dividends on its Common
Stock and does not intend to declare or pay any cash dividend in the foreseeable
future. The payment of dividends, if any, is within the discretion of the Board
of Directors and will depend on the Company's earnings, if any, its capital
requirements, and financial condition and such other factors as the Board of
Directors may consider.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
In February 1994, the Company issued 250,000 shares to the then
President and sole director of the Company for a total offering price of
$10,000, or $0.04 per share.
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<PAGE> 33
In connection with the merger of NutraGenics (Delaware) into a
subsidiary of the Company, the Company on December 29, 1994 issued 7,134,066
shares of Common Stock to the 39 shareholders of NutraGenics (Delaware) existing
at such time.
In October, 1995, the Company issued 250,000 shares of Common Stock to
Mr. Okin, a director of the Company, and three of his children for a total
offering price of $250,000, or $1.00 per share (the "Okin Financing"). The
Company paid a finders fee to two individuals in connection with such offering
of 22,000 shares of Common Stock. See below.
From January through October, 1995, the Company issued a total of
393,000 shares of Common Stock to 11 persons for a total purchase price of
$393,000, or $1.00 per share. Of such $393,000, $88,000 was paid through the
cancellation of indebtedness owed by the Company to two of the purchasers of
shares.
In September 1995, the Company issued 10,000 shares to an officer of
the Company for consulting services rendered by him. Such issuance was exempt
from registration under the 1933 Act pursuant to Rule 701 promulgated
thereunder.
In September 1995, the Company authorized the issuance of shares to two
consultants for services to be rendered at the rate of $1.00 per share. An
aggregate of 15,000 shares were issued in August 1996 and 25,000 shares in
January 1997.
In October 1995, the Company issued to a director of the Company 20,000
shares of Common Stock for a total offering price of $20,000, or $1.00 per
share.
In October 1995, the Company issued 22,000 shares of Common Stock to
two individuals as a finders' fee for services rendered by them in connection
with the Okin Financing referred to above.
In October 1995, the Company issued 28,061 shares of Common Stock to
Goldstein & Goldstein for legal services rendered to the Company by such firm.
In October 1995, the Company issued a total of 700,901 shares of Common
Stock to eleven stockholders and directors of LipoGenics to repay an aggregate
of $980,669 of indebtedness of LipoGenics to such shareholders and directors.
Such issuance was effected pursuant to the terms of a License Agreement between
LipoGenics and the Company, which provided for the assumption of such
indebtedness of LipoGenics by the Company.
In May 1996, the Company issued a total of 50,425 shares of Common
Stock valued at $1.00 per share to five individuals as compensation for various
services rendered to the Company. Such
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<PAGE> 34
issuance was exempt from registration under the 1933 Act pursuant to Rule 701
promulgated thereunder.
From May through July 1996, the Company issued a total of 546,875
shares of Common Stock to Incon Technologies, L.L.C. ("Incon") for a total
offering price of $1,465,625. Of such shares, 175,001 were issued at the price
of $2.00 per share and 371,875 were issued at the price of $3.00 per share.
Incon entered into a joint venture arrangement with the Company relating to
certain manufacturing requirements of the Company.
In June 1996, the Company issued 90,000 shares of Common Stock to two
persons, one for a total offering price of $105,000, or $1.75 per share, and one
for a total offering price of $60,000 or $2.00 per share.
In June 1996, the Company issued a total of 146,667 shares of Common
Stock to a director of the Company and six family members. The total offering
price for such shares was $200,000. Of such shares, 66,667 were issued for $1.50
per share and 50,000 were issued for $2.00 per share.
In October 1996, the Company repaid $600,000 principal amount of
indebtedness owed to Mr. Okin, a director, under the terms of certain promissory
notes by issuing to him 400,000 shares of Common Stock at the price of $1.50 per
share. Such repayment was made pursuant to Mr. Okin's exercise of rights
previously granted to him in connection with the funding of such loans. See Item
7 above.
In October 1996, the Company issued 1,000,000 shares of Common Stock to
one overseas institutional investor for a total offering price of $5,000,000, or
$5.00 per share. Such offering was made without registration under the 1933 Act
pursuant to the exemption from such registration afforded by Regulation S
promulgated thereunder.
In connection with the Company's acquisition of LipoGenics on October
31, 1996, as a wholly owned subsidiary of the Company, the Company issued a
total of 2,092,743 shares of Common Stock to the 31 stockholders of LipoGenics,
all of whom were shareholders of the Company, including eight directors or their
affiliates.
In October 1996, the Company issued options pursuant to its 1996 Stock
Option Plan for the purchase of an aggregate of 1,238,000 shares at $5.00 per
share. None of these options have been exercised. An exemption from registration
under the 1933 Act was unnecessary in that the issuance of the securities did
not involve a sale of securities as that term is used in Section 2(3) of the
1933 Act.
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<PAGE> 35
In November 1996, the Company issued 100,000 shares of restricted
Common Stock to a family limited partnership of Mr. Salser, a director, for a
total offering price of $700,000, or $7.00 per share.
In January 1997, the Company issued 63,818 shares of Common Stock to a
group of overseas investors for a total offering price of $319,090, or $5.00 per
share, pursuant to a commitment entered into in August 1996. Such offering was
made without registration under the 1933 Act pursuant to the exemption from such
registration afforded by Regulation S promulgated thereunder.
The sales and issuances of the securities in the transaction above to
the extent not noted otherwise were deemed to be exempt from registration under
the 1933 Act by virtue of Section 4(2). Appropriate legends have been placed on
the stock certificates for all shares issued by the Company and investment
representations were obtained from the purchasers. All purchasers of securities
either received adequate information about the Company or had access, through
employment or other relationships, to such information and were sophisticated
investors. All of such securities issued pursuant to such exemption are
restricted securities as defined in Rule 144(a)(3) promulgated under the 1933
Act.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The Company's authorized capital stock consists of 45,000,000 shares of
Common Stock, par value $0.001 per share (the "Common Stock"), and 5,000,000
shares of preferred stock, par value $0.001 per share ("Preferred Stock"). As of
January 15, 1997, there were issued and outstanding 15,256,797 shares of Common
Stock and no shares of Preferred Stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, the holders of a majority of the stock entitled to
vote in any election of directors may elect all of the directors standing for
election. Subject to the preferences that may be applicable to any then
outstanding Preferred Stock, the holders of Common Stock will be entitled to
receive such dividends, if any, as may be declared by the Board from time to
time out of legally available funds. Upon the liquidation, dissolution, or
winding up of the Company, the holders of Common Stock will be entitled to share
ratably in all assets of the Company that are legally available for
distribution, after payment of all debts and other liabilities and subject to
the prior rights of holders of any preferred stock then outstanding. The holders
of Common Stock have no preemptive, subscription, redemption, or conversion
rights.
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PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations
prescribed by the laws of the state of Nevada, but without further action by the
Company's stockholders, to provide for the issuance of Preferred Stock in one or
more series, to establish from time to time the number of shares to be included
in such series, to fix the designations, powers, preferences and rights of the
shares of each such series (including dividend, redemption, sinking fund,
conversion, voting and liquidation rights) and any qualifications, limitations,
or restrictions thereof, and to increase or decrease the number of shares of any
such series (but not below the number of shares of such series then outstanding)
without any further vote or action by the stockholders. The Board may authorize
and issue Preferred Stock with voting or conversion rights that could adversely
affect the voting power or other rights of the holders of Common Stock. In
addition, the issuance of Preferred Stock may have the effect of delaying,
deterring, or preventing a change in control of the Company. The Company has no
current plan to issue any shares of Preferred Stock.
NEVADA GENERAL CORPORATION LAW AND CERTAIN CHARTER PROVISIONS
The provisions of the Company's Restated Articles of Incorporation and
Bylaws and the Nevada General Corporation Law (the "Nevada GCL") summarized
below may have the effect of discouraging, delaying, or preventing hostile
takeovers, including those that might result in a premium over the market price,
and discouraging, delaying, or preventing changes in control or management of
the Company.
Combinations with Interested Stockholders under the Nevada GCL. The
Company is subject to the provisions of Sections 78.411 through 78.445 of the
Nevada GCL. In general, these statutes prohibit a publicly held Nevada
corporation from engaging, under certain circumstances, in a "combination" with
an "interested stockholder" for a period of three years after the interested
stockholder's date of acquiring shares, unless the combination or the purchase
of shares made by the interested stockholder on the interested stockholder's
date of acquiring shares is approved by the Board of Directors of the
corporation before that date. In addition, these statutes generally prohibit a
publicly held corporation from engaging in a combination with an interested
stockholder after the expiration of three years after the interested
stockholder's date of acquiring shares, other than a combination meeting one of
the following requirements: (i) a combination approved by the Board of Directors
of the corporation before the interested stockholder's date of acquiring shares,
or as to which the purchase of shares made by the interested stockholder on that
date has been approved by the Board of Directors of the corporation before that
date; (ii) a combination approved by the affirmative vote of the holders of
stock representing a majority of the outstanding voting power not beneficially
owned by the interested stockholder proposing the combination, or any affiliate
or associate of the interested stockholder proposing the combination; (iii) a
combination in which the aggregate amount of the cash and the market value, as
of the date of consummation, of consideration other than cash to be received per
share by the holders of outstanding common stock of the
35
<PAGE> 37
corporation not beneficially owned by the interested stockholder immediately
before that date is at least equal to the higher of the following: (a) subject
to certain adjustments, the highest price per share paid by the interested
stockholder, at a time when such stockholder was the beneficial owner, directly
or indirectly, of five percent or more of the outstanding voting stock of the
corporation, for any common stock of the same class or series acquired by such
stockholder within three years immediately before the date of announcement with
respect to the combination or within three years immediately before, or in, the
transaction in which such stockholder became an interested stockholder,
whichever is higher; and (b) subject to certain adjustments, the market value
per common share on the date of announcement with respect to the combination or
on the interested stockholder's date of acquiring shares, whichever is higher;
or (iv) a combination in which the aggregate amount of the cash and the market
value, as of the date of consummation, of consideration other than cash to be
received per share by the holders of outstanding shares of any class or series
of stock, other than common stock, not beneficially owned by the interested
stockholder immediately before that date is at least equal to the highest of the
following, whether or not the interested stockholder has previously acquired any
shares of the class or series of stock: (x) subject to certain adjustments, the
highest price per share paid by the interested stockholder, at a time when such
stockholder was the beneficial owner, directly or indirectly, of five percent or
more of the outstanding voting stock of the corporation, for any shares of that
class or series of stock acquired by such stockholder within three years
immediately before the date of announcement with respect to the combination or
within three years immediately before, or in, the transaction in which such
stockholder became an interested stockholder, whichever is higher; (y) subject
to certain adjustments, the highest preferential amount per share to which the
holders of shares of the class or series of stock are entitled in the event of
any voluntary liquidation, dissolution or winding up of the corporation, plus
the aggregate amount of any dividends declared or due to which the holders are
entitled before payment of the dividends on some other class or series of stock;
and (z) the market value per share of the class or series of stock on the date
of announcement with respect to the combination or on the interested
stockholder's date of acquiring shares, whichever is higher. An "interested
stockholder" is generally defined in the statutes as a person who is (i) the
beneficial owner, directly or indirectly, of 10 percent or more of the voting
power of the outstanding voting shares of the corporation; or (ii) an affiliate
or associate of the corporation and at any time within three years immediately
before the date in question was the beneficial owner, directly or indirectly, of
10 percent or more of the voting power of the then outstanding shares of the
corporation. The statutes define a "combination" to include mergers,
consolidations, stock sales and asset based transactions, and other transactions
resulting in a financial benefit to the interested stockholder.
Acquisition of a Controlling Interest under Nevada GCL. The Company is
also subject to the provisions of Sections 78.378 through 78.3793 of the Nevada
GCL. These sections generally provide that any "control shares" acquired by a
person in the direct or indirect acquisition of a "controlling interest" in a
Nevada corporation, greater than a level of "controlling interest" previously
authorized by the corporation's stockholders, (i) shall be divested of all
voting rights, except to the extent that the retention of voting rights is
authorized by the stockholders of the corporation other
36
<PAGE> 38
than the acquiring person and associated persons, and (ii) may be redeemed, in
whole but not in part, by the corporation at the average price paid for the
control shares. These sections define "control shares" as those voting shares
which an acquiring person and associated persons acquire in the acquisition of a
"controlling interest," greater than a level of controlling interest previously
authorized by the corporation's stockholders, or within 90 days immediately
preceding the date the acquiring person acquired such greater controlling
interest. A "controlling interest" is defined in the statutes as the ownership
of voting shares sufficient, but for the provisions of Sections 78.378 through
78.3793, to enable a person, directly or indirectly and individually or in
association with others, to exercise (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority, or (iii) a majority
or more, of all of the voting power of the corporation in the election of
directors.
Certain Charter Provisions. The Company's Restated Articles of
Incorporation and Bylaws contain a number of other provisions relating to
corporate governance and to the rights of stockholders. These provisions include
(i) the division of the Board of Directors into three staggered classes, with
directors of each class holding office for a period of three years, (ii) the
authority of the Board to fill vacancies on the Board, and (iii) the authority
of the Board of Directors to issue Preferred Stock in series with such voting
rights and other powers as the Board of Directors may determine. Among other
things, these provisions could have the result of delaying or preventing an
acquiror from being able to elect a majority of the Board of Directors, or
otherwise obtain control of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Pacific Stock
Transfer Company, Las Vegas, Nevada.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Restated Articles of Incorporation provide that no
director or officer of the Company shall be personally liable to the Company or
its stockholders for monetary damages for any breach of fiduciary duty by such
person as a director or officer, except that a director or officer shall be
liable, to the extent provided by applicable law, (i) for acts or omissions
which involve intentional misconduct, fraud or a knowing violation of law, or
(ii) for the payment of dividends in violation of restrictions imposed by
Section 78.300 of the Nevada GCL. The effect of this provision in the Restated
Articles of Incorporation is to eliminate the rights of the Company and its
stockholders, either directly or through stockholders' derivative suits brought
on behalf of the Company, to recover monetary damages from a director or officer
for breach of the fiduciary duty of care as a director or officer except in
those instances provided under the Nevada GCL.
In addition, the Company has adopted provisions in its Bylaws that
require the Company to indemnify its directors, officers and certain other
representatives of the Company against expenses,
37
<PAGE> 39
liabilities and other matters arising out of their conduct on behalf of the
Company, or otherwise referred to in or covered by applicable provisions of the
Nevada GCL, to the fullest extent permitted by the Nevada GCL.
Section 78.751 of the Nevada GCL provides that a corporation may
indemnify its directors and officers against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred by the director or officer in connection with an action, suit or
proceeding in which the director or officer has been made or is threatened to be
made a party, if the director or officer acted in good faith and in a manner
which the director or officer reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal proceeding,
had no reason to believe the director's or officer's conduct was unlawful. Any
such indemnification may be made by the corporation only as ordered by a court
or as authorized in a specific case upon a determination made in accordance with
the Nevada GCL that such indemnification is proper in the circumstances.
Indemnification may not be made under the Nevada GCL for any claim,
issue or matter as to which the director or officer has been adjudged by a court
of competent jurisdiction, after exhaustion of all appeals therefrom, to be
liable to the corporation or for amounts paid in settlement to the corporation,
unless and only to the extent that the court in which the action or suit was
brought or other court of competent jurisdiction determines that in view of all
the circumstances of the case, the director or officer is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
To the extent that a director or officer of a corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding or in defense of any claim, issue or matter therein, the director or
officer must be indemnified under the Nevada GCL by the corporation against
expenses, including attorneys' fees, actually and reasonably incurred by the
director or officer in connection with the defense.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Financial Statements required by this Item 13 are set forth in
pages F-1 through F-12 of this Registration Statement. No supplementary
financial information is required.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
In November 1996, the Company's predecessor auditors, LeMaster &
Daniels PLLC, were replaced and Deloitte & Touche LLP was engaged as the
Company's independent public accountants. The change in accountants was
recommended by the Audit Committee and approved by the Board of Directors.
Prior reports of the predecessor auditors did not contain an adverse opinion or
disclaimer of opinion and were not
38
<PAGE> 40
qualified or modified as to uncertainty, audit scope or accounting principles
except for a modification that describes substantial doubt surrounding
Nutragenics ability to continue as a going concern. During the two most recent
fiscal years and the subsequent interim period, there have not been any
disagreements with the predecessor auditors on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure. The Company has authorized the predecessor auditors to respond to any
inquiries of Deloitte & Touche LLP.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Independent Auditor's Report.
Consolidated balance sheets as of October 31, 1995 and 1996,
and the related consolidated statements of operations,
stockholders' equity and cash flows for the 10 month period
ended October 31, 1995, and the year ended October 31, 1996
and for the period from July 13, 1992 (date of inception) to
October 31, 1996.
Independent Auditor's Report dated December 22, 1995.
(b) Exhibits
3.1 Restated Articles of Incorporation
3.2 Articles of Amendment to the Articles of
Incorporation
3.3 Bylaws
4.1 Form of Certificate evidencing shares of Common Stock
10.1 Option granted to Hunt-Wesson, Inc. by LipoGenics,
Inc., dated July 1992.
10.2 Agreement dated October 1995 between the Company and
Milton Okin, Kenneth Okin, Robert Okin and Nicki
Closset and Amendment to Agreement dated October 1995
10.3 Agreement between the Company and C. Everett Koop for
the purchase of 20,000 shares of Common Stock and the
issuance of 180,000 options dated October 1995
10.4 Additional Secured Loan Agreement dated March 1996
between the Company and Milton Okin
10.5 Warrant Agreement for the purchase of 600,000 shares
between the Company and William M. McCormick dated
May 1996
10.6* Joint Venture Agreement between the Company and Incon
Technologies, LLC.
10.7 Stock Purchase Agreements dated September 16, 1996
and October 31, 1996 between the Company and
Spanswick Limited
10.8 1996 Stock Option Plan
16* Letter for change in certifying accountant
21 Subsidiaries of the Company
27 Financial Data Schedule
*To be filed
39
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
BIONUTRICS, INC.
Date: January 17, 1997 By: /s/Ronald H. Lane
------------------------------
Ronald H. Lane
President and Chief Executive
Officer
40
<PAGE> 42
BIONUTRICS, INC.
(FORMERLY NUTRAGENICS, INC.)
(A DEVELOPMENT STAGE COMPANY)
Consolidated Financial Statements Ten Month Period Ended
October 31, 1995, Year Ended October 31, 1996 and Period from
July 13, 1992 (Date of Inception) to October 31, 1996, and
Independent Auditors' Report
<PAGE> 43
INDEPENDENT AUDITORS' REPORT
Board of Directors
Bionutrics, Inc.
Phoenix, Arizona
We have audited the consolidated balance sheets of Bionutrics, Inc. (formerly
NutraGenics, Inc.) and subsidiaries (a development stage company) (collectively
referred to as the "Company") as of October 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the ten month period ended October 31, 1995, the year ended October 31, 1996 and
for the period from July 13, 1992 (date of inception) to October 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The consolidated financial statements
give retroactive effect to the merger of Bionutrics, Inc. and LipoGenics, Inc.,
which has been accounted for in a manner similar to a pooling of interests as
described in Note 1 to the consolidated financial statements. We did not audit
the balance sheet of NutraGenics, Inc. ("NutraGenics") as of October 31, 1995,
or the related statements of operations, stockholders' equity and cash flows of
NutraGenics for the ten month period ended October 31, 1995 and the period from
April 5, 1994 (date of NutraGenics' inception) to October 31, 1995, which
statements reflect total assets of $1,093,000 as of October 31, 1995, and no
revenues. Those statements were audited by other auditors whose report, dated
December 22, 1995, expressed an unqualified opinion on those statements and
included an explanatory paragraph that described the substantial doubt
surrounding NutraGenics' ability to continue as a going concern. The other
auditors' report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for NutraGenics for such prior period, is based
solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company at October 31, 1995 and
1996, and the results of their operations and their cash flows for the ten month
period ended October 31, 1995, the year ended October 31, 1996 and the period
from July 13, 1992 (date of inception) to October 31, 1996, in conformity with
generally accepted accounting principles.
F-1
<PAGE> 44
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company is a development
stage enterprise engaged in developing and marketing dietary supplements using
proprietary technology. As discussed in Note 1 to the consolidated financial
statements, the Company's operating losses since inception raise substantial
doubt about its ability to continue as a going concern. Management's plans
concerning these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
DELOITTE & TOUCHE LLP
Phoenix, AZ
December 6, 1996
F - 2
<PAGE> 45
BIONUTRICS, INC.
(FORMERLY NUTRAGENICS, INC.)
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1995 AND 1996
- ----------------------------------------------------------------------------------------------------------
ASSETS 1995 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 2) $ 427,200 $ 5,676,360
Note receivable (Note 3) 50,000
Accrued interest (Note 3) 2,000
----------- ------------
Total current assets 479,200 5,676,360
----------- ------------
PROPERTY - Net of accumulated depreciation
of $21,701 in 1996 (Note 2) 70,199
----------- ------------
OTHER ASSETS:
Notes receivable (Note 3) 147,000 16,665
Accrued interest (Note 3) 14,700 1,333
Organizational costs - net 5,830
Patent applications and other related costs (Note 2) 452,791 452,791
----------- ------------
Total other assets 620,321 470,789
----------- ------------
TOTAL $ 1,099,521 $ 6,217,348
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 286,686 $ 565,823
Accrued payroll and compensation 306,481
Accrued other 7,968 64,174
----------- ------------
Total current liabilities 294,654 936,478
----------- ------------
LONG-TERM LIABILITY - Note payable (Note 4) 250,000
----------- ------------
Total liabilities 544,654 936,478
----------- ------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 5, 7 and 9) STOCKHOLDERS' EQUITY (Note
5):
Common stock, $.001 par value - authorized, 45,000,000 shares;
issued and outstanding, 10,956,269 and 15,067,979 shares 10,956 15,068
Preferred stock, $.001 par value - authorized, 5,000,000 shares;
no issued and outstanding shares
Additional paid-in capital 2,677,558 10,406,996
Deficit accumulated during the development stage (2,132,444) (5,139,991)
Common stock in treasury (1,203) (1,203)
----------- ------------
Total stockholders' equity 554,867 5,280,870
----------- ------------
TOTAL $ 1,099,521 $ 6,217,348
=========== ============
</TABLE>
See notes to consolidated financial statements.
F - 3
<PAGE> 46
BIONUTRICS, INC.
(Formerly NutraGenics, Inc.)
(A Development Stage Company)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------
Ten July 13, 1992
Month (Date of
Period Year Inception)
Ended Ended to
October 31, October 31, October 31,
1995 1996 1996
<S> <C> <C> <C>
REVENUES - Licensing fees (Note 1) $ 50,000 $ 20,000 $ 72,448.00
-------------- -------------- --------------
EXPENSES:
Consulting services (Notes 5 and 8) 153,650 385,916 1,317,915
Research and development (Notes 2 and 8) 25,300 626,735 922,203
Other operating expenses (Note 8) 162,950 1,984,229 2,725,556
-------------- -------------- --------------
Total expenses 341,900 2,996,880 4,965,674
-------------- -------------- --------------
OTHER (EXPENSE) INCOME:
Interest expense (52,391) (45,019) (283,913)
Interest income 12,806 14,352 37,148
-------------- -------------- --------------
Total other expense (39,585) (30,667) (246,765)
-------------- -------------- --------------
LOSS BEFORE PROVISION FOR
INCOME TAXES (331,485) (3,007,547) (5,139,991)
-------------- -------------- --------------
PROVISION FOR INCOME TAXES (Note 6)
NET LOSS $ (331,485) $ (3,007,547) $ (5,139,991)
============== ============== ==============
NET LOSS PER SHARE $ (.03) $ (.26)
============== ==============
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE> 47
BIONUTRICS, INC.
(Formerly NutraGenics, Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY PERIOD FROM JULY 13, 1992 (Date
of Inception) TO DECEMBER 31, 1994, TEN MONTH PERIOD ENDED OCTOBER 31, 1995 AND
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- Paid-In
Shares Amount Capital
<S> <C> <C> <C>
BALANCE, JULY 13, 1992 (Date of Inception) -- $ -- $ --
Issuance of common shares at July 1992 (inception) 200,000 200 947,400
Issuance of common shares at inception to December 1994 2,197,741 2,198 23,352
Issuance of common shares in reverse acquisition with Erba, December 1, 1994 (Note 5) 7,134,066 7,134
Net loss - July 13, 1992 through December 31, 1994
---------- ------- ------------
BALANCE, DECEMBER 31, 1994 9,531,807 9,532 970,752
Issuance of common shares for cash at $1 per share, January 1995 - October 1995 663,000 663 662,337
Issuance of common shares for services at $1 per share, January 1995 - October 1995 60,561 60 60,501
Notes and other liabilities converted to stock at $1.40 per share, October 10, 1995 700,901 701 983,968
Reclassification of intercompany shares to treasury shares
Net loss - ten month period ended October 31, 1995
---------- ------- ------------
BALANCE, OCTOBER 31, 1995 10,956,269 10,956 2,677,558
Warrants granted for services, May 1996 (Note 5) 87,500
Issuance of common shares for services at $1 per share, May 1996 - August 1996 65,425 65 65,360
Issuance of common shares for cash at $1.50 per share, June 25, 1996 66,667 67 99,933
Issuance of common shares for cash at $1.75 per share, June 25, 1996 60,000 60 104,940
Issuance of common shares for cash at $2 per share, June 1996 - October 1996 255,000 255 509,745
Notes payable converted to stock at $1.50 per share, October 31, 1996 (Note 4) 400,000 400 599,600
Issuance of common shares for cash at $3 per share, October 31, 1996 371,875 372 1,115,253
Issuance of common shares for cash at $5 per share, October 31, 1996 1,000,000 1,000 4,999,000
Issuance of common shares for cash at $1.36 per share under option agreement,
October 31, 1996 11,111 11 149,989
Issuance of common shares in merger, October 31, 1996 1,881,632 1,882 (1,882)
Net loss - year ended October 31, 1996
---------- ------- ------------
BALANCE, OCTOBER 31, 1996 15,067,979 $15,068 $ 10,406,996
========== ======= ============
<CAPTION>
Deficit
Accumulated
During the Treasury Stock Total
Development --------------------- Stockholders'
Stage Shares Amount Equity
<S> <C> <C> <C> <C>
BALANCE, JULY 13, 1992 (Date of Inception) $ -- -- $ -- $ --
Issuance of common shares at July 1992 (inception) 947,600
Issuance of common shares at inception to December 1994 25,550
Issuance of common shares in reverse acquisition with Erba,
December 1, 1994 (Note 5) 7,134
Net loss - July 13, 1992 through December 31, 1994 (1,800,959) (1,800,959)
----------- ---------- ------------- -----------
BALANCE, DECEMBER 31, 1994 (1,800,959) (820,675)
Issuance of common shares for cash at $1 per share,
January 1995 - October 1995 663,000
Issuance of common shares for services at $1 per share,
January 1995 - October 1995 60,561
Notes and other liabilities converted to stock at $1.40 per share,
October 10, 1995 984,669
Reclassification of intercompany shares to treasury shares (1,202,886) (1,203) (1,203)
Net loss - ten month period ended October 31, 1995 (331,485) (331,485)
----------- ---------- ------------- -----------
BALANCE, OCTOBER 31, 1995 (2,132,444) (1,202,886) (1,203) 554,867
Warrants granted for services, May 1996 (Note 5) 87,500
Issuance of common shares for services at $1 per share,
May 1996 - August 1996 65,425
Issuance of common shares for cash at $1.50 per share,
June 25, 1996 100,000
Issuance of common shares for cash at $1.75 per share,
June 25, 1996 105,000
Issuance of common shares for cash at $2 per share,
June 1996 - October 1996 510,000
Notes payable converted to stock at $1.50 per share,
October 31, 1996 (Note 4) 600,000
Issuance of common shares for cash at $3 per share,
October 31, 1996 1,115,625
Issuance of common shares for cash at $5 per share,
October 31, 1996 5,000,000
Issuance of common shares for cash at $1.36 per share
under option agreement,
October 31, 1996 150,000
Issuance of common shares in merger, October 31, 1996
Net loss - year ended October 31, 1996 (3,007,547) (3,007,547)
----------- ---------- ------------- -----------
BALANCE, OCTOBER 31, 1996 ($5,139,991) (1,202,886) ($ 1,203) $ 5,280,870
=========== ========== ============= ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 48
BIONUTRICS, INC.
(FORMERLY NUTRAGENICS, INC.)
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------------------
JULY 13, 1992
TEN MONTH (DATE OF
PERIOD YEAR INCEPTION)
ENDED ENDED TO
OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1996 1996
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(331,485) $(3,007,547) $(5,139,991)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 29,898 27,531 152,499
Expenses incurred in exchange for common stock 70,612 65,425 305,123
Non-employee stock based compensation 87,500 87,500
Changes in operating assets and liabilities:
Accounts payable 123,130 279,137 565,823
Accrued expenses and other liabilities (124,509) 362,687 656,833
--------- ----------- -----------
Net cash used in operating activities (232,354) (2,185,267) (3,372,213)
--------- ----------- -----------
INVESTING ACTIVITIES:
Additions to property (91,900) (91,900)
Capitalized technology and organizational costs 22,882 583,589
Net (increase) decrease in notes receivable (61,800) 195,702 (17,998)
--------- ----------- -----------
Net cash (used in) provided by investing activities (38,918) 103,802 473,691
--------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from long-term debt borrowings 250,000 350,000 986,627
Proceeds from issuance of stock 627,611 6,980,625 7,783,810
Repayments of long-term debt (194,000) (195,555)
--------- ----------- -----------
Net cash provided by financing activities 683,611 7,330,625 8,574,882
--------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 412,339 5,249,160 5,676,360
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 14,861 427,200
--------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 427,200 $ 5,676,360 $ 5,676,360
========= =========== ===========
</TABLE>
(CONTINUED)
F - 6
<PAGE> 49
BIONUTRICS, INC.
(FORMERLY NUTRAGENICS, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
JULY 13, 1992
TEN MONTH (DATE OF
PERIOD YEAR INCEPTION)
ENDED ENDED TO
OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1996 1996
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid during the period for interest $ 962 $ 39,813 $ 122,794
======== ============ ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
The Company incurred loans payable to various
stockholders in exchange for services totaling
$440,077 and $10,051 in 1994 and 1995,
respectively. In October 1995, the Company repaid
these and other stockholder loans and other
liabilities totaling $984,669 by issuance of
700,901 common shares of the Company.
In October 1995, the Company repaid loans payable
to a stockholder of $600,000 by issuance of
400,000 common shares of the Company.
The Company issued a total of 67,715, 65,425 and
1,338,026 common shares in exchange for services
totaling $70,612, $65,425 and $305,123 in 1995,
1996 and from inception to October 31, 1996,
respectively.
</TABLE>
See notes to consolidated financial statements. (Concluded)
F-7
<PAGE> 50
BIONUTRICS, INC.
(FORMERLY NUTRAGENICS, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TEN MONTH PERIOD ENDED OCTOBER 31, 1995, YEAR ENDED OCTOBER 31, 1996 AND PERIOD
FROM JULY 13, 1992 (DATE OF INCEPTION) TO OCTOBER 31, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
BIONUTRICS, INC. ("BIONUTRICS") - Subsequent to October 31, 1996,
NutraGenics, Inc. ("NutraGenics") changed its name to Bionutrics.
Bionutrics and its wholly-owned subsidiaries, LipoGenics, Inc.
("LipoGenics"), Bionutrics Health Products, Inc. (formed in November 1996
to market the Company's product), and Nutrition Technologies Corporation
("Nutrition Technologies") (collectively referred to as the "Company") is
considered a development stage company under Statement of Financial
Accounting Standards ("SFAS") No. 7 since no revenues have been earned
from the Company's planned principal operations.
Revenues to date represent amounts derived from a short-term agreement
licensing certain proprietary technology, which expired in 1996. The
planned principal operations are the development, manufacturing, marketing
and selling of dietary supplements using proprietary technology (the
"Technology"). The dietary supplement that the Company will be producing
and marketing is known as Clearesterol. The Company has marketed its
product on a limited basis during the development stage. The product is
expected to be marketed beginning in the second or third quarters of
fiscal 1997.
Effective with the December 31, 1994 year-end, the Company changed to a
fiscal year-end of October 31.
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in
the consolidated financial statements, during the ten month period ended
October 31, 1995, the year ended October 31, 1996 and the period from July
13, 1992 (date of inception) to October 31, 1996, the Company incurred net
losses of $331,000, $3,008,000 and $5,140,000, respectively, however, as
of October 31, 1995 and 1996, the Company's current assets exceeded its
current liabilities by $185,000 and $4,740,000, respectively, and its
total assets exceeded its total liabilities by $555,000 and $5,281,000,
respectively. Losses incurred to date, the Company's development stage
status and the uncertainty regarding the potential market for the
Company's product may indicate that the Company will be unable to continue
as a going concern for a reasonable period of time.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis,
maintaining adequate financing, and ultimately to attain successful
operations.
Management is continuing its efforts to obtain additional funds so that
the Company can meet its obligations and sustain operations through the
issuance of common stock in private nonregistered transactions. In
addition, management intends to further the Company through execution of
various distribution and manufacturing agreements and through the
development of nonsupplemental technology products.
F-8
<PAGE> 51
To date, management's efforts have been primarily directed towards
obtaining initial capital and financing, developing manufacturing and
distribution arrangements for its dietary supplement product, conducting
research and development, applying for patent approvals and recruiting
employees.
On October 31, 1996, NutraGenics acquired LipoGenics, a company controlled
by the controlling stockholders of NutraGenics, through the exchange of
2,092,743 shares of its common stock for all the outstanding common stock
of LipoGenics. LipoGenics had previously developed the technology and was
the owner of patent applications underlying the technology. NutraGenics
was previously licensing the technology to produce and market products
therefrom. The business combination has been accounted for in a manner
similar to a pooling-of-interests, and, accordingly, the consolidated
financial statements for periods prior to the combination have been
restated to include the results of LipoGenics.
LipoGenics and its predecessors effectively commenced operations in 1992
and NutraGenics effectively commenced operations in 1994. Accordingly, the
financial statements reflect the accumulated losses of both NutraGenics
and LipoGenics.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the amounts of Bionutrics and its wholly-owned subsidiaries,
LipoGenics, and Nutrition Technologies. All significant intercompany
balances and transactions have been eliminated.
USE OF 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 disclosures 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 from
those estimates.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to
be cash and cash equivalents.
PROPERTY AND DEPRECIATION - Property is stated at cost. Depreciation is
computed using Modified Accelerated Cost Recovery System ("MACRS") rates
over the estimated useful lives of the individual assets, which range from
three to five years. Expenditures for additions are capitalized.
Expenditures of a repair and maintenance nature are expensed when
incurred.
PATENTS - Patent application costs are capitalized as incurred, however,
patents related to costs currently capitalized have not yet been obtained.
Amortization will begin when patent approval is obtained using the
straight-line method over 17 years.
INCOME TAXES are accounted for under the asset and liability approach,
which can result in recording tax provisions or benefits in periods
different from the periods in which such taxes are paid or benefits
realized. Deferred federal income taxes result principally from certain
tax carryforwards that are recognized for financial reporting purposes in
different years than for income tax reporting purposes.
RESEARCH AND DEVELOPMENT - The cost of research and development is charged
to expense as incurred.
PER SHARE CALCULATION - Net loss for share is calculated based on the
weighted average shares outstanding.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair values of notes receivable,
accounts payable, accrued compensation and other accrued liabilities
approximate the carrying value due to the short-term nature of these
instruments.
F-9
<PAGE> 52
NEWLY ISSUED ACCOUNTING PRONOUNCEMENT - In October 1995, SFAS No. 123,
Accounting for Stock Based Compensation, was issued. SFAS No. 123
establishes a fair value based method of accounting for stock-based
compensation plans and the related disclosures. The Company is required to
adopt the disclosure requirements of SFAS No. 123 for the year ending
October 31, 1997. The Company has not completed the process of evaluating
the impact that will result from SFAS No. 123, but no material impact on
the results of operations or the financial condition of the Company is
expected.
3. NOTES RECEIVABLE
At October 31, 1996, a stockholder and employee owes the Company $16,665
on a note receivable. Principal plus interest calculated at 8% per annum
are due on or before April 30, 1998.
Notes receivable of $197,000 and the related accrued interest at October
31, 1995, from the same individual, were forgiven during the fiscal year
ended October 31, 1996 and recorded as compensation expense.
4. NOTE PAYABLE
At October 31, 1995, the Company had a note payable of $250,000 to a
stockholder of the Company and during 1996, the same stockholder advanced
an additional $350,000 to the Company. Prior to October 31, 1996, the
stockholder exercised the right and option under the note agreements to
accept as repayment 400,000 shares of unregistered common stock of the
Company at a price of $1.50 per share.
5. STOCKHOLDERS' EQUITY
NutraGenics, Inc. was incorporated in the state of Utah on October 18,
1983, as Novelty Products, Inc. In November 1990, Novelty Products, Inc.,
changed its domicile to Nevada through a reincorporation merger. In
connection with the change of domicile, the company changed its name to
Erba Corporation.
On December 29, 1994, Erba Corporation acquired all 143,204 shares of the
common stock of NutraGenics, Inc. (a Delaware corporation incorporated on
April 5, 1994) in exchange for 7,134,066 shares of Erba's common stock.
Erba then changed its name to NutraGenics, Inc. For accounting purposes,
the acquisition has been treated as a recapitalization of NutraGenics,
Inc. with that company as the acquiror ("reverse-acquisition"). The
historical financial statements prior to December 29, 1994, are those of
NutraGenics, Inc.. The pro forma effects of the acquisition for the period
prior to the acquisition are not significant.
One stockholder has the option to purchase 180,000 shares of the Company's
unregistered common stock at a price of $1.50 per share for a period of
three years starting October 31, 1995. In addition, another stockholder
has the option to purchase 110,144 common shares of the Company at a total
option price of $150,000 expiring on the earlier of July 21, 2002, or a
public offering of shares of common stock. Options to a third stockholder
under a prior agreement were fully exercised at October 31, 1996.
In consideration for consulting services rendered or to be rendered to the
Company, one stockholder has a warrant for the purchase of 250,000 shares
of restricted, unregistered common stock at the price of $2.50 per share.
This stockholder also has unvested warrants that become exercisable at the
rate of 50,000 shares per quarter commencing in November 1996 to May 1998
for a total of 350,000 shares. The price of the warrants are $2.50 per
share for the first 50,000 and $4 per share for the remaining 300,000. All
warrants have ten year exercise periods upon becoming exercisable. The
warrants were recorded based on the fair market value at the date of
grant, which represents $87,500 at October 31, 1996.
F-10
<PAGE> 53
The Company adopted a stock option plan in 1996 that provides for options
to acquire 1,900,000 shares of common stock to be granted to key
personnel, consultants or independent contractors who provide valuable
services to the Company. The option price per share is 100% (110% for an
optionee who is a 10% stockholder) of the fair market value of the stock
on the day the option is granted. Options granted under this plan can be
exercisable for a period of up to ten years from the date of grant (five
years for an option granted to a 10% stockholder). All participants are
eligible to receive stock awards and stock appreciation rights, as to be
determined by the Company's board of directors. At October 31, 1996,
1,238,000 options with a five year exercise period and an option price of
$5 were granted under the plan. These options vest equally over a three
year period from the date of grant. No stock awards or stock appreciation
rights have been granted under the plan.
None of the above options or warrants had been exercised at October 31,
1996.
6. INCOME TAXES
The Company had no income tax liability at October 31, 1995 or 1996, as it
has generated operating losses to date. At October 31, 1996, the Company
had available for federal income tax purposes the following tax
carryforwards:
YEAR OF EXPIRATION AMOUNT
2009 $1,801,000
2010 331,000
2011 3,008,000
---------
Total net operating losses $5,140,000
==========
At October 31, 1995 and 1996, a deferred tax asset of approximately
$725,000 and $1,748,000, respectively, relating to such potential tax
benefits was fully offset by a valuation allowance.
7. OPERATING LEASE
The Company leases office space under a three year operating lease
beginning December 1, 1995, which contains option renewal provisions and
escalation of future rents. Total rental expense was $96,000 for fiscal
year 1996. Future minimum lease payments under noncancellable operating
leases at October 31 are as follows:
1997 $ 94,800
1998 97,700
1999 8,100
-----
Total $200,600
========
8. RELATED PARTY
Various stockholders have provided consulting and other administrative
services to the Company. Expense for the ten month period ended October
31, 1995, the year ended October 31, 1996 and the period from inception to
October 31, 1996 was $69,000, $469,000 and $977,000, respectively, and is
included in consulting, research and development, and other operating
expenses in the accompanying consolidated statements of operations.
F-11
<PAGE> 54
Interest paid to stockholders in connection with outstanding notes was
$34,000, $35,000 and $213,000 for the ten month period ended October 31,
1995, the year ended October 31, 1996 and the period from inception to
October 31, 1996, respectively.
9. JOINT VENTURE
On July 31, 1996, the Company entered into an agreement with InCon
Technologies, L.L.C. to form a limited liability company ("joint venture")
to undertake the further research and development of certain
non-proprietary dietary supplements and other non-proprietary nutritional
and health promoting products and to manufacture, market and sell
existing, as well as newly developed supplements and products. The two
companies will share equally in the capital contributions, profits and
losses derived, and management of the joint venture. No costs have been
incurred to date.
* * * * * *
F-12
<PAGE> 55
INDEPENDENT AUDITORS' REPORT
Board of Directors
NutraGenics, Inc.
Scottsdale, Arizona
We have audited the accompanying balance sheet of NutraGenics, Inc. (a
development stage company) as of October 31, 1995, and the related statements
of operations, stockholders' equity, and cash flows for the ten months then
ended and for the period from April 5, 1994 (inception) to October 31, 1995,
and the statement of operations for the period April 5, 1994 to December 31,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NutraGenics, Inc., as of
October 31, 1995, and the results of its operations and its cash flows for the
ten months then ended and from April 5, 1994 (inception) to October 31, 1995,
and the results of its operations for the period April 5, 1994 to December 31,
1994, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has incurred net losses since its inception. Those conditions have
raised substantial doubt about the Company's ability to continue as a going
concern. Management plans in regard to those matters are described in note 10.
The financial statements do not include any adjustment that might result from
the outcome of this uncertainty.
Subsequent to the original issuance of our report on the financial statements,
it was discovered that certain related-party transactions had occurred and were
not adequately disclosed. Accordingly, these financial statements have been
restated to include additional disclosures of the related-party transactions in
notes 5 and 12.
LeMaster & Daniels PLLC
Yakima, Washington
December 22, 1995
F-13
<PAGE> 1
Exhibit 3.1
RESTATED
ARTICLES OF INCORPORATION
OF
NUTRAGENICS, INC.
These Restated Articles of Incorporation of NutraGenics, Inc., attached
hereto as Exhibit A, are being filed in accordance with Section 78.403 of the
Nevada General Corporation Law, and do not alter or amend the Articles of
Incorporation, as amended, on file with the Nevada Secretary of State as of July
10, 1996. As required in Section 78.403(3) of the Nevada General Corporation
Law, these Restated Articles of Incorporation include the names and addresses of
the present directors.
IN WITNESS WHEREOF, the undersigned president and secretary of
NutraGenics, Inc. verify that they have been authorized to execute these
Restated Articles of Incorporation of NutraGenics, Inc. by resolution of the
board of directors dated July 10, 1996, and that these Restated Articles of
Incorporation correctly set forth the text of the Articles of Incorporation, as
amended, as of July 10, 1996.
DATED: July 11, 1996
NUTRAGENICS, INC.,
a Nevada corporation
By:/s/Ronald H. Lane
-----------------------
Name: Ronald H. Lane
Title: President
By:/s/D. Michael Wells
-----------------------
Name: D. Michael Wells
Title: Secretary
<PAGE> 2
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
The foregoing instrument was acknowledged before me this 11th day of
July, 1996, by Ronald H. Lane, the president of NutraGenics, Inc., a Nevada
corporation, on behalf of the corporation.
/s/Cynthia A. Severson
--------------------------
Notary Public
My commission expires:
12/5/97
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
The foregoing instrument was acknowledged before me this 11th day of
July, 1996, by D. Michael Wells, the secretary of NutraGenics, Inc., a Nevada
corporation, on behalf of the corporation.
/s/Cynthia A. Severson
--------------------------
Notary Public
My commission expires:
12/5/97
2
<PAGE> 3
EXHIBIT A
RESTATED
ARTICLES OF INCORPORATION
OF
NUTRAGENICS, INC.
ARTICLE I - NAME
The name of the Corporation is NutraGenics, Inc.
ARTICLE II - DURATION
The duration of the corporation is perpetual.
ARTICLE III - PURPOSES
The purpose or purposes for which this corporation is engaged are:
(a) To engage in the specific business of looking for business
acquisitions and related items; also the business of making investments,
including investments in, purchase and ownership of any and all kinds of
property, assets or business, whether alone or in conjunction with others. Also,
to acquire, develop, explore and otherwise deal in and with all kinds of real
and personal property and all related activities, and for any and all other
lawful purposes.
(b) To acquire by purchase, exchange, gift, bequest,
subscription, or otherwise; and to hold, own, mortgage, pledge, hypothecate,
sell, assign, transfer, exchange, or otherwise dispose of or deal in or with its
own corporate securities or stock or other securities including, without
limitations, any shares of stock, bonds, debentures, notes, mortgages, or other
obligations, and any certificates, receipts or other instruments representing
rights or interests therein on any property or assets created or issued by any
person, firm, associate, or corporation, or instrumentalities thereof; to make
payment therefor in any lawful manner or to issue in exchange therefor its
unreserved earned surplus for the purchase of its own shares, and to exercise as
owner or holder of any securities, any and all rights, powers, and privileges in
respect thereof.
(c) To do each and everything necessary, suitable, or proper
for the accomplishment of any of the purposes or the attainment of any one or
more of the subjects herein enumerated, or which may, at any time, appear
conducive to or expedient for the protection or benefit of this corporation, and
to do said acts as fully and to the same extent as natural persons might, or
could do in any part of the world as principals, agents, partners,
1
<PAGE> 4
trustees, or otherwise, either alone or in conjunction with any other person,
association, or corporation.
(d) The foregoing clauses shall be construed both as purposes
and powers and shall not be held to limit or restrict in any manner the general
powers of the corporation, and the enjoyment and exercise thereof, as conferred
by the laws of the State of Nevada; and it is the intention that the purposes
and powers specified in each of the paragraphs of this Article III shall be
regarded as independent purposes and powers.
ARTICLE IV - STOCK
Authorized Capital Stock. The total number of shares of stock that the
Corporation shall have authority to issue is 50,000,000, $.001 par value per
share, consisting of 5,000,000 shares of preferred stock, $.001 par value per
share ("Preferred Stock"), and 45,000,000 shares of Common Stock, $.001 par
value per share ("Common Stock").
(a) Common Stock. Each issued and outstanding share of common
stock will entitle the holder thereof to one (1) vote on any matter submitted to
a vote of or for consent of stockholders generally.
(b) Preferred Stock. Authority is hereby expressly granted to
the Board of Directors from time to time to issue the Preferred Stock as
preferred stock of one or more series and in connection with the creation of any
such series to fix by the resolution or resolutions providing for the issue of
shares thereof the designation, voting powers, preferences, and relative,
participating, optional, or other special rights of such series, and the
qualifications, limitations, or restrictions thereof. Such authority of the
Board of Directors with respect to each such series shall include, but not be
limited to, the determination of the following:
(i) the distinctive designation of, and the number of
shares comprising, such series, which number may be increased (except where
otherwise provided by the Board of Directors in creating such series) or
decreased (but not below the number of shares thereof then outstanding) from
time to time by like action of the Board of Directors;
(ii) the dividend rate or amount for such series, the
conditions and dates upon which such dividends shall be payable, the relation
which such dividends shall bear to the dividends payable on any other class or
classes or any other series of any class or classes of stock, and whether such
dividends shall be cumulative, and if so, from which date or dates for such
series;
2
<PAGE> 5
(iii) whether or not the shares of such series shall
be subject to redemption by the Corporation and the times, prices and other
terms and conditions of such redemption;
(iv) whether or not the shares of such series shall
be subject to the operation of a sinking fund or purchase fund to be applied to
the redemption or purchase of such shares and if such a fund be established, the
amount thereof and the terms and provisions relative to the application thereof;
(v) whether or not the shares of such series shall be
convertible into or exchangeable for shares of any other class or classes, or of
any other series of any class or classes, of stock of the Corporation and if
provision be made for conversion or exchange, the times, prices, rates
adjustments, and other terms and conditions of such conversion or exchange;
(vi) whether or not the shares of such series shall
have voting rights, in addition to the voting rights provided by law, and if
they are to have such additional voting rights, the extent thereof;
(vii) the rights of the shares of such series in the
event of any liquidation, dissolution, or winding up of the Corporation or upon
any distribution of its assets; and
(viii) any other powers, preferences, and relative,
participating, optional, or other special rights of the shares of such series,
and the qualifications, limitations, or restrictions thereof, to the full extent
now or hereafter permitted by law and not inconsistent with the provisions
hereof.
ARTICLE V - AMENDMENT
These Articles of Incorporation may be amended by the affirmative vote
of "a majority" of the shares entitled to vote on each such amendment.
ARTICLE VI - SHAREHOLDERS RIGHTS
The authorized and treasury stock of this corporation may be issued at
such time, upon such terms and conditions and for such consideration as the
Board of Directors shall determine. Shareholders shall not have pre-emptive
rights to acquire unissued shares of the stock of this corporation.
3
<PAGE> 6
ARTICLE VII - INITIAL OFFICE AND AGENT
The Corporate Trust Company of Nevada
One East First Street
Reno, NV 89501
ARTICLE VIII - DIRECTORS
The directors are hereby given the authority to do any act on behalf of
the corporation by law and in each instance where the Business Corporation Act
provides that the directors may act in certain instances where the Articles of
Incorporation authorize such action by the directors, the directors are hereby
given authority to act in such instances without specifically numerating such
potential action or instance herein.
The directors are specifically given the authority to mortgage or
pledge any or all assets of the business without stockholders' approval.
The number of directors constituting the Board of Directors of this
corporation is ten. The names and addresses of the persons who are to serve as
Directors until the next annual meeting of stockholders or until his successor
is elected are:
Ronald H. Lane, Ph.D. 2425 East Camelback Road
Suite 650
Phoenix, AZ 85016
D. Michael Wells 2425 East Camelback Road
Suite 650
Phoenix, AZ 85016
Milton Okin 2425 East Camelback Road
Suite 650
Phoenix, AZ 85016
Richard Feldheim, Esq. 2425 East Camelback Road
Suite 650
Phoenix, AZ 85016
Fredrick Rentschler 2425 East Camelback Road
Suite 650
Phoenix, AZ 85016
4
<PAGE> 7
Ian Ferrier, Ph.D., M.D. 2425 East Camelback Road
Suite 650
Phoenix, AZ 85016
Winston Salser, Ph.D. 2425 East Camelback Road
Suite 650
Phoenix, AZ 85016
C. Everett Koop, M.D., Sc.D. 2425 East Camelback Road
Suite 650
Phoenix, AZ 85016
Steve Henig, Ph.D. 2425 East Camelback Road
Suite 650
Phoenix, AZ 85016
William M. McCormick 2425 East Camelback Road
Suite 650
Phoenix, AZ 85016
ARTICLE IX -
COMMON DIRECTORS - TRANSACTIONS BETWEEN CORPORATIONS
No contract or other transaction between this corporation and any one
or more of its directors or any other corporation, firm, association, or entity
in which one or more of its directors or officers are financially interested,
shall be either void or voidable because of such relationship or interest, or
because such director or directors are present at the meeting of the Board of
Directors, or a committee thereof, which authorizes, approves, or ratifies such
contract or transaction, or because his or their votes are counted for such
purpose if: (a) the fact of such relationship or interest is disclosed or known
to the Board of Directors or committee which authorizes, approves, or ratifies
the contract or transaction by vote or consent sufficient for the purpose
without counting the votes or consents of such interested director; or (b) the
fact of such relationship or interest is disclosed or known to the stockholders
entitled to vote and they authorize, approve, or ratify such contract or
transaction by vote or written consent, or (c) the contract or transaction is
fair and reasonable to the corporation.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or committee thereof
which authorizes, approves, or ratifies such contract or transaction.
5
<PAGE> 8
ARTICLE X -
LIABILITY OF DIRECTORS AND OFFICERS
No director or officer shall be personally liable to the Corporation or
its stockholders for monetary damages for any breach of fiduciary duty by such
person as a director or officer. Notwithstanding the foregoing sentence, a
director or officer shall be liable to the extent provided by applicable law,
(i) for acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law, or (ii) for the payment of dividends in violation of
NRS 78.300.
The provisions hereof shall not apply to or have any effect on the
liability or alleged liability of any officer or director of the Corporation for
or with respect to any acts or omissions of such person occurring prior to such
amendment.
ARTICLE XI - NO PREEMPTIVE RIGHTS
No holder of any shares of the Corporation shall, because of its, his
or her ownership of shares, have a preemptive or other right to purchase,
subscribe for or take any part of any shares or any part of the notes,
debentures, bonds or other securities convertible into or carrying options or
warrants to purchase shares of the Corporation issued, optioned or sold by the
Corporation, whether the shares be authorized by the Articles of Incorporation
of the Corporation or be authorized by an amendment thereto duly filed and in
effect at the time of the issuance or sale of such shares or such notes,
debentures, bonds or other securities convertible into or carrying options or
warrants to purchase shares of the Corporation. Any part of the shares
authorized by the Articles of Incorporation or by an amendment thereto duly
filed, and any part of the notes, debentures, bonds or other securities
convertible into or carrying options or warrants to purchase shares of the
Corporation may at any time be issued, optioned for sale and sold or disposed of
by the Corporation pursuant to resolution of the Board of Directors to such
persons and upon such terms and conditions as may, to the Board of Directors,
seem proper and advisable without first offering to existing stockholders the
said shares or the said notes, debentures, bonds or other securities convertible
into or carrying options or warrants to purchase shares of the Corporation or
any part of any thereof.
ARTICLE XII - STRUCTURE OF THE BOARD OF DIRECTORS
A. The Board of Directors (other than those directors elected by the
holders of any series of Preferred Stock provided for or fixed pursuant to the
provisions of Article IV hereof ("Preferred Stock Directors")) shall be divided
into three classes, as nearly equal in number as possible, designated Class I,
Class II and Class III. Class I directors shall initially serve until the 1997
meeting of stockholders; Class II directors shall initially serve until the 1998
meeting of stockholders; and Class III directors shall initially serve until the
1999 meeting of stockholders. Commencing with the annual meeting of stockholders
in 1996,
6
<PAGE> 9
directors of each class, the term of which shall then expire, shall be elected
to hold office for a three-year term and until the election and qualification of
their respective successors in office. In case of any increase or decrease, from
time to time, in the number of directors (other than Preferred Stock Directors),
the number of directors in each class shall be apportioned as nearly equally as
possible.
B. Any director chosen to fill a vacancy or newly created directorship
shall hold office until the next election of the class for which such director
shall have been chosen and until his or her successor shall be elected and
qualified or until his or her earlier death, resignation, disqualification or
removal.
7
<PAGE> 1
Exhibit 3.2
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
NUTRAGENICS, INC.
Pursuant to the provision of Article 78.390 of the Nevada
General Corporation Law, the undersigned corporation hereby adopts the following
Articles of Amendment to its Articles of Incorporation:
FIRST: The name of the corporation is NutraGenics, Inc. (the
"Corporation").
SECOND: In order to change the name of the Corporation to
Bionutrics, Inc., Article I of the Articles of Incorporation of the Corporation
is hereby amended in its entirety to read as follows:
"ARTICLE I - NAME
The name of the Corporation is Bionutrics, Inc."
THIRD: The amendment does not provide for an exchange,
reclassification or cancellation of issued shares.
FOURTH: The amendment to the Articles of Incorporation of the
Corporation was adopted by the Board of Directors and Stockholders of the
Corporation on November 15, 1996.
FIFTH: The number of shares of the Corporation outstanding at
the time of the adoption of such amendment was 15,167,979 and the number
entitled to vote thereon was 15,167,979.
SIXTH: The designation and number of outstanding shares of
each class entitled to vote thereon as a class were as follows:
<TABLE>
<CAPTION>
Class Number of Shares
----- ----------------
<S> <C>
Common 15,167,979
Preferred 0
</TABLE>
SEVENTH: The number of shares voted for such amendment was
7,934,176, with 0 opposing and 0 abstaining.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned president and secretary of
the Corporation, having been thereunto duly authorized, have executed the
foregoing Articles of Amendment for the Corporation this 11th day of December,
1996.
NUTRAGENICS, INC.,
a Nevada corporation
By:/s/Ronald H. Lane
----------------------------------
Name: Ronald H. Lane, Ph.D.
Title: President
By:/s/George Duck
----------------------------------
Name: George Duck
Title: Secretary
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
The foregoing instrument was acknowledged before me this 11th day of
December, 1996, by Ronald H. Lane, Ph.D., the President of NutraGenics, Inc., a
Nevada corporation, on behalf of the corporation.
/s/Cynthia A. Severson
----------------------------
Notary Public
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
The foregoing instrument was acknowledged before me this 11th
day of December, 1996, by George Duck, the Secretary of NutraGenics, Inc., a
Nevada corporation, on behalf of the corporation.
/s/Cynthia A. Severson
----------------------------
Notary Public
<PAGE> 1
Exhibit 3.3
BYLAWS
OF
NUTRAGENICS, INC.
A NEVADA CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 - Stockholders............................................................................... 4
1.1 Place of Meetings.................................................................... 4
1.2 Annual Meetings...................................................................... 4
1.3 Special Meetings..................................................................... 4
1.4 Notice of Meetings................................................................... 4
1.5 Voting List.......................................................................... 4
1.6 Quorum............................................................................... 4
1.7 Adjournments......................................................................... 4
1.8 Voting and Proxies................................................................... 5
1.9 Action at Meeting.................................................................... 5
1.10 Action Without Meeting............................................................... 5
ARTICLE 2 - Directors.................................................................................. 5
2.1 General Powers....................................................................... 5
2.2 Number: Election and Qualification.................................................. 5
2.3 Enlargement of the Board............................................................. 6
2.4 Tenure............................................................................... 6
2.5 Vacancies............................................................................ 6
2.6 Resignation.......................................................................... 6
2.7 Regular Meeting...................................................................... 6
2.8 Special Meetings..................................................................... 6
2.9 Notice of Special Meetings........................................................... 6
2.10 Meetings by Telephone Conference Calls............................................... 6
2.11 Quorum............................................................................... 6
2.12 Action at Meeting.................................................................... 7
2.13 Action by Consent.................................................................... 7
2.14 Removal.............................................................................. 7
2.15 Committees........................................................................... 7
2.16 Compensation of Directors............................................................ 8
ARTICLE 3 - Officers................................................................................... 8
3.1 General.............................................................................. 8
3.2 Election............................................................................. 8
3.3 Qualification........................................................................ 8
3.4 Tenure............................................................................... 8
3.5 Resignation and Removal.............................................................. 8
3.6 Vacancies............................................................................ 8
3.7 Chairman of the Board and Vice Chairman of the Board................................. 9
3.8 President............................................................................ 9
3.9 Vice Presidents...................................................................... 9
3.10 Secretary and Assistant Secretaries.................................................. 9
3.11 Treasurer and Assistant Treasurer.................................................... 10
3.12 Salaries............................................................................. 10
ARTICLE 4 - Capital Stock.............................................................................. 10
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
4.1 Issuance of Stock.................................................................... 10
4.2 Certificates of Stock................................................................ 10
4.3 Transfers............................................................................ 11
4.4 Lost, Stolen or Destroyed Certificates............................................... 11
4.5 Record Date.......................................................................... 11
ARTICLE 5 - Indemnification............................................................................ 11
ARTICLE 6 - General Provisions......................................................................... 12
6.1 Fiscal Year.......................................................................... 12
6.2 Corporate Seal....................................................................... 12
6.3 Written Notice of Meetings........................................................... 12
6.4 Waiver of Notice..................................................................... 12
6.5 Voting of Securities................................................................. 12
6.6 Evidence of Authority................................................................ 12
6.7 Certificate of Incorporation......................................................... 12
6.8 Transactions with Interested Parties................................................. 12
6.9 Severability......................................................................... 13
6.10 Pronouns............................................................................. 13
ARTICLE 7 - Amendments................................................................................. 13
7.1 By the Board of Directors............................................................ 13
7.2 By the Stockholders.................................................................. 13
</TABLE>
3
<PAGE> 4
BYLAWS
OF
NUTRAGENICS, INC.
a Nevada Corporation
ARTICLE 1 - Stockholders
1.1 Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Nevada as may be designated from time
to time by the board of directors or the president or, if not so designated, at
the registered office of the corporation.
1.2 Annual Meetings. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting, shall be held at such time and date as
fixed by the Board of Directors. A special meeting may be held in lieu of the
annual meeting and any action taken at that special meeting shall have the same
effect as if it had been taken at the annual meeting, and in such case all
references in these Bylaws to the annual meeting of the stockholders shall be
deemed to refer to such special meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at
any time by the chairman of the board of directors, by the board of directors or
by the holders of not less than one-fourth (1/4) of all the shares entitled to
vote at the meeting. Business transacted at any special meeting of stockholders
shall be limited to matters relating to the purpose or purposes stated in the
notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting. The notices of all meetings shall
state the place, date and hour of the meeting. The notice of a special meeting
shall state, in addition, the purpose or purposes for which the meeting is
called.
1.5 Voting List. The officer who has charge of the stock ledger of the
Corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, the holders of a majority of the shares of the
capital stock of the Corporation issues and outstanding are entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
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<PAGE> 5
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these Bylaws by the stockholder present or represented at the meeting and
entitled to vote, although less than a quorum, or, of no stockholder is present,
by any officer entitled to preside at or to act as secretary of such meeting. If
the adjournment is for more than 30 days, or if after the adjournment, a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting. At the adjourned meeting, the Corporation may transact any business
which might have been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held or record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the secretary of the Corporation. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. No proxy
shall be voted or acted upon after three years from the date of its execution,
unless the proxy expressly provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and voting on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these Bylaws. Any election by stockholders shall be determined
by a plurality of the votes cast by the stockholders entitled to vote at the
election.
1.10 Action Without Meeting. Any actin required or permitted to be
taken at any annual or special meeting of stockholders of the Corporation may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present and voted. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE 2 - Directors
2.1 General Powers. The business and affairs of the Corporation shall
be managed by or under the direction of a board of directors, who may exercise
all of the powers of the Corporation except as otherwise provided by law, the
Certificate of Incorporation or these
5
<PAGE> 6
Bylaws. In the event of a vacancy on the board of directors, the remaining
directors, except as otherwise provided by law, may exercise the powers of the
full board of directors until the vacancy is filled.
2.2 Number: Election and Qualification. The number of directors which
shall constitute the whole board of directors shall be determined by resolution
of the stockholders or the board of directors, but in no event shall be less
than one. The number of directors may be decreased at any time and from time to
time either by the stockholders or by a majority of the directors then in
office, but only to eliminate vacancies existing by reason of the death,
resignation, removal or expiration of the term of one or more directors. The
directors shall be elected at the annual meeting of stockholders by such
stockholders as have the right to vote in such election. Directors need not be
stockholders of the corporation.
2.3 Enlargement of the Board. The number of directors may be increased
at any time and from time to time by the stockholders or by a majority of the
directors then in office.
2.4 Tenure. Each director shall hold office until the next annual
meeting and until such time as his successor is elected and qualified, or until
his earlier death, resignation or removal.
2.5 Vacancies. Unless and until filled by the stockholders, any vacancy
in the board of directors, however occurring, including a vacancy resulting from
an increase in the number of directors, may be filled by vote of a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director. A director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office, and a director chosen to fill a
position resulting from an increase in the number of directors shall hold office
until the next annual meeting of stockholders and until his successor is elected
and qualified, or until his earlier death, resignation or removal.
2.6 Resignation. Any director may resign by delivering his written
resignation to the Corporation at its principal office or to the secretary. Such
resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.
2.7 Regular Meeting. Regular meetings of the board of directors may be
held without notice at such time and place, either within or without the State
of Nevada, as shall be determined from time to time by the board of directors,
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the board of
directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.8 Special Meetings. Special meetings of the board of directors may be
held at any time and place, within or without the State of Nevada, designated in
a call by the chairman of
6
<PAGE> 7
the Board, president or two or more directors, or by one director in the event
that there is only a single director in office.
2.9 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the secretary or one of the
directors calling the meeting. Notice shall be duly given to each director (i)
by giving notice to such director in person or by telephone at least 48 hours in
advance of the meeting, (ii) by sending a telegram or telex, or delivering
written notice by hand to his last known business or home address at least 48
hours in advance of the meeting, or (iii) by mailing written notice to his last
know business or home address at least 72 hours in advance of the meeting. A
notice or waiver of notice of a meeting of the board of directors need not
specify the purpose of the meeting.
2.10 Meetings by Telephone Conference Calls. Directors or any members
of any committee designated by the directors may participate in a meeting of the
board of directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.11 Quorum. A majority of the whole board of directors shall
constitute a quorum at all meetings of the board of directors. In the event one
or more of the directors shall be disqualified to vote at any meeting, then the
required quorum shall be reduced by one for each such director so disqualified;
provided, however, that in no case shall less than one-third (1/3) of the whole
board of directors constitute a quorum. In the absence of a quorum at any such
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice other than announcement at the meeting, until a
quorum shall be present.
2.12 Action at Meeting. At any meeting of the board of directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these Bylaws.
2.13 Action by Consent. Any action required or permitted to be taken at
any meeting of the board of directors or of any committee of the board of
directors may be taken without a meeting, if all members of the board of
directors or committee, as the case may be, consent to the action in writing,
and the written consents are filed with the minutes of proceedings of the board
of directors or committee.
2.14 Removal. Any one or more or all of the directors may be removed,
with out without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors, except that (i) the directors elected by
the holders of a particular class or series of stock may be removed without
cause only by vote of the holders of a majority of the outstanding shares of
such class or series and (ii) in the case of a corporation having cumulative
voting, if less than the entire board is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire board of
directors.
7
<PAGE> 8
2.15 Committees. The board of directors may, by resolution passed by a
majority of the whole bord of directors, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member of any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members of the committee present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the board of directors and subject to the
provisions of the General Corporation Law of the State of Nevada, shall have and
may exercise all the powers and authority of the board of directors in the
management of the business and affairs of the Corporation and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have the power of authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the board of directors as provided in subsection (a) of
Section 151 of the General Corporation Law of the State of Nevada, fix the
designations and any of the preferences of rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the Corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any series),
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
Bylaws of the Corporation; and, unless the resolution, Bylaws of Certificate of
Incorporation expressly so provides, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock or to adopt
a certificate of ownership and merger. Each such committee shall keep minutes
and make such reports as the board of directors may from time to time request.
Except as the board of directors may otherwise determine, any committee may make
rules for the conduct of its business, but unless otherwise provided by the
directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these Bylaws for the board of
directors.
2.16 Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the board of directors may from time to time determine. No such payment shall
preclude any director from serving the Corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 - Officers
3.1 General. The officers of the Corporation shall consist of a
chairman of the board, a president, a secretary, a treasurer and such other
officers with such other titles as the board of directors may determine,
including a vice chairman of the board, and one or more vice presidents,
8
<PAGE> 9
assistant treasurers, and assistant secretaries. The board of directors may
appoint such other officers with such other powers and duties as it may deem
appropriate.
3.2 Election. The chairman of the board, president, treasurer and
secretary shall be elected annually by the board of directors at its first
meeting following the annual meeting of stockholders. Other officers may be
appointed by the board of directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these Bylaws, each officer shall hold office until his
successor is elected and qualified unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the Corporation at its principal office or to the
president or secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote
of a majority of the entire number of directors then in office.
Except as the board of directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an officer
for any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 Vacancies. The board of directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of president, treasurer
and secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 Chairman of the Board and Vice Chairman of the Board. The chairman
of the board of directors shall be the chief executive officer of the
Corporation. Subject to the direction of the board of directors, the chairman of
the board of directors shall have general charge and supervision of the business
of the Corporation, and shall have full authority to take all lawful actions
necessary to implement corporate and business policy established by the board of
directors. In addition,the chairman of the board of directors shall perform such
duties and possess such other powers as are assigned to him by the board of
directors. Unless otherwise provided by the board of directors, the chairman of
the board of directors shall preside at all
9
<PAGE> 10
meetings of the stockholders and the board of directors. The board of directors
may appoint a vice chairman of the board of directors who may, in the absence or
disability of the chairman, perform the duties and exercise the powers of the
chairman and perform such other duties and possess such other powers as from
time to time are authorized by the board of directors.
3.8 President. The president shall be the chief operating officer of
the Corporation and shall have charge and supervision of the day to day business
operations of the Corporation, subject to the authority of the chairman of the
board of directors and of the board of directors. Unless the board of directors
or chairman of the board of directors shall otherwise direct, all executive
officers of the Corporation shall report, directly or through their immediate
superior officers, to the president. The president shall perform such other
duties and shall have such other powers as the board of directors may from time
to time prescribe.
3.9 Vice Presidents. The vice president shall perform such duties and
shall have such powers as the board of directors, chairman of the board of
directors or the president may from time to time prescribe. The vice president
shall discharge the duties of the president when the president, for any reason,
cannot discharge the duties of his office. He shall have such other powers and
perform such other duties as shall be prescribed by the directors.
Any assistant vice presidents shall perform such duties and possess
such powers as the board of directors, the chairman of the board of directors,
the president or the vice president may from time to time prescribe.
3.10 Secretary and Assistant Secretaries. The secretary shall perform
such duties and shall have such powers as the board of directors, chairman of
the board of directors or the president may from time to time prescribe. In
addition, the secretary shall perform such duties and have such powers as are
incident to the office of the secretary, including without limitation, the duty
and power to give notices of all meetings of stockholders and special meetings
of the board of directors, to attend all meetings of stockholders and the board
of directors and keep a record of the proceedings, to maintain a stock ledger
and prepare lists of stockholders and their addresses as required, to be
custodian of corporate records and the corporate seal, if any, and to affix and
attest to the same on documents.
Any assistant secretary shall perform such duties and possess such
powers as the board of directors, the chairman of the board of directors, the
president or the secretary may from time to time prescribe. In the event of the
absence, inability or refusal to act of the secretary, the assistant secretary
(or if there be more than one, the assistant secretaries in the order determined
by the board of directors) shall perform the duties and exercise the powers of
the secretary.
In the absence of the secretary or any assistant secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
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<PAGE> 11
3.11 Treasurer and Assistant Treasurer. The treasurer shall perform
such duties and shall have such powers as from time to time be assigned to him
by the board of directors, the chairman of the board of directors or the
president. In addition, the treasurer shall perform such duties and have such
powers as are incident to the office of treasurer, including without limitation
the duty and power to keep and be responsible for all funds and securities of
the Corporation, to deposit funds of the Corporation in depositories selected in
accordance with these Bylaws, to disburse such funds as ordered by the board of
directors, the chairman of the board of directors, the president or any vice
president of the Corporation so authorized to act by specific authorization of
the board of directors or chairman of the Directors, to make proper accounts of
such funds, and to render, as required by the board of directors, chairman of
the board of directors or president, statements of all such transactions and of
the financial condition of the Corporation.
The assistant treasurers shall perform such duties and possess such
powers as the board of directors, the chairman of the board of directors, the
president or the treasurer may from time to time prescribe. In the event of the
absence, inability or refusal to act of the treasurer, the assistant treasurer
(or if there shall be more than one, the assistant treasurers in the order
determined by the board of directors) shall perform the duties and exercise the
powers of the treasurer.
3.12 Salaries. Officers of the Corporation shall be entitled to such
salary, compensation or reimbursement as shall be fixed or allowed from time to
time by the board of directors.
ARTICLE 4 - Capital Stock
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the Corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the Corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the board of directors in such manner, for such
consideration and on such terms as the board of directors may determine.
4.2 Certificates of Stock. Every holder of stock of the Corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the board of directors, certifying the number and class of shares
owned by him in the Corporation. Each such certificate shall be signed by, or in
the name of the Corporation by the chairman or vice chairman, if any, of the
board of directors, or the president or a vice president, and the treasurer or
an assistant treasurer, or the secretary of an assistant secretary of the
Corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
Bylaws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the Corporation shall
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<PAGE> 12
have conspicuously noted on the face or back of the certificate either the full
text or the restriction or a statement of existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
adopted by the board of directors, and subject to applicable laws, shares of
stock may be transferred on the books of the Corporation by the surrender to the
Corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the Corporation- or its transfer agent may reasonable require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these Bylaws, the Corporation shall be entitled to treat the record holder
of stock as shown on its books as the owner of such stock for all purposes,
including the payment of dividends and the right to vote with respect to such
stock, regardless of any transfer, pledge or other disposition of such stock
until the shares have been transferred on the books of the Corporation in
accordance with the requirements of these Bylaws.
4.4 Lost. Stolen or Destroyed Certificates. The Corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen or destroyed, upon such terms and conditions as the
board of directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving such indemnity as the
board of directors may require for the protection of the Corporation or any
transfer agent or registrar.
4.5 Record Date. The board of directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 days prior to any other
action to which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is necessary, shall be the day on which
the first written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of business on the date
on which the board of directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
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<PAGE> 13
ARTICLE 5 - Indemnification
The Corporation shall, to the fullest extent permitted by the General
Corporation Law of the State of Nevada, as that Section may be amended and
supplemented from time to time, indemnity any director, officer or trustee which
it shall have power to indemnify under that Section against any expenses,
liabilities or other matters referred to in or covered by that Section. The
indemnification provided for in this Article (i) shall not be deemed exclusive
of any other rights to which those indemnified may be entitled under any bylaw,
agreement or vote of stockholders or disinterested directors or otherwise, both
as to action in their official capacities and as to action in another capacity
while holding such office, (ii) shall continue as to a person who has ceased to
be a director, officer or trustee, and (iii) shall inure to the benefit of the
heirs, executors and administrators of such a person. The Corporation's
obligation to provide indemnification under this Article shall be offset to the
extent of any other source of indemnification or any otherwise applicable
insurance coverage under a policy maintained by the Corporation or any other
person.
ARTICLE 6 - General Provisions
6.1 Fiscal Year. The fiscal year of the Corporation shall be determined
by the board of directors.
6.2 Corporate Seal. The corporate seal, if any, shall be in such form
as shall be approved by the board of directors.
6.3 Written Notice of Meetings. Whenever written notice is required to
be given to any person pursuant to law, the Certificate of Incorporation or
these Bylaws, it may be given to such person, either personally or by sending a
copy thereof by first class mail, or by telegram, charges prepaid, to his
address appearing on the books of the Corporation, or to his business or other
address supplied by him to the Corporation for the purpose of notice. If the
notice is sent by first class mail or by telegraph, it shall be deemed to have
been given to the person entitled thereto when deposited in the United States
mail or with a telegraph office for transmission to such person. Such notice
shall specify the place, day and hour of the meeting and, in case of a special
meeting of the shareholders, the general nature of the business to be
transacted.
6.4 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these Bylaws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
6.5 Voting of Securities. Except as the directors may otherwise
designate, the president or treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
Corporation (with or without power of substitution) at any
13
<PAGE> 14
meeting of stockholders or shareholders of any other corporation or
organization, the securities of which may be held by this Corporation.
6.6 Evidence of Authority. A certificate by the secretary or an
assistant secretary, or a temporary secretary, as to any action taken by the
stockholders, directors, a committee or any officer of representative of the
Corporation shall as to an persons who rely on the certificate in good faith be
conclusive evidence of such action.
6.7 Certificate of Incorporation. All references in these Bylaws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the Corporation as amended and in effect from time to time.
6.8 Transactions with
Interested Parties. No contract or transaction between the Corporation and one
or more of the directors or officers, or between the Corporation and any other
corporation, partnership, association or other organization in which one or more
of the directors or officers are directors or officers, or have a financial
interest shall be void or voidable solely for this reason, or solely because the
director or officer is present at or participates in the meeting of the board of
directors or a committee of the board of directors which authorizes the contract
or transaction or solely because his or their votes are counted for such
purpose, if:
(1) The material facts as to his relationship or interest as
to the contract or transaction are disclosed or are known to the board
of directors or the committee, and the board of directors or committee
in good faith authorized the contract or transaction by the affirmative
votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum;
(2) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitles to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the board of
directors, a committee of the board of directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a committee
which authorizes the contract or transaction.
6.9 Severability. Any determination that any provision of these Bylaws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these Bylaws.
14
<PAGE> 15
6.10 Pronouns. All pronouns used in these Bylaws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural as the identity
of the person or persons may require.
ARTICLE 7 - Amendments
7.1 By the Board of Directors. These Bylaws may be altered, amended or
repealed or new Bylaws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the board of
directors at which a quorum is present.
7.2 By the Stockholders. These Bylaws may be altered, amended or
repealed or new Bylaws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the Corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alternation,
amendment, repeal or adoption of new Bylaws shall have been stated in the notice
of such special meeting.
ADOPTED THIS 12th day of June, 1994.
/s/Robert A. Larkin
---------------------------
Robert A. Larkin
President/Secretary
15
<PAGE> 1
EXHIBIT 4.1
BIONUTRICS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
50,000,000 SHARES COMMON STOCK AUTHORIZED, $.001 PAR VALUE
THIS CUSIP 090946 10 4
CERTIFIES SEE REVERSE FOR
THAT CERTAIN DEFINITIONS
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
BIONUTRICS, INC.
transferable on the books of the corporation in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
and the shares represented hereby are subject to the laws of the State of
Nevada, and to the Certificate of Incorporation and Bylaws of the Corporation,
as now or hereafter amended. This certificate is not valid unless countersigned
by the Transfer Agent. WITNESS the facsimile seal of the Corporation and the
facsimile signature of its duly authorized officers.
DATED BIONUTRICS, INC.
/s/ ILLEGIBLE CORPORATE SEAL /s/ ILLEGIBLE
- ------------------- -----------------
President NEVADA Secretary
COUNTERSIGNED
PACIFIC STOCK TRANSFER COMPANY
P.O. Box 93385
Las Vegas, NV 89193
By: _________________________
AUTHORIZED SIGNATURE
<PAGE> 1
Exhibit 10.1
LIPOGENICS, INC.
STOCK OPTION
OPTION TO PURCHASE 10,000 SHARES
OF CLASS A COMMON STOCK
AS DESCRIBED HEREIN
Dated: July 21, 1992
--------------------------
This certifies that, in consideration of Twenty-five Thousand
Dollars ($25,000) to Lipogenics, Inc., received in exchange for partial
cancellation of a promissory note and accrued interest thereon:
Name: Hunt-Wesson, Inc.
Address: 1645 West Valencia Drive
Fullerton, California 92633
or its registered assigns, are entitled to purchase from LipoGenics, a Delaware
corporation (the "Company"), having its principal office at 8300 N. Hayden Road,
Suite 209, Scottsdale, Arizona 85258, such number of fully paid and
nonassessable shares of the Company's Class A Common Stock, without par value
(the "Class A Common Stock"), as would represent five percent (5%) of the
aggregate of (i) the number of shares of Class A Common Stock outstanding
immediately after issuance pursuant to exercise of this option (the "Option"),
plus (ii) the number of shares of Class A Common Stock issuable pursuant to
conversion of the Company's Class B Common Stock, and (iii) the number of shares
of Class A Common Stock issuable pursuant to exercise of the option issued to
Winston Salser; which five percent (5%) on the date hereof is 10,000 shares of
Class A Common Stock, at a per share exercise price of $15.00 (the "Option
Price"), subject to the terms set forth herein. The aggregate purchase price
(the "Aggregate Purchase Price") for such five percent (5%) shall not exceed
$150,000. The holder(s) of this Option, whether Hunt-Wesson, Inc. ("Hunt-
Wesson") and/or a registered assign, shall be referred to herein as the
"Optionholder." In the event that prior to July 21, 2002, shares of Class A
Common Stock are issued pursuant to conversion of shares of any other equity
security of the Company that were outstanding prior to the effective date of a
public offering of the Class A Common Stock, each Optionholder that had
exercised this Option shall be entitled to receive, without additional payment,
such additional shares of Class A Common Stock as are
1.
<PAGE> 2
necessary to preserve the percentage of the outstanding Class A Common Stock he
owned, pursuant to such exercise(s), immediately prior to conversion of such
other equity securities.
1. The purchase rights represented by this Option may be
exercised by the Optionholder or its duly authorized attorney or representative,
in whole or in part (but not as to a fractional share of Class A Common Stock),
(i) at any time and from time to time during the period commencing one year from
the date hereof and expiring on the earlier of (a) 4:30 P.M. Los Angeles time on
July 21, 2002, or (b) a public offering of shares of Class A Common Stock being
declared effective by the Securities and Exchange Commission (the "Exercise
Period"), or if a public offering is declared effective prior to 13 months from
the date hereof, then at any time (ii) within 30 days of such offering being
declared effective by the Securities and Exchange Commission, upon presentation
of this option at the principal office of the Company, with the purchase form
attached hereto duly completed and signed, and upon payment to the Company in
cash or by certified check or bank draft of an amount equal to the number of
shares being so purchased multiplied by the Option Price. The Company agrees
that the optionholder shall be deemed the record owner of such shares as of the
close of business on the date on which this Option shall have been presented and
payment made for such shares as aforesaid. Certificates for the shares of Class
A Common Stock so purchased shall be delivered to the Optionholder within a
reasonable time, not exceeding fifteen (15) days, after the rights represented
by this Option shall have been duly exercised.
If this Option is exercised in part only, the Company
shall, upon surrender of this Option for cancellation, deliver a new option
evidencing the rights of the Optionholder to purchase the balance of the shares
of Class A Common Stock which the Optionholder is entitled to purchase hereunder
on the same terms and conditions as stated herein.
2. Subject to the provisions of Section 8, this Option is
exchangeable at the option of the optionholder at the principal office of the
Company for other Options of different denominations entitling the optionholder
to purchase the same aggregate number of shares of Class A Common Stock as are
purchasable hereunder on the same terms and conditions as stated herein.
3. A share of Class A Common Stock may be purchased pursuant
to this Option at the Option Price. The Option Price is subject to adjustment
from time to time upon the occurrence of the events specified in Section 4.
2.
<PAGE> 3
4. The Option Price and the number of shares purchasable upon
the exercise of this option are subject to adjustment from time to time upon the
occurrence of the events specified in this section.
(a) If the Company at any time or from time to time
after the date of this option effects a subdivision of the outstanding Class A
Common Stock, the Option Price then in effect immediately before the subdivision
shall be proportionately decreased, and conversely, if the Company at any time
or from time to time after the date of this Option combines the outstanding
shares of Class A Common Stock, the Option Price then in effect immediately
before the combination shall be proportionately increased. Any adjustment under
this Section 4(a) shall become effective as of the date and time the subdivision
or combination becomes effective.
(b) In the event the Company at any time or from time
to time after the date of this option makes, or fixes a record date of or the
determination of holders of Class A Common Stock entitled to receive, a dividend
or other distribution payable in additional shares of Class A Common Stock, then
and in each such event the Option Price then in effect shall be decreased as of
the time of such issuance or, in the event such a record date is fixed, as of
the close of business on such record date, by multiplying the Option Price then
in effect by a fraction: (a) the numerator of which is the total number of
shares of Class A Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date; and (b) the
denominator of which shall be the total number of shares of Class A Common Stock
issued and outstanding immediately prior to the time of such issuance or the
close of business on such record date plus the number of shares of Class A
Common Stock issuable in payment of such dividend or distribution; provided,
however, that if such record date is fixed and such dividend is not fully paid,
or if such distribution is not fully made on the date fixed therefor, the option
Price shall be recomputed to reflect that such dividend was not fully paid or
that such distribution was not fully made as of the close of business on such
record date and thereafter the option Price shall be adjusted pursuant to this
Section 4(b) as of the time of actual payment of such dividends or
distributions.
(c) In the event the Company at any time or from time
to time after the date of this Option makes, or fixes a record date for the
determination of holders of Class A Common Stock entitled to receive, a dividend
or other distribution payable in securities of the Company other than shares of
Class A Common Stock, then and in each such event provision shall be made so
that the Optionholder shall receive upon the exercise of the Option, in addition
to the number of shares of Class A Common Stock receivable thereupon, the amount
of
3.
<PAGE> 4
securities of the Company which the Optionholder would have received had this
Option been converted into Class A Common Stock on the date of such event and
had it thereafter, during the period from the date of such event to and
including the date of exercise, retained such securities receivable by it as
aforesaid during such period, subject to all other adjustments called for during
such period under this Section 4 with respect to the rights of the Optionholder.
(d) If the Class A Common Stock issuable upon the
exercise of this Option is changed into the same or a different number of shares
of any class or classes of stock, whether by recapitalization, reclassification
or otherwise (other than a subdivision or combination of shares, stock dividend,
reorganization, merger, consolidation or sale of assets provided for elsewhere
in this Section 4), then and in such event the optionholder shall have the right
thereafter, upon the exercise of this Option, to receive (without payment in
excess of the Option Price) the kind and amount of stock and other securities
and property receivable upon such reorganization or other change in an amount
equal to the amount that the Optionholder would have been entitled to receive
had it immediately prior to such reorganization, reclassification or change
exercised this option, but only to the extent this option is actually exercised,
all subject to further adjustment as provided herein.
(e) If at any time or from time to time there is a
capital reorganization of the Class A Common Stock (other than a
recapitalization, subdivision, combination, reclassification or exchange of the
Class A Common Stock provided for elsewhere in this Section 4) or merger or
consolidation of the Company with or into another corporation, or the sale of
all or substantially all of the Company properties and assets to any other
person, then, as a part of such reorganization, merger, consolidation or sale,
provision shall be made so that the Optionholder shall thereafter be entitled to
receive upon the exercise of this Option (and only to the extent this option is
exercised) , the number of shares of stock or other securities or property of
the Company, or of the successor or surviving corporation resulting from such
merger or consolidation or sale, to which a holder of Class A Common Stock, or
other securities, deliverable upon the exercise of this Option would otherwise
have been entitled on such capital reorganization, merger, consolidation or
sale. In any such case, appropriate adjustments shall be made in the application
of the provisions of this Section 4 (including adjustment of the option Price
then in effect and number of shares purchasable upon the exercise of this
Option) which shall be applicable after such events in order to preserve the
Optionholder's right to purchase for an amount not in excess of the Aggregate
Purchase Price or receive with respect to Class A Common Stock previously issued
upon exercise of this Option the equivalent
4.
<PAGE> 5
of five percent of the number of shares of Class A Common Stock or other
securities or property of the Company or of the successor or surviving
corporation; provided, however, that any such adjustments shall be made so as to
ensure that the provisions of this Section 4 applicable after such events shall
be as equivalent as may be practicable to the provisions of this Section 4
applicable before such events.
(f) When any adjustment is required to be made in the
Option Price, the number of shares of Class A Common Stock purchasable upon the
exercise of this option shall be changed to the number determined by multiplying
(i) an amount equal to the number of shares issuable pursuant to the exercise of
this option immediately prior to such adjustment by (ii) an amount equal to the
Option Price in effect immediately prior to such adjustment, divided by the
Option Price in effect immediately after such adjustment.
(g) In any case of an adjustment or readjustment of
the Option Price or the number of shares of Class A Common Stock, or other
securities issuable upon the exercise of this option, the Company shall promptly
file with the Company's stock records for, and mail to each of the holders of,
the options a statement signed by the Chairman, President or Vice President and
by the Secretary or Treasurer of the Company setting forth the adjustment or
readjustment in accordance with the provisions hereof. Such statement shall set
forth in reasonable detail such facts as may be necessary to show the reason for
and the manner of computing such adjustment. If demanded by the holders of more
than 50% of the options, the Company will provide the optionholders a
verification or confirmation of the calculation of such adjustment, signed by an
independent certified public accountant, which may be the firm of independent
certified public accountants then serving the Corporation, or if demanded by
such optionholders and at the expense of such Optionholders, signed by an
independent certified public accountant designated by such Optionholders.
(h) No fractional shares of Class A Common Stock will
be issued in connection with the exercise of this Option, but the Company shall,
in lieu of such fractional shares, make such cash payment therefor on the basis
of the market price on the day immediately prior to exercise. For the purposes
of this paragraph, "market price" shall be (i) the mean between the bid and
asked price of the Company's Class A Common Stock, as reported by the National
Quotation Bureau, Inc., on such day, if the Class A Common Stock is traded in
the over-the-counter market, or (ii) the last reported sale price of the Class A
Common Stock on the NASDAQ National Market System ("NMS"), if the Class A Common
Stock is listed on the NMS on such day, or the national stock exchange on which
such Class A Common Stock is listed on such day, if the Class A Common Stock is
listed on such an exchange, or, if the Class A Common
5.
<PAGE> 6
Stock is neither traded in the over-the-counter market or listed on the NMS or a
national stock exchange, (iii) a price determined in good faith by an
independent committee of the board of directors, based on such factors as it
believes, in its business judgement, indicate the value of the Class A Common
Stock, including but not limited to, the price at which shares of Class A Common
Stock have recently been issued, changes in the financial condition and
circumstances of the company since such issuances and the ability of the Company
to raise additional capital.
(i) Irrespective of any adjustments pursuant to this
Section 4 to the Option Price or to the number of shares or other securities or
other property obtainable upon the exercise of this Option, this option need not
be cancelled and reissued to reflect such adjustments, but may continue to
express as the option Price and as the number of shares obtainable upon exercise
the same price and number of shares as are stated herein.
(j) Until the exercise or expiration of this Option,
the Company will provide the Optionholder with each and every report or other
communication mailed, telecopied or otherwise delivered to the stockholders of
the Company.
5. For the purposes of this option, the term "Class A Common
Stock" shall include any class of stock resulting from successive changes or
reclassifications of such Class A Common Stock consisting solely of changes from
no par value to par value, or changes in par value, or from par value to no par
value. If at any time as a result of an adjustment made pursuant to Section 4,
the securities or other property obtainable upon the exercise of this Option
shall include shares or other securities of the Company other than common stock
or securities of another corporation or other property, thereafter the number of
such other shares or other securities or property so obtainable shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Class A Common Stock contained
in Section 4 and all other provisions of this Option with respect to the Class A
Common Stock shall apply on like terms to any such other shares or other
securities or property. Subject to the foregoing, and unless the context
requires otherwise, all references herein to Class A Common Stock shall, in the
event of an adjustment pursuant to Section 4, be deemed to refer also to any
other securities or property then obtainable as a result of such adjustments.
6.
<PAGE> 7
6. The Company covenants and agrees that:
(a) During the Exercise Period, the Company shall at
all times reserve and keep available, free from preemptive rights out of the
aggregate of its authorized but unissued Class A Common Stock, for the purpose
of enabling it to satisfy any obligation to issue shares of Class A Common Stock
upon the exercise of this Option, the number of shares of Class A Common Stock
deliverable upon the exercise of this Option, and the Company shall have
analogous obligations with respect to any other securities or properties
issuable upon the exercise of this option. If at any time the number of shares
of authorized Class A Common Stock shall not be sufficient to effect the
exercise of this Option, the Company will take such corporate action as may be
necessary to increase its authorized but unissued Class A Common Stock to such
number of shares as shall be sufficient for such purpose and the Company shall
have analogous obligations with respect to any other securities or properties
issuable upon the exercise of this Option.
(b) All Class A Common Stock and other equity
securities which may be issued upon the exercise of the rights represented by
this option will upon issuance be validly issued, fully paid, nonassessable and
free from all taxes, liens and charges with respect to the issuance thereof.
(c) All original issue taxes payable in respect of
the issuance of shares upon the exercise of the rights represented by this
option shall be borne by the Company; but in no event shall the Company be
responsible or liable for income taxes or transfer taxes upon the transfer of
any Option.
7. Until exercised, this option shall not entitle the
Optionholder to any voting rights or other rights as a stockholder of the
Company.
8. This Option and the Class A Common Stock issuable upon the
exercise hereof may not be sold, transferred, pledged or hypothecated unless the
Company shall have been supplied with evidence reasonably satisfactory to it
that such transfer is not in violation of the Securities Act of 1933, as amended
(the "Securities Act").
If this Option is transferred, in whole or in part,
upon surrender of this option to the Company, the Company shall deliver to each
transferee an option evidencing the rights of such transferee to purchase the
number of shares of Class A Common Stock which such transferee is entitled to
purchase pursuant to such transfer.
9. Incidental Registration. The Company agrees that if at any
time it proposes to register any of the Class A Common
7.
<PAGE> 8
Stock in an underwritten public offering under the Securities Act, on any form
of registration statement then available for the registration under the
Securities Act of the Class A Common Stock and which is appropriate for the
inclusion therein of shares of Class A Common Stock then owned by Hunt-Wesson as
herein contemplated, it will give written notice to Hunt-Wesson of its intention
to do so and upon the written request of Hunt-Wesson, the Company will use its
best efforts to cause to be registered under the Securities Act and registered
or qualified under any State securities law the number of shares of Class A
Common Stock acquired or to be acquired by Hunt-Wesson pursuant to exercise of
this Option (collectively, the "Hunt-Wesson Shares") ; provided, however, that
the obligation to give such notice and to use such best efforts shall not apply
to any proposal of the Company to register any of its securities under the
Securities Act (i) on Form S-4 or Form S-8 (or any successor forms), (ii) in
connection with dividend reinvestment plans, or (iii) for the purpose of
offering such securities to another business entity or the shareholders of such
entity in connection with the acquisition of assets or shares of capital stock,
respectively, of such entity. Notwithstanding the foregoing, if, at any time
after giving written notice of its intention to register any Class A Common
Stock but prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine f or any reason
not to register any Class A Common Stock at that time, the Company may, at its
election, give written notice of such determination to Hunt-Wesson and,
thereupon, shall be relieved of its obligation to register any Hunt-Wesson
Shares in such registration statement at that time. If the managing underwriter
or underwriters of the public offering advise the Company in writing that in its
or their opinion the number of securities requested to be included in such
registration would have a material adverse effect on such offering (including,
without limitation, a material decrease in the price at which such securities
can be sold), then the amount of the Hunt-Wesson Shares to be included in the
offering shall be reduced as follows: (i) shares to be sold by the Company ("New
Shares") shall have priority over all shares to be offered by stockholders or
other holders of options, warrants and Class B Common Stock issued by the
Company, including Hunt-Wesson, and (ii) if shares (collectively, the
"Additional Shares") in excess of the New Shares can, in the good faith judgment
of such managing underwriter or underwriters, successfully be marketed in such
offering, the Additional Shares (including the Hunt-Wesson Shares) to be
included in the offering shall be reduced on a pro rata basis according to the
number of securities proposed to be registered by such persons (without
affecting the number of New Shares included in the offering) to such number as
is acceptable to such managing underwriter(s).
8.
<PAGE> 9
Hunt-Wesson shall in its request describe briefly the manner
of any proposed transfer of the Hunt-Wesson Shares.
In the case of registration of the Hunt-Wesson Shares effected
by the Company pursuant to this Section 9, the Company will keep Hunt-Wesson
advised in writing as to the initiation and completion thereof, and shall
provide Hunt-Wesson with the opportunity to review and comment upon the
accuracy, truthfulness and completeness of information contained in or omitted
from the registration statement and any amendments thereto; provided, however,
that Hunt-Wesson shall pay for all expenses and fees of its counsel incurred in
connection with such review and comment by it. At its expense, the Company also
shall:
(a) Keep such registration effective until
Hunt-Wesson has completed the distribution described in the registration
statement relating thereto, or for a period of 90 days from the effective date
of such registration statement, whichever occurs first;
(b) Furnish such number of prospectuses and other
documents incident thereto as Hunt-Wesson from time to time reasonably may
request;
(c) Enter into a written underwriting agreement in
form and substance reasonably satisfactory to the Company and the underwriter of
the public offering;
(d) Register or qualify the securities covered by
such registration statement under state securities or blue sky laws of such
jurisdictions as Hunt-Wesson and the underwriters may reasonably request, except
in any particular jurisdiction in which the Company would be required to execute
a general consent to service of process in effecting such registration,
qualification or compliance, unless the Company is already subject to service in
such jurisdiction;
(e) Notify Hunt-Wesson, promptly after it shall
receive notice thereof, of the date and time when such registration statement
and each post-effective amendment thereto has become effective or a supplement
to any prospectus forming a part of such registration statement has been filed;
(f) Notify counsel for Hunt-Wesson promptly of any
request by the Securities and Exchange Commission for the amending or
supplementing of such registration statement or prospectus or for additional
information;
(g) Advise Hunt-Wesson promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the Securities and Exchange Commission suspending the effectiveness of such
registration statement or
9.
<PAGE> 10
the initiation or threatening of any proceeding for that purpose and promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued; and
(h) For a period of three (3) years after the
effective date of a public offering of the Class A Common Stock, use its
reasonable efforts to file the reports required to be filed by it under the
Securities Exchange Act of 1934 and the rules and regulations adopted by the
Securities and Exchange Commission thereunder, and use its reasonable efforts to
take such further action as required from time to time to enable Hunt-Wesson to
sell the Hunt-Wesson Shares without registration under the Securities Act within
the limitation of the exemptions provided by (a) Rule 144 under the Securities
Act, as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission.
10. Indemnification. In connection with any registration,
qualification, notification, or exemption of securities under Section 9, the
Company hereby agrees to indemnify Hunt-Wesson, and each underwriter thereof,
against all losses, expenses (including reasonable attorneys' fees), claims,
damages and liabilities caused by any untrue, or alleged untrue, statement of a
material fact contained in any registration statement or prospectus or
notification or offering circular (and as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission, or alleged omission, to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any untrue statement or alleged untrue statement or
omission based upon information furnished to the Company by Hunt-Wesson or, as
the case may be, any such underwriter expressly, for use therein, and Hunt-
Wesson hereby agrees to indemnify the Company and each officer, director and
controlling person of the Company against all losses, expenses (including
reasonable attorneys' fees), claims, damages and liabilities caused by any
untrue, or alleged untrue, statement or omission, or alleged omission, based
upon information furnished in writing to the Company by Hunt-Wesson for any such
use. Hunt-Wesson's indemnification of such parties for attorneys' fees pursuant
to this Section shall be limited to attorneys' fees incurred on behalf of the
Company or, in lieu thereof, if the Company so elects, Hunt-Wesson shall
indemnify any other one such party for attorneys' fees incurred on behalf of
such party.
Promptly upon receipt by a party indemnified under
this Section 10 of notice of the commencement of any action against such
indemnified party in respect of which indemnity
10.
<PAGE> 11
or reimbursement may be sought against any indemnifying party under this
Section , such indemnified party shall notify the indemnifying party in writing
of the commencement of such action, but the failure to so notify the
indemnifying party shall not relieve it of any liability which it may have to
any indemnified party otherwise than under this Section 10. In case notice of
commencement of any such action shall be given to the indemnifying party as
above provided, the indemnifying party shall be entitled to participate in and,
to the extent it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense of such action at its own expense, with counsel
chosen by it and satisfactory to such indemnified party. The indemnified party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
(other than reasonable costs of investigation) shall be paid by the indemnified
party unless the indemnifying party either agrees to pay the same or fails to
assume the defense of such action with counsel satisfactory to the indemnified
party. No indemnifying party shall be liable for any settlement entered into
without its consent.
11. If this Option is lost, stolen, mutilated or destroyed,
the Company shall, on such terms as the Company may reasonably impose, including
a requirement that the optionholder obtain a bond, issue a new option of like
denomination, tenor and date. Any such new Option shall constitute an original
contractual obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed option shall be at any time enforceable by
anyone.
12. Any Option issued pursuant to the provisions of Section
11, or upon transfer, exchange, division or partial exercise of this Option or
combination thereof with another option or Options shall set forth each
provision set forth in Sections 1 through 16, inclusive, of this option as each
such provision is set forth herein, and shall be duly executed on behalf of the
Company by an executive officer.
13. Upon surrender of this Option for transfer or exchange or
upon the exercise hereof, this Option shall be cancelled by the Company, and
shall not be reissued by the Company and, except as provided in Section 1 in
case of a partial exercise or Section 2 in case of an exchange or Section 8 in
case of a transfer, no option shall be issued in lieu hereof. Any new Option
certificate shall be issued promptly but no later than 15 days after receipt of
the old Option certificate; provided, however, that the obligation of the
Company to transfer this option or issue the shares of Class A Common Stock upon
the exercise of this option shall be subject to the compliance with Section 8.
11.
<PAGE> 12
14. This Option shall inure to the benefit of and be binding
upon the Optionholder, the Company and their respective successors and assigns.
15. All notices required hereunder shall be in writing and
shall be deemed given when telegraphed, delivered personally or within two days
after mailing when mailed by certified or registered mail to the Company or
Optionholder, at the address of such party as set forth on the first page of
this Option, or at such other address of which the Company or Optionholder has
been advised by the notice hereunder.
16. The validity, interpretation and performance of this
Option and of the terms and provisions hereof shall be governed by the laws of
the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Option to be
duly executed as of the date above first written.
LIPOGENICS, INC.
By /s/Ronald H. Lane
-----------------------
Ronald H. Lane, Ph.D.
President
12.
<PAGE> 1
Exhibit 10.2
AMENDMENT TO AGREEMENT DATED OCTOBER 5, 1995
This AMENDMENT TO AGREEMENT DATED OCTOBER 5, 1995 is made on
the day of October, 1995, by and between NutraGenics, Inc., a Nevada
corporation, having its principle offices at 8300 N. Hayden Road, Suite 207,
Scottsdale, Arizona 85258 (hereinafter referred to as "NutraGenics"), and Milton
Okin, residing at 306 Brevoort Lane, Rye, New York 10580 (hereinafter referred
to as "Okin").
W I T N E S S E T H:
WHEREAS, NutraGenics has entered into an Agreement with Okin on October
5, 1995, (the "October 5 Agreement") in which among other undertakings Okin
loaned the sum of two hundred and fifty thousand ($250,000) dollars and an
additional sum of money yet to be determined and representing the payment of
legal fees to Milton Bass, Esq., on behalf of NutraGenics relating to legal
services rendered by Milton Bass, Esq. to NutraGenics concerning the sale of
NutraGenics' products in compliance with Federal Food and Drug Administration
(FDA) regulations; and
WHEREAS, Okin has the right and option to accept as repayment of all or
part of his loan to NutraGenics, the unregistered common stock of NutraGenics at
a price of one dollar and fifty cents ($1.50) per share (the "Option"); and
<PAGE> 2
WHEREAS, NutraGenics and Okin wish to protect the Option and the
NutraGenics stock he may purchase upon exercise of the option against dilution
in the event of the occurrence of certain events by adding antidilutive terms to
the Option in the October 5th Agreement in the form of an amendment to the
October 5th Agreement;
NOW THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration the sufficiency of which
is hereby acknowledged, the parties intending to be legally bound agree as
follows:
FIRST: AMENDMENT TO OCTOBER 5TH AGREEMENT
Paragraph EIGHTH of the October 5th Agreement entitled,
"OPTION TO CONVERT LOANS INTO UNREGISTERED COMMON STOCK OF
NUTRAGENICS", is hereby amended by adding the following paragraphs
to paragraph EIGHTH:
In the event that, during the period between the date hereof and the
Closing Date (the "Option Period"), any reclassification, reorganization, stock
split, stock dividend, merger consolidation, combination, exchange of
securities, or other similar change in respect of the capitalization of
NutraGenics shall occur, then appropriate adjustment shall be made in the number
of shares of common stock of NutraGenics and/or kind of securities to be issued
in the event Okin exercises the Option to accept repayment of part or all of his
Loans (the "Option Shares") and the Exercise Price so that the Option Shares
shall be that number of shares of common stock and/or other securities that Okin
would have held after such
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<PAGE> 3
reclassification, reorganization, stock split, stock dividend, merger,
consolidation, combination, exchange of securities, or other similar change if
the Closing Date had occurred immediately prior to such reclassification,
reorganization, stock split, stock dividend, liquidation, spin-off or similar
other change and all references herein to the Option Shares shall be deemed to
refer to such adjusted number and/or kind of securities.
In the event that, during the Option Period there is a partial or
complete liquidation or spin-off of any assets owned by NutraGenics, NutraGenics
will give Okin at least thirty (30) days prior written notice of such event so
that Okin may exercise any part of all of the Option prior to such liquidation
or spin-off.
At any time during the Option Period Okin shall have the right to,
purchase from NutraGenics, in round numbered size allotments of blocks of at
least ten thousand (10,000) shares, up to that number of Option Shares then
subject to the Option, at the Exercise Price in effect at the time of such
exercise. Okin shall sign an investment letter for all stock issued pursuant to
the option in form and substance as previously executed as part of the October
5th Agreement.
In the event cf the demise of Okin at any time during the option
period, Okin's estate shall have the right to exercise the option for a period
which is the lesser of one year or the balance of the Option Period.
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<PAGE> 4
SECOND: COUNTERPARTS
This Agreement may be signed upon any number of counterparts with the
same effect as if the signature to each were upon the same agreement. Signatures
by facsimile transmission shall be deemed acceptable and binding on the parties
hereto.
THIRD: EFFECT OF AMENDMENT TO OCTOBER 5TH AGREEMENT
Except as altered, amended or modified by this Amendment to
Agreement, the October 5th Agreement shall remain in full force and effect and
binding upon NutraGenics and Okin pursuant to its terms and conditions.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
NUTRAGENICS, INC.
(SEAL)
By: /s/ Ronald Howard Lane
-----------------------------
RONALD HOWARD LANE, PRESIDENT
/s/ Milton Okin
--------------------------------
MILTON OKIN
4
<PAGE> 5
AGREEMENT
This AGREEMENT entered into this 5th day of October, 1995 by and
between NutraGenics, Inc. a Nevada corporation, having its principle offices at
8300 N. Hayden Road, Suite 207, Scottsdale, Arizona 85258 (hereinafter referred
to as "NutraGenics") and Milton Okin, residing at 306 Brevoort Lane, Rye, New
York 10580 (hereinafter referred to as the "Okin").
W I T N E S S E T H:
WHEREAS, NutraGenics is a public company that has acquired a licensing
agreement which permits the exclusive manufacture, marketing and sale of a
vitamin E-like complex ("TRF(25)") that has been shown to be effective in
reducing cholesterol and critical events associated with coronary heart disease
and stroke; NutraGenics has applied for a United States trademark for the
vitamin E-like complex (TRF(25)) under the name "Vitenol-E(TM)"; and NutraGenics
is in the business of manufacturing, marketing and selling the aforementioned
vitamin E-like complex (TRF(25)) under the name Vitenol-E(TM)";
WHEREAS, Okin is a biochemist and has been in the nutrition, health and
vitamin industry for 60 years, has owned a company that manufactured, marketed
and distributed vitamins and pharmaceuticals, currently owns a vitamin mail
order business and has extensive knowledge in the nutrition, health and vitamin
industry;
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<PAGE> 6
WHEREAS, pursuant to this Agreement, Okin and Okin's Children are
purchasing Two Hundred and Fifty Thousand (250,000) shares of common stock of
NutraGenics $.001 par value at a price of one ($1.00) Dollar per share for
investment purposes only;
WHEREAS, Okin has agreed, as hereinafter set forth to advance on behalf
of NutraGenics, as a loan to NutraGenics, the money required to pay for the
legal fees of Milton Bass, Esq. for his expertise with regard to the laws, rules
and regulations promulgated and enforced by the Federal Food and Drug
Administration, and for his consultation and approval that the vitamin E-like
complex (TRF(25)), known as Vitenol-E(TM), can be properly and legally marketed,
sold and labeled as a nutritional supplement that will lower cholesterol; and
WHEREAS, Okin has agreed, as hereinafter set forth, to make an
additional secured loan of Two Hundred and Fifty Thousand ($250,000.00) Dollars
to NutraGenics for period of two (2) years;
NOW THEREFORE, in consideration of the mutual covenants and provisions
herein contained, the parties intending to be legally bound, agree as follows:
FIRST: COMMON STOCK TO BE SOLD
Subject to the terms and conditions of this Agreement and in reliance
on the representations and warranties contained herein, Okin and Okin's Children
hereby purchase from NutraGenics, and NutraGenics hereby sells to Okin and
Okin's Children Two Hundred and Fifty Thousand (250,000) unregistered Shares of
the Common
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<PAGE> 7
Stock of Nutragenics $.001 par value (hereinafter referred to as the "Stock") on
terms and conditions as hereinafter set forth.
SECOND: PURCHASE PRICE
(a) The purchase price for the Stock is One ($1.00) Dollar per share or
a total purchase price of Two Hundred and Fifty Thousand ($250,000) Dollars
payable to NutraGenics at closing.
(b) Upon closing and the payment of the sum of Two Hundred and Fifty
Thousand ($250,000) Dollars to NutraGenics, NutraGenics shall deliver to Okin
and Okin's Children the Stock being sold
herein in Stock Certificates issued as follows:
(i) One Hundred and Fifty Thousand (150,000) shares shall be
issued in Fifteen (15) Stock Certificates of Ten Thousand
(10,000) Shares each, issued in the name of Milton Okin;
(ii) Thirty-Three Thousand Three Hundred and Thirty-Three (33,333)
shares shall be issued in Three (3) Stock Certificates of Ten
Thousand (10,000) shares each and One (1) Stock Certificate of
Three Thousand and Thirty-Three (3,333) shares, issued in the
name of Kenneth Okin;
(iii) Thirty-Three Thousand Three Hundred and Thirty-Three (33,333)
shares shall be issued in Three (3) Stock Certificates of Ten
Thousand (10,000) shares each and One (1) Stock Certificate of
Three Thousand and Thirty-Three (3,333) shares, issued in the
name of Robert Okin; and
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<PAGE> 8
(iv) Thirty-Three Thousand Three Hundred and Thirty-Four
(33,334) shares shall be issued in Three (3) Stock
Certificates of Ten Thousand (10,000) shares each and
One (1) Stock Certificate of Three Thousand and
Thirty-Four (3,334) shares, issued in the name of
Nicki Closset;
Each of the aforesaid named individuals, Kenneth Okin, Robert Okin, and
Nicki Closset, (hereinafter together referred to as "Okin's Children") to whom
NutraGenics stock will be issued shall execute an investment letter in form and
substance as annexed hereto.
THIRD: NUTRAGENICS' REPRESENTATIONS AND WARRANTIES
(a) NutraGenics represents and warrants that the Stock, when
issued pursuant to the terms. and conditions of this Agreement,
will have been duly authorized, validly issued, fully paid and
nonassessable.
(b) NutraGenics represents and warrants that it will pay any
and all taxes required to be paid and arising out of the issuance
and sale of the Stock.
(c) NutraGenics agrees to sign any and all other documents
reasonably required to be signed in order to effectuate the issuance of the
Stock being sold herein by NutraGenics.
(d) NutraGenics represents and warrants that there is no claim,
litigation, proceeding or investigation pending or to the knowledge of
NutraGenics threatened in which NutraGenics is a party or a defendant that may
in any way effect the value of the vitamin
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<PAGE> 9
E-like complex (TRF(25)) known as Vitenol-E(TM), including any applications,
renewal applications, or amendments to any existing registration, submitted to
the United States Food and Drug Administration or the United States Patent and
Trademark Office.
(e) NutraGenics represents and warrants that it has complied in all
material respects with all applicable laws, regulations, orders and ordinances
of the United States, and all state and local governments and agencies thereof,
which could adversely effect the vitamin E-like complex (TRF(25)) known as
Vitenol-E(TM).
(f) NutraGenics represents and warrants that it is the sole and
undisputed holder of the world wide exclusive license from LipoGenics, Inc. to
the industrial proprietary rights, including pending United States and foreign
applications relating to tocotrienols and tocotrienol-like compounds and their
preparation and use, and the technology, including trade secret formulas and
processes, and know-how, relating to such tocotrienols and tocotrienol-like
compounds and their preparation and use (such Industrial Property Rights,
technology, trade secrets and know-how being hereinafter referred to as
"LipoGenics technology"). That the nutritional supplement technology based on a
vitamin E-like complex (TRF(25)) has been shown to be effective in reducing
cholesterol and in reducing critical events associated with coronary heart
disease and stroke as well as having antioxidant and anticoagulant properties.
(g) NutraGenics represents and warrants that the above-described
exclusive license for the vitamin E-like complex (TRF (25))
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<PAGE> 10
is, and will be at the time of execution of this agreement, validly existing and
in full force and effect; NutraGenics represents and warrants that it has not
violated, nor is in breach or default of, any of the conditions and terms of
such license agreement. NutraGenics further represents and warrants that said
license agreement is free and clear of all pledges, mortgages, charges,
encumbrances and liens. A true copy of such fully executed License Agreement is
annexed hereto.
(h) NutraGenics represents and warrants that LipoGenics has patent
applications pending on the following four basic elements: 1) a method of
manufacturing Vitenol-E(TM) dietary supplements ("Processing" claims); 2)
Vitenol-E(TM) products derived via the proprietary methods ("Products by
Process" claims); 3) chemical composition of key compounds in Vitenol-E(TM)
("Composition of Structure" claims); and 4) the use of the proprietary
Vitenol-E(TM) product and its compounds ("Utility" claims). As of the date of
the execution of this Agreement, the following patent applications have been
submitted and prosecuted by LipoGenics:
Applications # Inventors Title
1. WO 9117985 A. Qureshi, K. Becker Process for recovering
M. Wells, R. Lane tocotrienols, tocopherols
and tocotrienol-like
compounds
2. WO 930977 R. Lane A. Qureshi Tocotrienols and
W. Salser tocotrienol-like compounds
and methods for their use
NutraGenics further represents and warrants that there have been no issues
raised by the. United States Patent and Trademark Office that NutraGenics
believes will prevent the issuance of the patents for the above-described patent
applications.
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<PAGE> 11
(i) NutraGenics represents and warrants that to its knowledge and
belief, except for a sum of $100,000 plus interest due Health Care Investors
being assumed by NutraGenics, Inc. from LipoGenics, Inc. as part of its License
Agreement, the patent application, numbers WO 911785 and WO 930977, for the
vitamin E-like complex are free and clear of all pledges, mortgages, charges,
encumbrances and liens, and that all such registrations and filings with the
United States Patent and Trademark Office, and any other state or federal agency
are existing, valid and current.
(j) That the financial statements given to Okin and annexed hereto have
been prepared in accordance with generally accepted accounting practices applied
on a consistent basis, and are true, accurate and complete.
(k) That the reports of the clinical tests with regard to the vitamin
E-like complex (TRF(25)) for the product known as Vitenol-E(TM), and supplied to
Okin, copies of which are annexed hereto, have been carried out following Food
and Drug Administration protocol and are true, accurate and complete.
FOURTH: OKIN'S INVESTMENT REPRESENTATIONS
Okin and Okin's Children represent that the Stock being acquired by
them is for investment for their own accounts, with no present intention of
reselling or otherwise distributing the same. Okin and Okin's Children have been
advised that the Shares have not been registered under the Securities Act of
1933, as amended, (the "Act") on the basis that the sale to Okin and Okin's
Children is exempt from registration under Section 4(2) of the Act as not
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<PAGE> 12
involving any public offering and that NutraGenics' reliance on such exemption
is predicated in part on Okin and Okin's Children's aforesaid representation.
Okin and Okin's Children have been advised that while they have the right to
dispose of their own property when and as they see fit, they realize that, in
the view of the Securities and Exchange Commission, the statutory basis for
exemption would not be present if, notwithstanding Okin and Okin's Children's
said representation, Okin or any of Okin's Children had in mind merely acquiring
the Shares for resale upon the occurrence or nonoccurrence of some predetermined
event. At present Okin nor' any of Okin's Children know of no circumstance in
the foreseeable future which would require the sale or hypothecation of the
Shares. Okin and Okin's Children represent that they have such knowledge and
experience in financial matters to evaluate the merits and risks of an
investment in the Shares, and that they can bear the economic risk of an
investment in the Shares.
Okin and Okin's Children further represent that they have had the
opportunity to seek outside legal advice with respect to acquiring the Shares.
Okin and Okin's Children understand that the Shares are characterized as
"restricted securities" under federal securities laws, since the Shares are
being acquired in a transaction not involving a public offering and that under
such laws and applicable regulations, such securities may be resold without
registration under the Act only in certain limited circumstances. Okin and
Okin's Children hereby represent that they understand the resale limitations
imposed by the Act and are
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<PAGE> 13
generally familiar with and understand the existing resale limitations imposed
by the Act and the rules and regulations promulgated thereunder.
FIFTH: LOAN TO NUTRAGENICS FOR THE PAYMENT OF THE LEGAL FEES
FOR MILTON A. BASS, ESQ.
Okin hereby agrees to loan to NutraGenics a sum of money to pay for the
legal fees of Milton A. Bass, Esq. for his expertise with regard to the laws,
rules and regulations promulgated and enforced by the Federal Food and Drug
Administration, and for his consultation and approval that the vitamin E-like
complex (TRF(25)), known as Vitenol-E(TM), can be properly and legally labeled,
marketed and sold as a nutritional supplement that will lower cholesterol. Said
loan shall be limited to reasonable out-of-pocket expenses and reasonable
attorneys fees paid directly to the law firm Bass & Ullman, on behalf of Milton
A. Bass, Esq., Said loan shall be made pursuant to the following terms and
conditions:
(a) The law firm of Bass & Ullman shall be the exclusive law firm
retained for consultation and approval that the vitamin E-like complex
(TRF(25)), known as Vitenol-E(TM), can be properly and legally labelled,
marketed and sold as a nutritional supplement that will lower cholesterol, in
accordance with the laws, rules and regulations promulgated and enforced by the
Federal Food and Drug Administration.
(b) All legal fees in connection with the above-described consultation,
shall be paid directly by Okin to the law firm Bass
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<PAGE> 14
& Ullman and shall be approved by both Okin and NutraGenics in advance of being
incurred.
(c) The loan described in this paragraph "FIFTH", shall be for a period
of twelve (12) months from the date of execution of this Agreement. At the
expiration of said time period, NutraGenics shall repay all monies advanced by
Okin pursuant to this paragraph; provided, however, that Okin shall have the
sole right, in his discretion, to extend the date of payment of said loan for an
additional period of twelve (12) months. No interest shall accrue on this loan
during the period of said loan.
(d) Notwithstanding the fact that this loan commitment is being made to
NutraGenics, NutraGenics acknowledges that this loan commitment is being made
solely to pay for the legal fees of Milton A. Bass, Esq., incurred in connection
with his consultation and approval that the vitamin E-like complex (TRF(25)),
known as Vitenol-E(TM), can be properly and legally labeled, marketed and sold
as a nutritional supplement that will lower cholesterol, in accordance with the
laws, rules and regulations promulgated and enforced by the Federal Food and
Drug Administration, and NutraGenics acknowledges that it shall not incur any
costs or expenses in connection with Milton A. Bass, Esq.'s consultation without
the prior written consent and approval from Okin.
(e) Pursuant to the terms and conditions hereinafter set forth in
paragraph "EIGHTH", Okin, at his sole option, may elect to receive common stock
of NutraGenics as repayment of said loan, at
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<PAGE> 15
a purchase price of One ($1.50) Dollar and Fifty Cents per share of common stock
of NutraGenics.
(f) Simultaneously with the execution of this Agreement, a separate
Promissory Note shall be executed by NutraGenics evidencing the loan being made
by Okin pursuant to this paragraph.
SIXTH: SECURED LOAN TO NUTRAGENICS FOR TWO HUNDRED AND FIFTY
THOUSAND DOLLARS ($250,000,00)
Okin hereby agrees to loan to NutraGenics the sum of Two Hundred and
Fifty Thousand ($250,000.00) Dollars pursuant to the following terms and
conditions:
(a) The loan of Two Hundred and Fifty Thousand ($250,000.00) Dollars
(hereinafter referred to as the "Secured Loan") shall be secured by NutraGenics'
accounts receivables, inventory, patents, trademarks, machinery, equipment,
licenses and contracts, including but not limited to, the exclusive license
agreement to manufacture, market and sell the vitamin E-like complex (TRF(25))
known as Vitenol- E(TM), pursuant to the following documents: a separate
Promissory Note in the amount of $250,000; a Security Agreement - Chattel
Mortgage; an Equipment Security Agreement - Chattel Mortgage; an Inventory
Security Agreement; and Form UCC-1 Financing Statements filed with the
appropriate local and state agencies. All above-described documents shall be
executed simultaneously with the execution of this Agreement.
(b) The term of the Secured Loan shall be for a period of two (2) years
with a variable interest rate based upon the six-month London Interbank Offered
Rate ("Libor") plus the spread of 1 1/2
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<PAGE> 16
points above Libor (which includes the facility fee of 3/4 of a point charged by
Merrill Lynch), and said variable interest on the Secured Loan shall be paid by
NutraGenics quarterly directly to Milton Okin.
(c) The proceeds of the Investment and Secured Loan shall be used in
accordance with the terms and conditions hereinafter set forth in paragraph
"SEVENTH".
(d) Pursuant to the terms and conditions hereinafter set forth in
paragraph "EIGHTH", Okin, at his sole option, may elect to receive all or part
common stock of NutraGenics as repayment of said Secured Loan, at a purchase
price of One ($1.50) Dollar and Fifty Cents per share of common stock of
NutraGenics.
SEVENTH: INVESTORS POSITION - USE OF PROCEEDS
(a) Okin and Okin's Children are purchasing Two Hundred and
Fifty Thousand Shares (250,000) of NutraGenics unregistered common stock as
hereinabove set forth in paragraph "SECOND" at a purchase price of One ($1.00)
Dollar per share, for a total purchase price of Two Hundred and Fifty Thousand
($250,000) Dollars (hereinafter referred to as the "Investment").
(b) Okin is advancing the Secured Loan, as hereinabove set forth in
paragraph "SIXTH" in the amount of Two Hundred and Fifty Thousand ($250,000)
Dollars.
(c) The aforesaid proceeds of the Investment and Secured Loan shall be
used by NutraGenics primarily for the manufacture, marketing and sales of the
product known as Vitenol-E(TM). The proceeds of the Investment and Secured Loan
shall not be used for
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<PAGE> 17
the repayment of any debt of NutraGenics nor for the payment of any royalties to
LipoGenics, Inc., the corporation that developed and owns the vitamin E-like
complex (TRF(25)) referred to herein and known as Vitenol-E(TM).
(d) NutraGenics shall maintain complete and accurate financial books
and records reflecting NutraGenics' use of aforesaid proceeds of the Investment
and Secured Loan. Okin, or any representative of Okin, shall have the right,
upon two (2) days written notice, to examine and copy said books and records of
NutraGenics at any time during the normal business hours of NutraGenics, and
NutraGenics at its own expense shall be obligated and bound to make said books
and records available for review and copying by Okin, or any representative of
Okin, in the State and City of New York.
(e) Until such time as the Secured Loan of $250,000 made by Okin to
NutraGenics has been paid in full, Okin shall receive copies of all filings with
the United States Securities and Exchange Commission, press releases, sales
literature, material contracts and financial and accounting reports, financial
statements and tax returns prepared by, for or on behalf of NutraGenics.
(f) The within "Use of Proceeds" provision is a material provision and
of the essence of this Agreement, any breach hereof shall result in the
following:
(i) The balance of the principal and interest of the
Secured Loan shall become immediately due and
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<PAGE> 18
payable by NutraGenics to Okin pursuant to the terms
and conditions of the Promissory Note executed by
NutraGenics representing the Secured Loan.
(ii) Okin and Okin's Children shall have the right and
option to sell their equity ownership in NutraGenics,
or any portion thereof, to NutraGenics at a price
equal to $2.00 per share or the then fair market
value per share whichever is greater. Okin or any of
Okin's Children shall elect such option by notifying
NutraGenics in writing by certified or registered
mail. NutraGenics, within thirty (30) days of receipt
of such notice, shall purchase said stock. The
closing shall be held within thirty (30) days of such
notice, at which time 100% of the purchase price
shall be paid in cash or by certified check and the
stock certificates sold shall at closing be properly
endorsed and delivered to NutraGenics by Okin or
Okin's Children.
EIGHTH: OPTION TO CONVERT LOANS INTO UNREGISTERED COMMON
STOCK OF NUTRAGENICS
At any time during the term of each of the loans made pursuant to this
Agreement, Okin, at his sole option, may elect to receive unregistered common
stock of NutraGenics as repayment of all or any portion of all loans made by him
to NutraGenics, at a purchase price of One Dollar and Fifty Cents ($1.50) per
share of
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<PAGE> 19
unregistered common stock of NutraGenics. Okin shall notify Nutragenics in
writing by certified or registered mail of his election to receive unregistered
common stock of NutraGenics as repayment of all or any portion of the loans
being made pursuant to this Agreement. The closing and the issuance to Okin of
the unregistered common stock of NutraGenics shall be held within thirty (30)
days of Okin's notification (the "Closing Date").
NINTH: NUTRAGENICS RIGHT TO PREPAY LOANS
NutraGenics shall have the right to prepay either or both of
the loans made pursuant to this Agreement, and in that event, NutraGenics shall
notify Okin of its intention to prepay either or both of said loans by certified
or registered mail. Upon receipt of such notice, Okin shall have the option to
elect to receive unregistered common stock of NutraGenics- in lieu of a cash
repayment of all or part of said loans, Okin shall notify NutraGenics of such an
election in writing by certified or registered mail within thirty (30) days of
receipt of NutraGenics, notice to prepay said loans. In the event Okin does not
elect to receive NutraGenics' stock in repayment of all of his loans he shall be
paid the balance due in cash or good certified check. The closing and the
payment in cash or good certified check and/or the issuance to Okin of the
unregistered common stock of NutraGenics shall be held within thirty (30) days
of Okin's notification.
TENTH: "PIGGY BACK" RIGHTS OF REGISTRATION
In the event NutraGenics shall at any time after the date
hereof, seek to further register or qualify any of its capital
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stock or the securities holdings of any of its controlling shareholders, on each
such occasion it shall furnish Okin and each of Okin's Children with at least
thirty (30) days prior written notice thereof, and Okin and Okin's Children
shall have the option without cost or expense to Okin or any of Okin's Children,
to include his or her Stock, or any portion thereof, in such registration or
qualification with the consent of the underwriter, who may also require
appropriate and reasonable limitations on the sale of such Stock after their
registration. Okin and each of Okin's Children shall exercise their respective
"piggy-back rights" of registration by giving written notice to NutraGenics and
the underwriter within twenty (20) days of receipt of written notice from
NutraGenics. All expenses in connection with preparing and filing the
registration statement (and any registration or qualification under the
securities or "Blue Sky" laws of states in which the offering will be made under
such registration statement) shall be borne in full by NutraGenics (including up
to a maximum of five (5) states in which NutraGenics would not otherwise sell
shares registered under such registration statement in which the shares are also
registered). This piggy-back right of registration shall be limited to the
shares of NutraGenics' common stock being purchased by Okin or any of Okin's
Children and the NutraGenics' common stock which Okin may elect to receive as
repayment of his loans and further limited in dollar amount to 125% of the cost
of the NutraGenics' common stock purchased by Okin and Okin's Children,
including any conversion of debt into common stock. This
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<PAGE> 21
piggy-back right of registration may be assigned and transferred by Okin or any
of Okin's Children to any third party who may receive the NutraGenics stock
issued to Okin pursuant to this Agreement.
ELEVENTH: INDEMNIFICATION
NutraGenics agrees to indemnify and hold harmless Okin and each of
Okin's Children and each person, if any, who is a representative of Okin or any
of Okin's Children, and each person to whom Okin or any of Okin's Children
assign his or her NutraGenics' common stock, from and against any losses,
claims, damages, liabilities (which shall include, but not be limited to, all
reasonable costs of defense and investigation and all reasonable attorneys'
fees), to which Okin or any of Okin's Children, such representative or assignee,
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise.out of or are based
upon any untrue statement or an alleged untrue statement of any material fact
contained in (A) the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment thereof or supplement thereto, (B) any blue sky
application or other document executed by NutraGenics specifically for that
purpose or based upon written information furnished by NutraGenics filed in any
state or other jurisdiction in order to qualify any or all of the Exchange
Shares under the securities laws thereof (any such application, document being
hereinafter called a "Blue Sky Application") , or .arise out of or are based
upon the omission or alleged omission to state in the Registration Statement,
any supplement thereto, or in any Blue Sky Application, a material fact required
to be stated
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therein or necessary to make the statements therein not misleading; provided,
however, that NutraGenics will not be liable in any such case to the extent, but
only to the extent, that any such loss, claim, damage, or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with written
information furnished to NutraGenics through Okin or any of Okin's Children or
on behalf of Okin or any of Okin's Children or Okin's or any of Okin's
Children's assigns specifically for use in the preparation of the Registration
Statement or any such amendment of supplement thereof or any such Blue Sky
Application or any such Preliminary Prospectus or the Prospectus or any such
amendment or supplement thereto. This indemnity will be in addition to any
liability which Okin or Okin's Children or any of Okin or Okin's Children's
representatives or assigns may otherwise have.
The terms and conditions of this paragraph shall survive the
termination or expiration of this Agreement.
TWELFTH: ELECTION OF OKIN TO THE BOARD OF DIRECTORS
If elected, Okin agrees to serve as a member of the Board of
Directors of NutraGenics for three (3) consecutive one (1) year terms commencing
October , 1995.
THIRTEENTH: APPROVAL OF BOARD OF DIRECTORS
This Agreement and the terms and conditions herein is subject to the
prior approval of the Board of Directors of NutraGenics through the adoption and
execution of formal executed resolutions of the Board of Directors of
NutraGenics. A copy of such executed
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resolutions shall be delivered to Okin at closing.
FOURTEENTH: AGREEMENT CONDITIONED ON APPROVAL OF LICENSE
AGREEMENT BETWEEN NUTRAGENICS AND LIPOGENICS, INC.
This Agreement shall be conditioned upon the written approval by the
Board of Directors of LipoGenics, Inc. and the Board of Directors of NutraGenics
of the terms and conditions of a License Agreement between LipoGenics, Inc. and
NutraGenics in form and substance as annexed hereto.
FIFTEENTH: ENDORSEMENT OF STOCK CERTIFICATE
Okin and Okin's Children agree that there will be placed on the
certificates for the Shares, or any substitutions therefor, a legend stating in
substance as follows:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, have been acquired for
investment and may not be sold transferred or assigned in the absence
of an effective registration statement for these shares under the
Securities Act of 1933 or an opinion of Company's counsel that
registration is not required under said Act.
SIXTEENTH: DESCRIPTION OF AUTHORIZED CAPITAL STOCK AND WARRANTS
The total number of authorized shares of NutraGenics' common stock is
Fifty Million (50,000,000) par value $.001.
The total number of issued and outstanding shares of NutraGenics common
stock is ( ). Except for the options created for C. Everett Koop
to purchase one and Eighty Thousand (180, 000) shares of NutraGenics' common
stock, there are no warrants or options to purchase shares of NutraGenics
common stock.
19
<PAGE> 24
SEVENTEENTH: CONSULTING AGREEMENT BETWEEN
NUTRAGENICS AND OKIN
NutraGenics and Okin acknowledge and agree that Okin at the request of
NutraGenics, agrees to be reasonably available as a consultant to NutraGenics
for a period of twelve (12) months from the date of execution of this Agreement.
EIGHTEENTH: NON-WAIVER
All representations and warranties made by the parties to this
Agreement shall survive the closing. No action or omission by the parties hereto
shall constitute a waiver of any covenants, warranties or representations,
unless such waiver shall be executed in writing by the party for whose benefit
such covenant, warranty or representation is designed.
NINETEENTH: ARBITRATION OF DISPUTES
Any and all disputes of whatsoever kind or nature arising out of or
concerning this Agreement, its interpretation or effect, shall be determined by
the exclusive means of Arbitration before the American Arbitration Association
of the City of New York, located in the City of New York in accordance with its
rules and regulations then in effect, and the decision upon such Arbitration
shall be final and binding upon all of the parties of this Agreement. The costs
and expense of Arbitration, including the reasonable attorney's fees, shall be
paid by the party against whom the Arbiters render a decision, unless the
decision of the Arbiters specifically provides otherwise for good cause, and
judgment upon such award may be entered in the Supreme Court of the State of New
York or any other State in which any party to this Agreement is a
20
<PAGE> 25
resident. Such determination shall be made by a panel of at least three (3)
Arbiters.
TWENTIETH: LAWS TO GOVERN
This Agreement shall be construed and enforced in accordance with the
laws of the State of New York without giving effect to the conflict of laws and
principles thereof and the parties consent to the exclusive jurisdiction of the
state and federal courts of the State of New York.
TWENTY-FIRST: NOTICES
All necessary notices, demands, and requests required or permitted to
be given under the provisions of this Agreement shall be deemed duly given five
(5) days after being mailed by certified mail, return receipt requested, postage
prepaid and addressed as follows:
A. If to be given to NutraGenics at
8300 North Hayden Road
Suite 207
Scottsdale, Arizona 85258
B. If to be given to Milton Okin or Okin' s Children c/o
Milton Okin at
240 Brevoort Land
Rye, New York 10580
TWENTY-SECOND: ENTIRE AGREEMENT
This Agreement contains all of the terms and conditions agreed upon by
the parties hereto with reference to the subject matter hereof. No other
agreements, oral or otherwise, shall be deemed to exist or to bind any of the
parties hereto, and all prior agreements and understandings are superseded
hereby. This
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<PAGE> 26
Agreement cannot be modified or changed except by written instrument signed by
all of the parties hereto.
TWENTY-THIRD: HEADINGS
The headings of the paragraphs of this Agreement are for the
convenience of reference only and do not form a part thereof and in no way
modify, interpret or construe the meanings of the parties.
TWENTY-FOURTH: COUNTERPARTS
To facilitate execution, this Agreement may be executed in as many
counterparts as may be required and its shall not be necessary that the
signatures of, or on behalf of, each party, or that the signatures of all
persons required to bind any party, appear on each counterpart; but it shall be
sufficient that the signature of, or on behalf of, each party, or that the
signatures of the persons required to bind any party, appear on one or more of
the counterparts. All counterparts shall collectively constitute a single
agreement. It shall not be necessary in making proof of this Agreement to
produce or account for more than a number of counterparts containing the
respective signatures of, or on behalf of, all of the parties hereto. Signatures
by facsimile transmission shall be deemed acceptable and binding upon the
parties.
TWENTY-FIFTH: SEVERANCE OF AGREEMENT
Should any provision or portion of any provision of this
Agreement be invalid for any reason the validity of the remaining
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<PAGE> 27
provisions, or of the other portions of the provision in question, shall not be
effected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers, and their corporate seals to be
affixed hereto.
NUTRAGENICS, INC.
/s/Ronald H. Lane
------------------------------
By: RONALD H. LANE
CHIEF EXECUTIVE OFFICER
/s/Milton Okin
------------------------------
MILTON OKIN
/s/Kenneth L. Okin
------------------------------
KENNETH OKIN
/s/Robert Okin
------------------------------
ROBERT OKIN
/s/Nicki Closset
------------------------------
NICKI CLOSSET
23
<PAGE> 1
Exhibit 10.3
AGREEMENT
This AGREEMENT entered into this 31st day of October, 1995 by and between
NutraGenics, Inc. a Nevada corporation, having its principle offices at 8300 N.
Hayden Road, Suite 207, Scottsdale, Arizona 85258 (hereinafter referred to as
"NutraGenics") and C. Everett Koop, M.D., residing at 5924 Maplewood Park Place,
Bethesda, Maryland 20814 (hereinafter referred to as "Koop").
W I T N E S S E T H:
WHEREAS, NutraGenics is a public company in the business of manufacturing,
marketing and selling a product called "Vitenol-E(TM), a vitamin E-like complex
that has been shown to be effective in reducing critical events associated with
coronary heart disease and stroke;
WHEREAS, Koop is a medical physician who has been in the scientific,
medical and health profession for 30 years, including appointment to the
position of Surgeon General for the United States, as well as other scientific,
medical and health related advisory positions;
WHEREAS, Koop is simultaneously with the execution of this Agreement,
purchasing Twenty Thousand (20,000) shares of unregistered common stock of
NutraGenics $.001 par value at a price of $1.00 per share (hereinafter referred
to as the "Stock") for investment purposes only pursuant to a separate
Investment Letter dated the date hereof; and
<PAGE> 2
WHEREAS, upon execution of this Agreement, Koop will be elected by the
Board of Directors of NutraGenics as a member of the Board of Directors of
NutraGenics for the purpose of guiding, counseling and assisting in the growth
and development of NutraGenics;
NOW THEREFORE, in consideration of the mutual covenants and provisions
herein contained, the parties intending to be legally bound, agree as follows:
FIRST: ELECTION OF KOOP AS A MEMBER OF THE
BOARD OF DIRECTORS OF NUTRAGENICS
(a) If elected, Koop agrees to serve as a member of the Board of Directors
of NutraGenics for three (3) consecutive one (1) year terms commencing October
31, 1995.
(b) As a member of the Board of Directors of NutraGenics, Koop hereby
agrees to hold himself reasonably available (taking into consideration Koop's
other commitments and responsibilities) to help guide, counsel and assist in the
growth and development of NutraGenics.
(c) In the event that Koop is not elected as a member of the Board of
Directors of NutraGenics, Koop, nevertheless, agrees to hold himself reasonably
available (taking into consideration Koop's other commitments and
responsibilities) to help guide, counsel and assist in the growth and
development of NutraGenics for a period of three (3) years commencing with the
date hereof.
2
<PAGE> 3
SECOND: EXPENSES
NutraGenics will reimburse Koop for expenses incurred by him during the
course of services for NutraGenics hereunder including travel, lodging and
meals, provided the same have been authorized by NutraGenics and that an
accounting is made to NutraGenics.
THIRD: EXTENT OF SERVICES
(a) It is understood by the parties to this Agreement that Koop is an
independent contractor, and no rights of agency are conferred by NutraGenics
upon Koop. Koop does not have, nor shall he hold himself out as having, any
right, power, or authority to create any contract or obligation, either express
or implied, on behalf of, in the name of or binding upon NutraGenics.
(b) It is acknowledged that Koop's services shall be non-exclusive. It is
further acknowledged that during the term of this Agreement Koop will be privy
to information proprietary to NutraGenics and Koop shall maintain such
proprietary information as confidential and for the benefit of NutraGenics,
provided, that the foregoing shall not apply to any information which (i) at the
time of the disclosure thereof by Koop, was generally available to the public
other than as a result of disclosure, directly or indirectly, by Koop or was
available to Koop on a nonconfidential basis prior to its disclosure to Koop by
NutraGenics from a source which was not itself bound by a confidentiality
agreement with NutraGenics or (ii) Koop is obligated to disclose by law.
(c) NutraGenics shall carry no Workmen's Compensation
3
<PAGE> 4
insurance or any health or accident insurance for Koop. NutraGenics shall not
pay any contributions to Social Security, unemployment insurance, federal or
state withholding taxes, nor provide any other contributions or benefits which
might be expected in an employer-employee relationship.
FOURTH: OPTION TO PURCHASE NUTRAGENICS COMMON STOCK
(a) NutraGenics does, simultaneously with the execution of this
Agreement, grant Koop the option (the "Option") to purchase One Hundred and
Eighty Thousand (180,000) shares of the Stock (the "Option Shares") at a price
of One Dollar and Fifty Cents ($1.50) per share (hereinafter referred to as the
"Exercise Price") for a period of three (3) years commencing with the date
hereof (the "Option Period"). The Exercise Price and the number and type of
securities subject to the Option are subject to adjustment as provided in
paragraph (b) of this Article FOURTH.
(b) In the event that, during the period between the date hereof and
the Closing Date (as hereinafter defined), any reclassification, reorganization,
stock split, stock dividend, merger, consolidation, combination, exchange of
securities, or other similar change in respect of the capitalization of
NutraGenics shall occur, then appropriate adjustment shall be made in the number
of Option Shares and/or kind of securities to be issued as Option Shares and the
Exercise Price so that the Option Shares shall be that number of shares of
common stock and/or other securities that Koop would have held after such
reclassification,
4
<PAGE> 5
reorganization, stock split, stock dividend, merger, consolidation, combination,
exchange of securities, or other similar change if the Closing Date had occurred
immediately prior to such reclassification, reorganization, stock split, stock
dividend, or other change and all references herein to the Option Shares shall
be deemed to refer to such adjusted number and/or kind of securities.
(c) In the event that, during the period between the date hereof and
the Closing Date, there is a partial or complete liquidation or spin-off of any
assets owned by NutraGenics, NutraGenics will give Koop thirty (30) days prior
written notice of such event so that Koop may exercise any part or all of his
Option prior to such liquidation or spin-off.
(d) At any time during the Option Period, Koop shall have the right to
purchase from NutraGenics, in round numbered size allotments of blocks of at
least Ten Thousand (10,000) shares, up to that number of Option Shares then
subject to the Option, at the Exercise Price in effect at the time of such
exercise. Koop shall notify Nutragenics in writing by certified or registered
mail of his intention to exercise the Option. The closing and the issuance to
Koop of the unregistered common stock of NutraGenics (the "Closing Date") shall
be held within thirty (30) days of Koop's notice to exercise the Option. Koop
shall sign an investment
5
<PAGE> 6
letter for all stock issued pursuant to the Option in form and substance as
annexed hereto.
(e) In the event of the demise of Koop at any time during the option
period, Koop's estate shall have the right to exercise the Option for a period
which is the lesser of one year or the balance of the Option Period.
FIFTH: REPRESENTATIONS AND WARRANTIES
OF NUTRAGENICS
NutraGenics represents and warrants to Koop as follows:
(a) NutraGenics will cooperate fully and timely with Koop to enable
Koop to perform his duties as a member of the Board of Directors of NutraGenics
under this Agreement.
(b) The execution and performance of this Agreement by NutraGenics has
been duly authorized by the Board of Directors of NutraGenics through the
adoption and execution of formal executed resolutions of the Board of Directors
of NutraGenics.
(c) The performance by NutraGenics of this Agreement will not violate
any applicable court decree, federal, state or local law, ordinance or
regulation, nor will such performance violate any provision of NutraGenics'
organizational documents or any contractual obligation by which NutraGenics may
be bound.
(d) Any and all information supplied by NutraGenics to Koop shall be
true, accurate, and complete.
(e) NutraGenics is a corporation duly organized, validly existing and
in good standing under the laws of the state of Nevada. The authorized capital
of NutraGenics consists of
6
<PAGE> 7
50,000,000 shares of common stock, par value $.001 per share, of which 9,757,862
shares have been issued and are outstanding on the date hereof. NutraGenics
represents and warrants to Koop that (i) it shall at all times during the Option
Period have a number authorized and unissued shares of Stock at least equal to
the number of shares then subject to the Option and (ii) the Stock, when issued
pursuant to the terms and conditions of this Agreement and the Option, will have
been duly authorized, validly issued, fully paid and nonassessable.
(f) NutraGenics shall, to the fullest extent permitted by section
78.751 of the General Corporation Law of the State of Nevada, as that Section
may be amended and supplemented from time to time, indemnify Koop, under that
Section against any expenses, liabilities or other matters referred to in or
covered by that Section . The indemnification provided for in this paragraph (i)
shall not be deemed exclusive of any other rights to which Koop may be entitled
under any bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in Koop's official capacity and as to action in
another capacity while holding office as a director of NutraGenics, (ii) shall
continue as to Koop if he has ceased to be a director, officer or trustee, and
(iii) shall inure to the benefit of Koop's heirs, executors and administrators.
Any reasonable expenses incurred by Koop in defending a civil or criminal
action, suit or proceeding brought against him by reason of the fact that he is
or was a director,
7
<PAGE> 8
officer, employee, or agent of NutraGenics, or is or was serving at the request
of NutraGenics as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall be paid by
NutraGenics as they are incurred and in advance of the final disposition of such
action, suit or proceeding, upon receipt by NutraGenics of an undertaking by or
on behalf of Koop to repay the amount if it is ultimately determined by a court
of competent jurisdiction that he is not entitled to be indemnified by
NutraGenics in respect thereof.
(g) NutraGenics will not use Koop's name or the fact that he is a
director of NutraGenics for the endorsement, marketing or sale of any of
NutraGenics, products.
SIXTH: INDEMNIFICATION AND HOLD HARMLESS
NutraGenics agrees to protect, defend, indemnify and hold Koop harmless
from any and all claims, demands, liabilities, suits, judgments and damages that
may be asserted against Koop for wrongful acts alleged by third parties to have
been committed by NutraGenics or any of its officers, employees, agents,
subsidiaries or affiliates. This agreement to hold Koop harmless from any such
claims shall include the immediate reimbursement of all reasonable costs and
expenses incurred by Koop in defending any such claims, including the payment of
reasonable attorney's fees of an attorney selected by Koop and NutraGenics and
the payment of any settlement or judgment that may arise from such claims.
8
<PAGE> 9
SEVENTH: ENDORSEMENT OF STOCK CERTIFICATE
Koop agrees that there will be placed on the certificates of any
unregistered common stock of NutraGenics purchased by Koop pursuant to this
Agreement or the Option, a legend stating in substance as follows:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, have been acquired for
investment and may not be sold transferred or assigned in the absence
of an effective registration statement for these shares under the
Securities Act of 1933 or the availability of an exemption from such
registration requirement.
EIGHTH: NOTICES
Any notice to be given under this Agreement shall be sufficient if it
is in writing and is sent by certified or registered mail to the addresses
specified as follows:
NutraGenics, Inc.
8300 North Hayden Road
Suite 207
Scottsdale, Arizona 85258
Attention: Mr. Ronald H. Lane
Chief Executive Officer
C. Everett Koop, M.D.
5924 Maplewood Park Place
Bethesda, Maryland 20814
or as otherwise directed by NutraGenics or Koop from time to time.
NINTH: WAIVER
The waiver by NutraGenics or Koop of compliance with any provisions of
this Agreement shall not operate or be construed as a waiver of due performance
or compliance by Koop or NutraGenics thereafter.
9
<PAGE> 10
TENTH: ASSIGNMENT
The rights and obligations of NutraGenics under this Agreement shall
inure to the benefit of, and shall be binding upon, the successors and assigns
of NutraGenics, however, Koop cannot assign his personal obligations pursuant to
Article FIRST and THIRD. The rights of Koop under the Option and pursuant to
Article FIFTH (f) and Article SIXTH shall inure to the benefit of Koop's heirs,
administrators, executors and devisees.
ELEVENTH: ENTIRE AGREEMENT: MODIFICATION
This Agreement contains all of the terms and conditions agreed upon by
the parties hereto with reference to the subject matter hereof. No other
agreements, oral or otherwise, shall be deemed to exist or to bind any of the
parties hereto, and all prior agreements and understandings are superseded
hereby. This Agreement cannot be modified or changed except by written
instrument signed by all of the parties hereto.
TWELFTH: LAWS TO GOVERN
This Agreement shall be deemed to have been made in the State of New
York, therefore, the interpretation validity and performance of this Agreement
shall be construed and enforced the accordance with the laws of the state of New
York and the parties consent to the exclusive jurisdiction of the state and
federal courts of the State of New York.
10
<PAGE> 11
THIRTEEN: ARBITRATION
Any and all disputes of whatsoever kind or nature arising out of or
concerning this Agreement, its interpretation or effect, shall be determined by
the exclusive means of arbitration in the City of New York before the American
Arbitration Association of the City of New York, in accordance with its rules
and regulations then in effect, and the decision upon such arbitration shall be
final and binding upon all of the parties to this Agreement. The cost and
expenses of arbitration, including the reasonable attorney's fees, and
disbursements of the successful party, shall be paid by the party against whom
the arbiters render a decision, unless the decision of the arbiters specifically
provides otherwise for good cause, and judgment upon such award may be entered
in the Supreme Court of the State of New York or any other state in which any
party to this Contract is a resident. Such determination shall be made by a
panel of at least three (3) arbitrators. The parties agree that prior to the
arbitration hearing each shall have the right, within thirty (30) days after the
selection of the arbitrators, to take the depositions of the officers, agents
and employees of the other party, provided all costs incident to any such
depositions shall be paid by the party requesting such depositions. Either party
within said period may request production of relevant documents from the other
parties and upon receipt of such request the party required to supply such
documents shall do so immediately and within ten (10) days of such request.
11
<PAGE> 12
All discovery disputes shall be resolved by the American Arbitration
Association, and all discovery shall be completed within ninety (90) days unless
otherwise extended by agreement or order of the arbitrators. All costs and
expenses, including travel expenses, incident to any discovery requested by a
party shall be paid for by the requesting party; provided, however, that the
arbitrators may assess said costs against. one or the other party following a
hearing of the dispute. The arbitrators may assess interest on any amount
awarded. In all other respects, the arbitration shall proceed under the rules
and regulations then obtaining of the American Arbitration Association.
FOURTEEN: SEVERABILITY
Nothing contained in this Agreement shall be construed as requiring the
commission of any act contrary to law. In the event that any part, article,
paragraph or clause of this Agreement shall be held to be indefinite, invalid or
otherwise unenforceable, the entire Agreement shall not fail on account thereof,
and the balance of this Agreement shall continue in full force and effect. If
any tribunal or court or appropriate jurisdiction deems any provision hereof
(other than for the payment of money) unreasonable, said tribunal or court may
declare a reasonable modification hereof, and this Agreement shall be valid and
enforceable, and the parties hereto agree to be bound by and perform the same,
as thus modified.
12
<PAGE> 13
FIFTEEN: HEADINGS
The headings of the paragraphs of this Agreement are for the
convenience of reference only and do not form a part thereof and in no way
modify, interpret or construe the meanings or the parties.
SIXTEEN: COUNTERPARTS
This Agreement may be signed upon any number of counterparts with the
same effect as if the signature to each were upon the same agreement. Signatures
by facsimile transmission shall be deemed acceptable and binding on the parties
hereto.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
(seal) NUTRAGENICS, INC.
By:/s/Ronald H. Lane
--------------------------------------
Ronald H. Lane, Chairman and
Chief Executive Officer
/s/ C. Everett Koop
-----------------------------------------
C. Everett Koop, M.D.
13
<PAGE> 1
EXHIBIT 10.4
ADDITIONAL SECURED LOAN AGREEMENT
This AGREEMENT entered into this day of March, 1996 by and between
NutraGenics, Inc. a Nevada corporation, having its principle offices at 2425
Camelback Road, Suite 650, Phoenix, Arizona 85016 (hereinafter referred to as
"NutraGenics") and Milton Okin, residing at 306 Brevoort Lane, Rye, New York
10580 (hereinafter referred to as the "Okin").
WITNESSETH:
WHEREAS, NutraGenics is a public company that has acquired a licensing
agreement which permits the exclusive manufacture, marketing and sale of a
vitamin E-like complex ("TRF(25)") that has been shown to be effective in
reducing cholesterol and critical events associated with coronary heart disease
and stroke; NutraGenics has applied for a United States trademark for the
vitamin E-like complex (TRF(25)) under the name "Vitenol-ETM"; and NutraGenics
is in the business of manufacturing, marketing and selling the aforementioned
vitamin E-like complex (TRF(25)) under the name "Vitenol-E(TM)";
WHEREAS, Okin is a biochemist and has been in the nutrition, health and
vitamin industry for 60 years, has owned a company that manufactured, marketed
and distributed vitamins and pharmaceuticals, currently owns a vitamin mail
order business and has extensive knowledge in the nutrition, health and vitamin
industry;
1
<PAGE> 2
WHEREAS, pursuant to an Agreement dated October 5, 1995, Okin and
Okin's Children purchased Two Hundred and Fifty Thousand (250,000) shares of
common stock of NutraGenics $.001 par value and among other financial advances
Okin advances Two Hundred and Fifty Thousand ($250,000) Dollars to NutraGenics
as a secured loan for a period of two (2) years in order to finance the creation
of the manufacturing process and to create the proper labeling for Vitenol-E as
a nutritional vitamin E supplement that reduces cholesterol and to manufacture
Vitenol-E for sale to the public; and
WHEREAS, NutraGenics has represented to Okin that it has almost
completed the creation of the commercial manufacturing process for Vitenol-E(TM)
for encapsulization in a normal sized capsule form for sale to the pubic as a
nutritional vitamin E supplement; and
WHEREAS, Milton Bass, Esq., an attorney who specializes in Federal Drug
Administration (FDA) matters, and who has been engaged by NutraGenics to approve
the words and the tenor of the words to be used on the commercial label of the
bottle containing Vitenol-E for sale to the public so that those words convey
the message to the public that Vitenol-E is effective in reducing cholesterol;
and
WHEREAS, Milton Bass, Esq., has reviewed all the material concerning
Vitenol-E supplied to him by NutraGenics and has requested NutraGenics to obtain
from a person with the proper credentials a scientific review of the actions
taken, the tests conducted including, where appropriate, the procedures and
protocol
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<PAGE> 3
used in such tests and the relative medical journal reports and other related
articles relied upon by NutraGenics in supporting its position that
Vitenol-E(TM) is effective in reducing cholesterol as additional support for
those claims before Milton Bass, Esq., can finally pass upon the words to be
used on the label of the Vitenol-E(TM) bottles to convey the message to the
public that Vitenol-E(TM) reduces cholesterol; and
WHEREAS, NutraGenics presented to Okin a budget in the approximate sum
of Three Hundred and Fifty-Nine Thousand Seven Hundred ($359,700) Dollars for
the period March 1996 through June 1996 to further develop the commercial
manufacturing process for Vitenol-E(TM) which will result in the commercial
production of approximately 30,000 bottles of Vitenol-E(TM) and to complete the
report requested by Milton Bass, Esq. so that he can pass upon the words to be
used on the label of the Vitenol-E(TM) bottle to convey the message to the
public that Vitenol-E(TM) is effective in reducing cholesterol; and
WHEREAS, Okin has agreed to advance the sum of Three Hundred and Fifty
Thousand ($350,000) Dollars to NutraGenics in order to further develop the
commercial manufacturing process for and produce approximately 30,000 bottles of
Vitenol-E(TM) and complete the report necessary to support the words to be used
on the label of the bottle to convey the message to the public that
Vitenol-E(TM) as a vitamin E supplement is effective in reducing cholesterol,
upon terms and conditions as hereinafter set forth;
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<PAGE> 4
NOW THEREFORE, in consideration of the mutual covenants and provisions
herein contained, the parties intending to be legally bound, agree as follows:
FIRST: FIRST SECURED LOAN TO NUTRAGENICS
FOR THREE HUNDRED AND FIFTY THOUSAND
($350,000) DOLLARS
In reliance on the representations and warranties contained herein,
Okin will loan to NutraGenics the sum of Three Hundred and Fifty Thousand
($350,000) Dollars pursuant to the following terms and conditions:
(a) The loan of Three Hundred and Fifty Thousand ($350,000.00) Dollars
(hereinafter referred to as the "Additional Secured Loan") shall be secured by
NutraGenics' accounts receivables, inventory, patents, trademarks, machinery,
equipment, licenses and contracts, including but not limited to, the exclusive
license agreement to manufacture, market and sell the vitamin E-like complex
(TRF(25)) known as Vitenol-E(TM), pursuant to the terms and conditions of an
Equipment Security Agreement - Chattel Mortgage as amended by this Agreement; a
Security Agreement - Chattel Mortgage dated October 5, 1995; an Inventory
Security Agreement dated October 5, 1995; and Form UCC-1 Financing Statements
filed with the appropriate local and state agencies as previously executed by
the parties as part of Okin's initial loan to NutraGenics in the sum of Two
Hundred and Fifty Thousand ($250,000) Dollars as more particularly set forth in
the Agreement between Okin and NutraGenics dated October 5, 1995. It being
understood and agreed between the parties that the first secured interest
granted to Okin
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<PAGE> 5
by NutraGenics in the October 5th, 1995 Agreement is hereby extended to include
the present additional secured loan of Three Hundred and Fifty Thousand
($350,000) Dollars ("Additional Secured Loan") so that Okin will hold a first
secured interest of Six Hundred Thousand ($600,000) Dollars in all of the
present and future acquired assets of NutraGenics.
(b) The Additional Secured Loan to NutraGenics will be advanced to
NutraGenics by Okin pursuant to the following schedule:
(i) the sum of One Hundred Thousand ($100,000) Dollars on March
1, 1996;
(ii) the sum of One Hundred Thousand ($100,000) Dollars on April
1, 1996;
(iii) the sum of One Hundred Thousand ($100,000) Dollars on May 1,
1996; and
(iv) the sum of Fifty Thousand ($50,000) Dollars on June 1, 1996.
(c) NutraGenics shall execute four (4) Promissory Notes dated
consecutively March 1, 1996; April 1, 1996; May 1, 1996; and June 1, 1996. The
first three (3) notes will each be in the amount of the sum of One Hundred
Thousand ($100,000) Dollars; and the fourth note will be in the amount of the
sum of Fifty Thousand ($50,000) Dollars.
(d) Each Promissory Note will be signed by NutraGenics and held in
escrow by Marvin J. Goldstein, Esq., until Marvin J. Goldstein, Esq., is
notified by the partes that NutraGenics has received the appropriate sum of
money represented by the Promissory
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<PAGE> 6
Note at which time Marvin J. Goldstein, Esq., shall release such originally
executed Promissory Note to Okin.
(e) The term of each note shall be for a period of two (2) years with a
variable interest rate based upon the six-month London Interbank Offered Rate
("Libor") plus the spread of 1 1/2 points above Libor (which includes the
facility fee of 3/4 of a point charged by Merrill Lynch), and said variable
interest on the Additional Secured Loan shall be paid by NutraGenics quarter
annually directly to Milton Okin, it being understood between the .parties that
although the Additional Secured loan was intended to be for a term of two years,
because the advances of each loan is staggered, the maturity date for each
advance is similarly staggered so that each advance is due two years from the
date of each advance.
(f) The proceeds of the Additional Secured Loan shall be used in
accordance with the terms and conditions hereinafter set forth in paragraph
"SECOND".
(g) Pursuant to the terms and conditions hereinafter set forth in
paragraph "THIRD", Okin, in his sole option, may elect to receive all or part of
the repayment of this Additional Secured Loan by the issuance to him of
restricted common stock of NutraGenics as repayment of said Additional Secured
Loan, at a purchase price of One Dollar and Fifty Cents ($1.50) per share of
unregistered common stock of NutraGenics.
(h) Pursuant to the terms and conditions hereinafter set forth in
paragraph "FOURTH", Okin in his sole discretion, may elect
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<PAGE> 7
to receive payment in full of the principal balance of all loans outstanding and
advanced by Okin to NutraGenics together with all interest accrued thereon at
any time within ninety days after NutraGenics has obtained at least Five Million
($5,000,000) Dollars of financing from sources other than Okin.
SECOND: INVESTORS POSITION - USE OF PROCEEDS
(a) The aforesaid proceeds of the Additional Secured Loan shall be used
by NutraGenics primarily for the completion of the creation of the commercial
manufacturing process for Vitenol-E for encapsulization in a 7 1/2 oval or other
size capsule appropriate for sale to the public, for completion of the
scientific review of the report requested by Milton Bass, Esq., in order to help
support the claims to be used on the commercial label of the bottle containing
Vitenol-E(TM) for sale to the public and for the manufacture, marketing and sale
of the product Vitenol-E(TM) and as more particularly set forth in NutraGenics'
administration budget for the period March, 1996, through June, 1996, a copy of
which is annexed hereto and called Exhibit A. The proceeds of the Additional
Secured Loan shall not be used for the repayment of any debt of NutraGenics nor
for the payment of any royalties to LipoGenics, Inc., the corporation that
developed and owns the vitamin E-like complex .(TRF(25)) referred to herein and
known as vitenol-E(TM).
(b) NutraGenics shall maintain complete and accurate financial books
and records reflecting NutraGenics, use of
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<PAGE> 8
aforesaid proceeds of the Additional Secured Loan. Okin, or any representative
of Okin, shall have the right; upon three (3) working days written notice, to
examine and copy said books and records of NutraGenics at any time during the
normal business hours of NutraGenics, and NutraGenics at its own expense shall
be obligated and bound to make said books and records available for review and
copying by Okin, or any representative of Okin, at NutraGenics office in
Phoenix, Arizona.
(c) Until such time as the Additional Secured Loan of Three Hundred and
Fifty Thousand ($350,000) Dollars made has been paid in full, Okin shall be
entitled to receive upon his request copies of all filings with the United
States Securities and Exchange commission, press releases, sales literature,
material contracts and financial and accounting reports, financial statements
and tax returns prepared by, for or on behalf Of NutraGenics.
(d) The within "Use of Proceeds" provision is a material provision and
of the essence of this Agreement, any material breach of the use of proceeds as
outlined in paragraph "SECOND (a)" shall result in the following:
(i) The balance of the principal and interest of the Secured Loan
made on October 5, 1995, and the balance of the principal and
interest of the Additional Secured Loan made in March, 1996,
shall become immediately due and payable by NutraGenics to
Okin pursuant to the terms and conditions of the Promissory
Notes executed by NutraGenics
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<PAGE> 9
representing the Secured Loan made on October 5, 1995 and the
Additional Secured Loan made in march, 1996; and in addition
(ii) Okin shall have the right and option to sell his equity
ownership in NutraGenics, or any portion thereof, to
NutraGenics at a price equal to $2.00 per share or the then
fair market value per share whichever is greater. Okin shall
elect such option by notifying NutraGenics in writing by
certified or registered mail. NutraGenics, within thirty (30)
days of receipt of such notice, shall purchase said stock.
The closing shall be held within thirty (30) days of such
notice, at which time 100% of the purchase price shall be
paid in cash or by certified check and the stock certificates
sold shall at closing be properly endorsed and delivered to
NutraGenics by Okin.
THIRD: OPTION TO CONVERT ADDITIONAL SECURED LOAN
INTO UNREGISTERED COMMON STOCK OF NUTRAGENICS
At any time during the term of each of the Promissory Notes made
pursuant to this Agreement, Okin, at his sole option, may elect to receive
unregistered common stock of NutraGenics as repayment of all or any portion of
the Promissory Notes made between Okin and NutraGenics, at a purchase price of
One Dollar and Fifty Cents ($1.50) per share of unregistered common stock of
NutraGenics. Okin shall notify Nutragenics in writing by certified
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<PAGE> 10
or registered mail of his election to receive unregistered common stock of
NutraGenics as repayment of all or any portion of the Promissory Notes being
made pursuant to this Agreement. The closing and the issuance to Okin of the
unregistered common stock of NutraGenics shall be held within thirty (30) days
of Okin's notification (the "Closing Date").
In the event that, during the period between the date hereof and the
date when Okin exercises his option to convert the Promissory Notes into the
unregistered common stock of NutraGenics (the "Option Period"), any
reclassification, reorganization, stock split, stock dividend, merger
consolidation, combination, exchange of securities, or other similar change in
respect of the capitalization of NutraGenics shall occur, then appropriate
adjustment shall be made in the number of shares of common stock of NutraGenics
and/or kind of securities to be issued in the event Okin exercises his option to
accept repayment of part or all of his Promissory Notes in restricted common
stock of NutraGenics (the "Option Shares") and appropriate adjustment shall be
made to the exercise price, if necessary, so that the Option Shares shall be
that number of shares of common stock and/or other securities that Okin would
have held after such reclassification, reorganization, stock split, stock
dividend, merger, consolidation, combination, exchange of securities, or other
similar change as if the purchase had occurred immediately prior to such
reclassification, reorganization, stock split, stock dividend, liquidation,
spin-off or similar other change and all references herein to the option
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<PAGE> 11
Shares shall be deemed to refer to such adjusted number and/or kind of
securities.
In the event that, during the Option Period there is a partial or
complete liquidation or spin-off of any assets owned by NutraGenics, NutraGenics
will give Okin at least thirty (30) days prior written notice of such event so
that Okin may exercise any part of all of the option prior to such liquidation
or spin-off.
At any time during the Option Period Okin shall have the right to
purchase from NutraGenics in round numbered size allotments of blocks of at
least ten thousand (10,000) shares, up to that number of Option Shares then
subject to the Option, at the Exercise Price in effect at the time of such
exercise. Okin shall sign an investment letter for all stock issued pursuant to
the option in form and substance as executed hereunder as part of this
Agreement.
In the event of the demise of Okin at any time during the Option
Period, Okin's estate shall have the right to exercise the Option for a period
which is the lesser of one year or the balance of the Option Period.
FOURTH: OPTION TO RECEIVE REPAYMENT OF SECURED LOANS
MADE ON OCTOBER 5, 1995 AND ADDITIONAL SECURED
LOAN MADE PURSUANT TO THIS AGREEMENT
At any time during the term of any of the four Promissory Notes made
pursuant to this Agreement, Okin, at his sole option, may elect to receive
repayment in cash or by good certified check of all or any portion of all unpaid
principal loans made by him and Okin's children together with all unpaid
interest accrued thereon (the "Loans") in the event that NutraGenics obtains
financing of
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<PAGE> 12
Five Million ($5,000,000) Dollars or more from sources other than Okin
("Financing"). Okin's option to elect to receive such repayment shall extend for
a period of thirty (30) days from the date that NutraGenics receives and
notifies Okin of all or any portion of said Financing. Okin shall notify
Nutragenics in writing by certified or registered mail of his election to
receive repayment of all or any portion of the Loans. The closing and the
payment to Okin and/or Okin's Children of the Loans shall be held within thirty
(30) days of Okin's notification (the "Closing Date").
FIFTH: NUTRAGENICS RIGHT TO PREPAY LOANS
NutraGenics shall have the right to prepay at any time without penalty
the Loans made pursuant to this Agreement, and in that event, NutraGenics shall
notify Okin of its intention to prepay said loans by certified or registered
mail. Upon receipt of such notice, Okin shall have the option to elect to
receive unregistered common stock of NutraGenics at One Dollar and Fifty Cents
($1.50) per share in lieu of a cash repayment of all or part of said Loans, Okin
shall notify NutraGenics of such an election in writing by certified or
registered mail within thirty (30) days of receipt of NutraGenics' notice to
prepay said loans. In the event Okin does not elect to receive NutraGenics'
stock in repayment of all of his loans he shall be paid the balance due in cash
or good certified check. The closing and the payment in cash or good certified
check and/or the issuance to Okin of the unregistered common stock of
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<PAGE> 13
NutraGenics shall be held within thirty (30) days of Okin's notification.
SIXTH: "PIGGY BACK" RIGHTS OF REGISTRATION
In the event NutraGenics shall at any time after the date hereof, seek
to further register or qualify any of its capital stock or the securities
holdings of any of its controlling shareholders, on each such occasion it shall
furnish Okin with at least thirty (30) days prior written notice thereof, and
Okin shall have the option without cost or expense to Okin, to include his
Stock, or any portion thereof, in such registration or qualification with the
consent of the underwriter, who may also require appropriate and reasonable
limitations on the sale of such Stock after their registration. Okin shall
exercise his "piggy-back rights" of registration by giving written notice to
NutraGenics and the underwriter within twenty (20) days of receipt of written
notice from NutraGenics. All expenses in connection with preparing and filing
the registration statement (and any registration or qualification under the
securities or "Blue Sky" laws of states in which the offering will be made under
such registration statement) shall be borne in full by NutraGenics (including up
to a maximum of five (5) states in which NutraGenics would not otherwise sell
shares registered under such registration statement in which the shares are also
registered). This piggy-back right of registration shall apply to the shares of
NutraGenics' common stock issued to Okin if Okin elects to receive
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<PAGE> 14
part or full payment of his Promissory Notes through the issuance of the
NutraGenics restricted common stock and limited in dollar amount to 125% of the
cost of the NutraGenics' common stock purchased by Okin through conversion of
his Promissory Notes into common stock of NutraGenics. This piggy-back right of
registration may be assigned and transferred by Okin to any third party who may
receive the Promissory Notes or NutraGenics stock issued to Okin pursuant to
this Agreement.
SEVENTH: INDEMNIFICATION
NutraGenics agrees to indemnify and hold harmless Okin and each person,
if any, who is a representative of Okin and each person to whom Okin assigns his
NutraGenics' common stock, from and against any losses, claims, damages,
liabilities (which shall include, but not be limited to, all reasonable costs of
defense and investigation and all reasonable attorneys' fees), to which Okin,
such representative or assignee, may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or an alleged
untrue statement of any material fact contained in (A) the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment thereof
or supplement thereto, (B) any blue sky application or other document executed
by NutraGenics specifically for that purpose or based upon written information
furnished by NutraGenics filed in any state or other jurisdiction in order to
qualify any or all of the NutraGenics Shares of common stock under the
securities laws
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<PAGE> 15
thereof (any such application, document being hereinafter called a "Blue Sky
Application"), or arise out of or are based upon the omission or alleged
omission to state in the Registration Statement, any supplement thereto, or in
any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
NutraGenics will not be liable in any such case to the extent, but only to the
extent, that any such loss, claim, damage, or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to NutraGenics through Okin or on behalf of Okin or Okin's
assigns specifically for use in the preparation of the Registration Statement or
any such amendment of supplement thereof or any such Blue Sky Application or any
such Preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto. This indemnity will be in addition to any liability which
Okin or any of Okin's representatives or assigns may otherwise have.
The terms and conditions of this paragraph shall survive the
termination or expiration of this Agreement.
EIGHTH: OKIN'S INVESTMENT REPRESENTATIONS
Okin represents that the NutraGenics unregistered common stock (the
"Shares") he may acquire as a result of conversion of all or any part of this
Additional Secured Loan will be acquired by him for investment for his own
account with no present intention of
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<PAGE> 16
reselling or otherwise distributing the same. Okin has been advised that the
Shares so acquired will not have been registered under the Securities Act of
1933, as amended, (the "Act") on the basis that the sale to Okin is exempt from
registration under Section 4(2) of the Act as not involving any public offering
and that NutraGenics' reliance on such exemption is predicated in part on Okin's
aforesaid representation. Okin has been advised that while he has the right to
dispose of his own property when and as he sees fit, he realizes that, in the
view of the Securities and Exchange Commission, the statutory basis for
exemption would not be present if, notwithstanding Okin's said representation,
Okin had in mind merely acquiring the Shares for resale upon the occurrence or
nonoccurrence of some predetermined event. At present Okin knows of no
circumstance in the foreseeable future which would require the sale or
hypothecation of the Shares. Okin represents that he has such knowledge and
experience in financial matters to evaluate the merits and risks of an
investment in the Shares, and that he can bear the economic risk of an
investment in the Shares.
Okin further represents that he has had the opportunity to seek outside
legal advice with respect to acquiring the Shares. Okin understands that the
Shares are characterized as "restricted securities" under federal securities
laws, since the Shares are being acquired in a transaction not involving a
public offering and that under such laws and applicable regulations, such
securities may be resold without registration under the Act only in certain
limited circumstances. Okin hereby represents that he understands
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<PAGE> 17
the resale limitations imposed by the act and is generally familiar with and
understands the existing resale limitations imposed by the Act and the rules and
regulations promulgated thereunder.
NINTH: ENDORSEMENT OF STOCK CERTIFICATE
Okin agrees that in the event he converts any part or all of this
Additional Secured Loan into the common stock of NutraGenics there will be
placed on the certificates for the Shares, or any substitutions therefor, a
legend stating in substance as follows:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, have been acquired for
investment and may not be sold transferred or assigned in the absence
of an effective registration statement for these shares under the
Securities Act of 1933 or an opinion of Company's counsel that
registration is not required under said Act.
TENTH: DESCRIPTION OF AUTHORIZED CAPITAL STOCK AND
WARRANTS
The total number of authorized shares of NutraGenics' common stock is
Fifty Million (50,000,000) par value $.001.
The total number of issued and outstanding shares of NutraGenics common
stock is Ten Million Seven Hundred and Fifty-Six Thousand Two Hundred and
Sixty-Nine (10,756,269) Shares. Except for the options created for C. Everett
Koop to purchase One Hundred and Eighty Thousand (180,000) shares of
NutraGenics' common stock, and the option granted to Okin to convert his Loans
into the common stock of NutraGenics, there are no warrants or options to
purchase shares of NutraGenics common stock.
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ELEVENTH: LOAN TO NUTRAGENICS FOR THE PAYMENT OF THE
LEGAL FEES FOR MILTON A. BASS, ESQ. AS
PROVIDED IN THE AGREEMENT DATED OCTOBER 5, 1996
The parties acknowledge and agree that pursuant to the terms and
conditions of the Agreement dated October 5, 1995, paragraph FIFTH thereof,
Milton A. Bass, Esq., has issued invoices to NutraGenics totalling approximately
$11,500 to date which invoices will be paid by Okin on behalf of NutraGenics
pursuant to said Agreement.
TWELFTH: INCORPORATION OF SECURED LENDING PROVISIONS
OF AGREEMENT DATED OCTOBER 5, 1995
The parties acknowledge and agree that except as otherwise modified by
this Agreement, all the terms and conditions of the Security Agreement - Chattel
Mortgage, Equipment Security Agreement - Chattel Mortgage, Inventory Security
Agreement, and Form UCC-1 Financing Statements executed with the Agreement dated
October 5, 1995 are hereby incorporated by reference herein and made a part
hereof as though fully set forth at length herein so that Okin will have a
continuing first security interest in all of the assets of NutraGenics to secure
the payment of this Additional Secured Loan.
The parties specifically acknowledge and agree that the existing
executed Security Agreement -Chattel Mortgage executed with the October 5, 1995
Agreement provides for such continuing security interest at page 1, second
paragraph, where it is stated, "As security to the Lender for the payment of all
previously made or granted financing, all presently made or granted financing
and all financing that my be made or granted by lender or borrower in
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the future and all other obligations that may be owed by the Borrower to the
Lender...."
The parties further specifically acknowledge and agree that the
Inventory Security Agreement executed with the Agreement dated October 5, 1995,
provides at page 2, paragraph THIRD, that "The inventory shall be security for
the advancement of credit and loans previously made, presently made, made in the
future and all other obligations of Borrower to Lender."
THIRTEENTH: NUTRAGENICS' REPRESENTATIONS AND WARRANTIES
(a) NutraGenics represents and warrants that in the event Okin converts
any or all of this Additional Secured Loan into the common stock of NutraGenics,
such common stock of NutraGenics when issued pursuant to the terms and
conditions of this Agreement, will have been duly authorized, validly issued,
fully paid and nonassessable.
(b) NutraGenics represents and warrants that it will pay any and all
taxes required to be paid and arising out of the issuance and sale of the
NutraGenics common stock to Okin.
(c) NutraGenics agrees to sign any and all other documents reasonably
required to be signed in order to effectuate the issuance of the NutraGenics
common stock that may be issued herein by NutraGenics.
(d) NutraGenics agrees that this Additional Secured Loan shall be a
first secured loan against all the present and future acquired assets of
NutraGenics.
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(e) NutraGenics represents and warrants that there is no claim,
litigation, proceeding or investigation pending or to the knowledge of
NutraGenics threatened in which NutraGenics is a party or a defendant that may
in any way effect the value of the vitamin E-like complex (TRF(25)) known as
Vitenol-E(TM) including any applications, renewal applications, or amendments to
any existing registration, submitted to the United States Food and Drug
Administration or the United States Patent and Trademark Office.
(f) NutraGenics represents and warrants that it has complied in all
material respects with all applicable laws, regulations, orders and ordinances
of the United States, and all state and local governments and agencies thereof,
which could adversely effect the vitamin E-like complex (TRF(25)) known as
Vitenol-E(TM).
(g) NutraGenics represents and warrants that it is the sole and
undisputed holder of the world wide exclusive license from LipoGenics, Inc. to
the industrial proprietary rights, including pending United States and foreign
applications relating to tocotrienols and tocotrienol-like compounds and their
preparation and use, and the technology, including trade secret formulas and
processes, and know-how, relating to such tocotrienols and tocotrienol-like
compounds and their preparation and use (such Industrial Property Rights,
technology, trade secrets and know-how being hereinafter referred to as
"LipoGenics technology"). That the nutritional supplement technology based on a
vitamin E-like complex (TRF(25)) has been shown to be effective in reducing
cholesterol and in reducing critical events associated with
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coronary heart disease and stroke as well as having antioxidant and
anticoagulant properties.
(h) NutraGenics represents and warrants that the above-described
exclusive license for the vitamin E-like complex (TRF(25)) is, and will be at
the time of execution of this agreement, validly existing and in full force and
effect; NutraGenics represents and warrants that it has not violated, nor is in
breach or default of, any of the conditions and terms of such license agreement.
NutraGenics further represents and warrants that said license agreement is free
and clear of all pledges, mortgages, charges, encumbrances and liens. A true
copy of such fully executed License Agreement is annexed hereto.
(i) NutraGenics represents and warrants that LipoGenics has patent
applications pending on the following four basic elements: 1) a method of
manufacturing Vitenol-E(TM) dietary supplements ("Processing" claims); 2)
Vitenol-E(TM) products derived via the proprietary methods ("Products by
Process" claims); 3) chemical composition of key compounds in Vitenol-E(TM)
("Composition of Structure" claims); and 4) the use of the proprietary
Vitenol-E(TM) product and its compounds ("Utility" claims). As of the date of
the execution of this Agreement, the following patent applications have been
submitted and prosecuted by LipoGenics:
<TABLE>
<CAPTION>
Applications # Inventors Title
- -------------- --------- -----
<S> <C> <C>
1. WO 9117985 A. Qureshi, K. Becker Process for recovering
M. Wells, R. Lane tocotrienols, tocopherols
and tocotrienol-like
compounds
2. WO 930977 R. Lane A. Qureshi Tocotrienols and
W. Salser tocotrienol-like compounds
and methods for their use
</TABLE>
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<PAGE> 22
NutraGenics further represents and warrants that there have been no issues
raised by the United States Patent and Trademark Office that NutraGenics
believes will prevent the issuance of the patents for the above-described patent
applications.
FOURTEENTH: APPROVAL OF BOARD OF DIRECTORS
This Agreement and the terms and conditions herein is subject to the
prior approval of the Board of Directors of NutraGenics through the adoption and
execution of formal executed resolutions of the Board of Directors of
NutraGenics. A copy of such executed resolutions shall be delivered to Okin at
closing.
FIFTEENTH: NON-WAIVER
All representations and warranties made by the parties to this
Agreement shall survive the closing. No action or omission by the parties hereto
shall constitute a waiver of any covenants, warranties or representations,
unless such waiver shall be executed in writing by the party for whose benefit
such covenant, warranty or representation is designed.
SIXTEENTH: ARBITRATION OF DISPUTES
Any and all disputes of whatsoever kind or nature arising out of or
concerning this Agreement, its interpretation or effect, shall be determined by
the exclusive means of Arbitration before the American Arbitration Association
of the City of New York, located in the City of New York in accordance with its
rules and regulations then in effect, and the decision upon such Arbitration
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shall be final and binding upon all of the parties of this Agreement. The costs
and expense of Arbitration, including the reasonable attorney's fees, shall be
paid by the party against whom the Arbiters render a decision, unless the
decision of the Arbiters specifically provides otherwise for good cause, and
judgment upon such award may be entered in the Supreme Court of the State of New
York or any other State in which any party to this Agreement is a resident. Such
determination shall be made by a panel of at least three (3) Arbiters.
SEVENTEENTH: LAWS TO GOVERN
This Agreement shall be construed and enforced in accordance with the
laws of the State of New York without giving effect to the conflict of laws and
principles thereof and the parties consent to the exclusive jurisdiction of the
state and federal courts of the State of New York.
EIGHTEENTH: NOTICES
All necessary notices, demands, and requests required or permitted to
be given under the provisions of this Agreement shall be deemed duly given five
(5) days after being mailed by certified mail, return receipt requested, postage
prepaid and addressed as follows:
A. If to be given to NutraGenics at
8300 North Hayden Road
Suite 207
Scottsdale, Arizona 85258
23
<PAGE> 24
B. If to be given to Milton Okin at
306 Brevoort Land
Rye, New York 10580
NINETEENTH: ENTIRE AGREEMENT
This Agreement contains all of the terms and conditions agreed upon by
the parties hereto with reference to the subject matter hereof. No other
agreements, oral or otherwise, shall be deemed to exist or to bind any of the
parties hereto, and all prior agreements and understandings are superseded
hereby. This Agreement cannot be modified or changed except by written
instrument signed by all of the parties hereto.
TWENTIETH: HEADINGS
The headings of the paragraphs of this Agreement are for the
convenience of reference only and do not form a part thereof and in no way
modify, interpret or construe the meanings of the parties.
TWENTY-FIRST: COUNTERPARTS
To facilitate execution, this Agreement may be executed in as many
counterparts as may be required and its shall not be necessary that the
signatures of, or on behalf of, each party, or that the signatures of all
persons required to bind any party, appear on each counterpart; but it shall be
sufficient that the signature of, or on behalf of, each party, or that the
signatures of the persons required to bind any party, appear on one or more of
the counterparts. All counterparts shall collectively constitute a
24
<PAGE> 25
single agreement. It shall not be necessary in making proof of this Agreement to
produce or account for more than a number of counterparts containing the
respective signatures of, or on behalf of, all of the parties hereto. Signatures
by facsimile transmission shall be deemed acceptable and binding upon the
parties.
TWENTY-SECOND: SEVERANCE OF AGREEMENT
Should any provision or portion of any provision of this Agreement be
invalid for any reason the validity of the remaining provisions, or of the other
portions of the provision in question, shall not be effected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers, and their corporate seals to be
affixed hereto.
NUTRAGENICS, INC.
/s/Ronald H. Lane
-------------------------------
By: RONALD H. LANE
CHIEF EXECUTIVE OFFICER
/s/Milton Okin
-------------------------------
MILTON OKIN
25
<PAGE> 1
EXHIBIT 10.5
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF HAVE BEEN ISSUED AND SOLD WITHOUT REGISTRATION IN RELIANCE UPON
EXEMPTIONS FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT") AND APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE "STATE
ACTS"). SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED OTHER
THAN (i) PURSUANT TO AN EFFECTIVE REGISTRATION OR AN EXEMPTION THEREFROM UNDER
THE 1933 ACT AND THE STATE ACTS AND (ii) UPON RECEIPT BY THE ISSUER OF EVIDENCE
SATISFACTORY TO IT OF COMPLIANCE WITH THE 1933 ACT, AND THE APPLICABLE STATE
ACTS. THE ISSUER SHALL BE ENTITLED TO REQUIRE AN OPINION OF COUNSEL SATISFACTORY
TO IT WITH RESPECT TO COMPLIANCE WITH THE ABOVE LAWS.
- --------------------------------------------------------------------------------
WARRANT TO PURCHASE 600,000 SHARES OF THE
COMMON STOCK OF NUTRAGENICS, INC.
NUTRAGENICS, INC.
(a Nevada Corporation)
Not Transferable or Exercisable Except
upon Conditions Herein Specified
- --------------------------------------------------------------------------------
NUTRAGENICS, INC., a Nevada Corporation, hereby certifies that William
M. McCormick, his registered successors and permitted assigns registered on the
books of NutraGenics, Inc. (the "Company") maintained for such purposes as the
registered holder hereof (the "Holder"), in consideration of his services
rendered and to be rendered to the Company, such services including but no
limited to raising capital, representing the Company with investors and stock
brokerage firms, and in general assisting in the building of the company, is
entitled to purchase from the Company the number of fully paid and
non-assessable restricted unregistered shares of common stock of the Company
(the "Common Stock"), stated above (the "Shares") at the purchase price of $2.50
per share for the first 300,000 warrants exercised and $4.00 per share for the
second 300,000 warrants exercised (the "Exercise Price") (the number of Shares
and Exercise Price being subject to adjustment as hereinafter provided) upon the
terms and conditions herein provided.
1. Exercise of Warrant.
(a) Subject to subsection (b) of this Section 1, upon
presentation and surrender of this Warrant Certificate, with the attached
Purchase Form duly executed, at the principal office of the Company at 2425 E.
Camelback Rd., Suite 650, Phoenix, Arizona 85016 (Attn: Ronald H. Lane, PhD.),
or at such other place as the Company may designate by written
<PAGE> 2
notice to the Holder hereof, together with a certified or bank cashier's check
payable to the order of the Company in the amount of the Exercise Price times
the number of Shares being purchased, the Company shall deliver to the Holder
hereof, as promptly as practicable, duly issued certificates representing the
Shares being purchased. This Warrant may be exercised in whole or in part; and,
in case of exercise hereof in part only, the Company, upon surrender hereof,
will deliver to the Holder a new Warrant Certificate(s) of like tenor entitling
the Holder to purchase the number of Shares as to which this Warrant has not
been exercised.
(b) This Warrant may be exercised and shall vest as
hereinafter set forth:
(i) The Holder shall for the period of May 15, 1996
through May 14, 2006, have the right to exercise 200,000 Warrants to purchase
200,000 shares of Common Stock of the Company at $2.50 per share.
(ii) The Holder shall for the period August 15, 1996
through August 14, 2006 have the right to exercise 50,000 Warrants to purchase
50,000 shares of Common Stock of the Company at $2.50 per share.
(iii) The Holder shall for the period November 15, 1996
through November 14, 2006 have the right to exercise 50,000 Warrants to purchase
50,000 shares of Common Stock of the Company at $2.50 per share.
(iv) The Holder shall for the period February 15, 1997
through February 14, 2007 have the right to exercise 50,000 Warrants to purchase
50,000 shares of Common Stock of the Company at $4.00 per share.
(v) The Holder shall for the period May 15, 1997
through May 14, 2007 have the right to exercise 50,000 Warrants to purchase
50,000 shares of Common Stock of the Company at $4.00 per share.
(vi) The Holder shall for the period August 15, 1997
through August 14, 2007 have the right to exercise 50,000 Warrants to purchase
50,000 shares of Common Stock of the Company at $4.00 per share.
(vii) The Holder shall for the period November 15, 1997
through November 14, 2007 have the right to exercise 50,000 Warrants to purchase
50,000 shares of Common Stock of the Company at $4.00 per share.
(viii) The Holder shall for the period February 15, 1998
through February 14, 2008 have the right to exercise 50,000 Warrants to purchase
50,000 shares of Common Stock of the Company at $4.00 per share.
(ix) The Holder shall for the period May 15, 1998
through May
- 2 -
<PAGE> 3
14, 2008 have the right to exercise 50,000 Warrants to purchase 50,000 shares of
Common Stock of the Company at $4.00 per share.
(c) Warrants may be exercised as hereinabove set forth, in
whole or in part, to the extent then exercisable, by delivering written notice
to the Company in accordance with the provisions of this Warrant. Payment of the
exercise price may be made in cash or, unless otherwise determined by the
Company, in whole shares of Common Stock already owned by the Holder or partly
in cash and partly in shares of Common Stock.
(d) Each Warrant will become immediately exercisable and
shall be vested in full upon the occurrence of any of the following
change-of-control transactions: (a) the Board (or stockholders if required)
approves a consolidation or merger in which the Company is not the surviving
corporation, the sale of all or substantially all of the assets of the Company
or the liquidation or dissolution of the Company, (b) any person or other
entity, without the prior consent of the Board of Directors (other than the
Company or any Company-sponsored employee benefit plan) purchases any shares of
Common Stock (or securities convertible into Common Stock) pursuant to a tender
or exchange offer, or becomes the beneficial owner of securities of securities
of the Company representing 25 % or more of the voting power of the Company's
outstanding securities, or (c) during any two-year period, individuals who at
the beginning of such period constitute the entire Board of Directors cease to
constitute a majority of the Board, unless the election, or the nomination for
election, of each new director is approved by at least two-thirds of the
directors then still in office who were directors at the beginning of the
period.
(e) Notwithstanding anything hereinabove to the contrary,
unexercised Warrants which have not vested as hereinabove set forth, will
immediately terminate and cease to exist upon the death of William M. McCormick
or the termination or cessation for any reason whatsoever of the services
rendered by William M. McCormick for the Company.
(f) In the event of death of William M. McCormick during the
term of this Warrant, Warrants which have become fully exercisable and which
have vested as hereinabove set forth, may be transferred to the estate of
William M. McCormick in accordance with the terms and conditions set forth in
this Warrant.
2. Rights and Obligations of Warrant Holder.
(a) The Holder of this Warrant Certificate shall not, by
virtue hereof, be entitled to any rights of a shareholder of the Common Stock
which is the subject hereof, either at law or in equity; provided, however, in
the event that any certificate(s) representing the Shares is issued to the
Holder hereof upon exercise of this Warrant, such Holder shall, for all
purposes, be deemed to have become the holder of record of such Shares on the
date on which this Warrant Certificate, together with a duly executed Purchase
Form, was surrendered and payment of the Exercise Price was made, irrespective
of the date of delivery of such Share certificate. The rights of the Holder of
this Warrant are limited to those expressed herein and
- 3 -
<PAGE> 4
the Holder of this Warrant, by his acceptance hereof, consents to and agrees to
be bound by and to comply with all the provisions of this Warrant Certificate,
including, without limitation, all the obligations imposed upon the Holder
hereof by Sections 2 and 5 hereof. In addition, the Holder of this Warrant
Certificate, by accepting the same, agrees that the Company may deem and treat
the person in whose name this Warrant Certificate is registered on the books of
the Company maintained for such purpose as the absolute, true and lawful owner
for all purposes whatsoever, notwithstanding any notation of this Warrant
Certificate or other writing hereon, and the Company shall not be affected by
any notice to the contrary.
(b) The Holder of this Warrant Certificate, as such, shall
not be entitled to vote or receive dividends or to be deemed the holder of
Shares for any purpose, nor shall anything contained in this Warrant Certificate
be construed to confer upon the Holder of this Warrant Certificate, as such, any
of the rights of a shareholder of the Company including but not limited to any
right to vote, give or withhold consent to any action by the Company, whether
upon recapitalization, issue of stock, reclassification of stock, merger, share
exchange, conveyance or otherwise, receive notice of meetings or other actions
affecting shareholders (except for the notices provided for herein), receive
dividends, receive subscription rights, or any other right, until this Warrant
shall have been exercised and the Shares purchasable upon the exercise hereof
shall have become deliverable as provided herein; provided, however, that any
such exercise on any date when the stock transfer books of the Company shall be
closed shall constitute the person(s) in whose name(s) the certificate(s) for
those Shares is to be issued as the record holder(s) thereof for all purposes at
the opening of business on the next succeeding day on which such stock transfer
books are open, and the Warrant surrendered shall not be deemed to have been
exercised, in whole or in part as the case may be, until the next succeeding day
on which stock transfer books are open for the purpose of determining
entitlement to dividends on the Company's common stock.
3. Restrictions on Transfer of Warrant.
This Warrant Certificate may not be sold, transferred, hypothecated,
assigned or disposed of, in whole or in part, without the prior written consent
of the Company, provided, however, the foregoing shall not include a gift or
transfer by the Holder to, or for the benefit of, himself or a member of his
immediate family (as defined below) or to any personal trust in which the Holder
or any member of his immediate family retains the entire beneficial interest;
further provided, however, that in the case of any such gift or transfer, the
donee or transferee shall hold the Warrant received in such transfer subject to
the terms of this Warrant Certificate and shall be required to join in and
execute, seal and deliver a copy of this Warrant Certificate. For purposes
hereof, members of the "immediate family" of the Holder are hereby defined to
mean only such person's spouse, children and grandchildren.
4. Shares Underlying Warrant.
The Company covenants and agrees that all Shares delivered upon
exercise of this Warrant shall, upon delivery and payment therefor, be duly and
validly authorized and issued,
- 4 -
<PAGE> 5
fully-paid and non-assessable, and free from all liens, encumbrances,
liabilities, claims, restrictions, options or charges of any kind or nature
whatsoever; provided, however, such shares shall be subject to restrictions
generally imposed by federal and state securities laws.
5. Forfeiture.
Notwithstanding anything to the contrary, the Warrants described herein
(and any Stock resulting therefrom) and the Holder shall be subject to the terms
of vesting described in paragraph "1".
6. Disposition of Warrants or Shares.
(a) The Holder of this Warrant Certificate and any transferee
hereof or of the Shares issuable upon the exercise of this Warrant, by their
acceptance hereof or thereof, hereby understand and agree that this Warrant, and
the Shares issuable upon the exercise hereof, have not been registered under
either the 1933 Act or the State Acts and shall not be sold, pledged,
hypothecated, donated, transferred or otherwise disposed of (whether or not for
consideration) except upon the issuance to the Company of a favorable opinion of
counsel or submission to the Company, in each such case, to the effect that any
such transfer shall not be in violation of the 1933 Act and the State Acts. It
shall be a condition to the transfer of this Warrant that any transferee hereof
deliver to the Company its written agreement to accept and be bound by all of
the terms and conditions of this Warrant Certificate.
(b) The stock certificates of the Company that will evidence
the Shares issuable upon the exercise hereof shall be imprinted with a
conspicuous legend in substantially the following form:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, have been acquired for
investment and may not be sold transferred or assigned in the absence
of an effective registration statement for these shares under the
Securities Act of 1933 or an opinion of Company's counsel that
registration is not required under said Act.
The Company does not file, and does not in the foreseeable future
contemplate filing, periodic reports with the Securities and Exchange Commission
("SEC") pursuant to the provisions of the Securities Exchange Act of 1934, as
amended. The Company has not agreed to comply with any exemption from
registration under the Act or the State Acts for the resale of such Shares.
Hence, it is the understanding of the Holder of this Warrant that by virtue of
the provisions of certain rules respecting "restricted securities" promulgated
by the SEC, the Shares issuable upon the exercise hereof may be required to be
held indefinitely, unless the Company becomes a fully reporting company pursuant
to the provisions of the Securities Exchange Act of 1934 regulating the shares
pursuant to the Securities Act of 1933, as amended, or an exemption from such
registration is available, in which case the Holder may still be limited as to
the number of such Shares that may be sold.
- 5 -
<PAGE> 6
7. Adjustments.
In the event that, during the term of this Warrant, any
reclassification, reorganization, stock split, stock dividend, merger,
consolidation, combination, exchange of securities, or other similar change in
respect of the capitalization of NutraGenics shall occur, then appropriate
adjustment shall be made in the number of Shares and the Exercise Price so that
the Shares shall be that number of shares of common stock that the Holder would
have held after such reclassification, reorganization, stock split, stock
dividend, merger, consolidation, combination, exchange of securities, or other
similar change if the Closing Date had occurred immediately prior to such
reclassification, reorganization, stock split, stock dividend, or other change
and all references herein to the Shares shall be deemed to refer to such
adjusted number.
In the event that, during the term of this Warrant, there is a partial
or complete liquidation or spin-off of any assets owned by NutraGenics,
NutraGenics will give the Holder thirty (30) days prior written notice of such
event so that the Holder may exercise any part or all of this Warrant prior to
such liquidation or spin-off. The Company shall include in the Notice (i) the
number of Shares purchasable upon exercise of this Warrant as the have been
adjusted, (ii) set forth the adjusted number of Shares purchasable upon the
exercise of this Warrant, and (iii) show in reasonable detail the computations
and the facts, including the amount of consideration received or deemed to have
been received by the Holder, upon which such adjustments are based.
8. Reorganization and Recapitalization.
In the case of (i) any capital reorganization, (ii) any
reclassification of the stock of the Company (other than a change in par value
or from par value to no par value or from no par value to par value or as a
result of a stock dividend or subdivision, split up, or combination of shares),
(iii) the consolidation or merger of the Company with or into another entity
(other than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any change in the Common Stock), (iv)
the sale, exchange, lease, transfer or other disposition of all or substantially
al the Corporation's assets, or (v) share exchange (each of the foregoing being
called herein a "Reorganization Event"), the number of Shares purchasable
hereunder from and after any Reorganization Event, shall be the kind of shares
of stock or other securities or property of the Company (or of the Corporation
resulting from such consolidation or surviving such merger or to which such
properties and assets shall have been sold, exchanged, leased, transferred or
otherwise disposed or which was the corporation whose securities were exchanged
for those of the Company) to which the then holders of the Common Stock are
entitled as a result of such Reorganization Event. The provisions of this
Section 8 shall similarly apply to successive Reorganization Events.
- 6 -
<PAGE> 7
9. Accounting Adjustments.
If this Warrant is exercised in connection with a sale or merger of the
Company, or a public offering of the Company's Common Stock, the Company shall
use best efforts to allow the exercise of the Warrant to occur, to the extent
reasonably practicable, by means of accounting and funds transfer adjustments as
opposed to requiring the Holder to contribute cash. The purpose of this
provision is to reduce the amount of cash required to be contributed in
connection with, where reasonably practicable, such exercise, and shall be so
construed.
10. Fractional Shares.
The Company shall not be required to issue any fraction of a Share upon
the exercise of this Warrant or any portion hereof. If more than on Warrant
Certificate (each such Warrant Certificate representing a portion of this
Warrant) shall be surrendered for exercise at one time by the same Holder, the
number of full Shares Which shall be issuable upon exercise thereof shall be
computed on the basis of the aggregate number of Shares represented by the
Warrant Certificates surrendered. If any fractional interest in a Share shall be
deliverable upon the exercise of this Warrant, the Company shall make an
adjustment therefor in cash equal to such fraction multiplied by the Current
Market Price of the Shares on the business day next preceding the day of
exercise.
11. Loss or Destruction.
Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of this Warrant Certificate and, in the case
of any such loss, theft or destruction, upon delivery of an indemnity agreement
or bond satisfactory in form, substance and amount to with Warrantor or, in the
case of any such mutilation, upon surrender and cancellation of this Warrant
Certificate, the Company at its expense will execute and deliver, in lie
thereof, a new Warrant Certificate of like tenor.
12. Survival.
The various rights and obligations of the Holder hereof as set forth
herein shall survive the exercise of this Warrant at any time or from time and
the surrender of this Warrant Certificate.
13. Notices.
Whenever any notice, payment of any purchase price, or other
communication is required to be given or delivered under the terms of this
Warrant, it shall be in writing and delivered by hand delivery or registered or
certified United States mail, postage prepaid, and will be deemed to have been
given or delivered on the date such notice, purchase price or other
communication is so delivered or posted, as the case my be; and, if to the
Company, it will be addressed to the
- 7 -
<PAGE> 8
address specified below the Company's name below, and if to the Holder at its
address as it appears on the books of the Company.
14. Governing Law.
This instrument shall be interpreted and enforced according to the laws
of the state of Nevada.
ATTEST: NUTRAGENICS, INC.
/s/Lawrence M. Siegler By: /s/Ronald H. Lane
- ---------------------------------- --------------------------------
Secretary Ronald H. Lane, Ph.D.
Chief Executive Officer
NutraGenics, Inc.
2425 E. Camelback Rd.
Suite 650
Phoenix, Arizona 85016
Attention: Ronald H. Lane, Ph.D.
- 8 -
<PAGE> 9
PURCHASE FORM
To: NutraGenics, Inc.
The undersigned hereby irrevocably elects to exercise the attached
Warrant Certificate to the extent of ( ) shares of the Common
Stock of NutraGenics, Inc. and hereby makes payment of
Dollars ($ ) in accordance with the provisions of Section 1 of the
Warrant Certificate in payment of the purchase price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name: __________________________________________________________________
(Please type or print in block letters)
Address: __________________________________________________________________
__________________________________________________________________
Name: __________________________________________________________________
By: __________________________________________________________________
Title: __________________________________________________________________
<PAGE> 1
EXHIBIT 10.7
THE SHARES BEING SUBSCRIBED FOR HEREIN HAVE NOT BEEN REGISTERED WITH THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES ACT OF 1933,
AS AMENDED, (THE "1933 ACT") OR THE SECURITIES COMMISSION OF ANY STATE UNDER ANY
STATE SECURITIES LAW. THEY ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM
REGISTRATION UNDER REGULATION S ("REGULATION S") PROMULGATED UNDER THE 1933 ACT.
THE SHARES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE UNITED
STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S) UNLESS THE
SHARES ARE REGISTERED UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL IS OBTAINED WHICH IS REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH OFFERS, SALES AND TRANSFERS MAY BE MADE PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of
the 16th day of September, 1996, by and between NutraGenics, Inc., a Nevada
corporation (the "Company"), and Spanswick Limited, a BVI corporation (the
"Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Stock. On the basis of the
representations, warranties and agreements contained herein and subject to the
terms and conditions herein set forth, the Company agrees to issue and sell
600,000 shares of its Common Stock, $.001 par value, at $5.00 per share (the
"Shares"), and the Investor hereby subscribes for and agrees to purchase the
Shares upon acceptance of this Agreement by the Company.
1.2 Payment. Investor is delivering with this Agreement the
full amount of the purchase price of the Shares in the amount of $3,000,000 in
U.S. funds by wire transfer as directed by the Company to the Company's
designated escrow account. Such funds deposited into the escrow account on
behalf of the Investor shall be held until the conditions for the Closing of the
offering have been met.
1.3 Closing. The closing of the transaction contemplated by
this Agreement (the "Closing") shall be deemed to have occurred when this
Agreement has been executed by both the Investor and the Company and payment
shall have been made as set forth in 1.2 above in consideration for the
Company's delivery into the escrow account of certificates representing the
Shares subscribed for. If at the Closing any of the conditions specified in
Section 5 hereof shall not have been fulfilled to the reasonable satisfaction of
Investor, then Investor shall, at its election, be relieved of all of its
obligations under this Agreement, without thereby waiving any other rights it
may have by reason of such failure or fulfillment. If at the Closing any of the
conditions specified in Section 4 hereof shall not have been fulfilled to the
reasonable satisfaction of the Company, the
<PAGE> 2
Company shall, at its election, be relieved of all of its obligations under this
Agreement, without thereby waiving any other rights it may have by reason of
such failure or unfulfillment.
2. Representation and Warranties of the Company. The Company hereby
represents and warrants to the Investor as follows:
2.1 Organization, Good Standing and Qualification. The
Company is a corporation validly existing and in good standing under the laws of
the State of Nevada and has all requisite power and authority to own or lease
and operate its properties and assets and to carry on its business as now
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on its business, operations, prospects, condition
(financial or other), or properties.
2.2 Capitalization. The authorized capital of the Company
consists of:
(i) Common Stock. 45,000,000 shares of common stock
("Common Stock"), par value $.001, of which 11,028,361 shares are issued and
outstanding as of August 15, 1996.
(ii) Preferred Stock. 5,000,000 shares of preferred
stock ("Preferred Stock"), par value $.001, none of which is outstanding. The
Preferred Stock may be issued from time to time in one or more series and the
Board of Directors is authorized to fix the rights and terms relating to
dividends, conversion, voting, redemption, liquidation preferences and any other
rights, preferences, privileges and restrictions applicable to each such series.
(iii) Warrants, Options and Subscriptions. There are
no outstanding options, warrants or rights (including preemptive rights and
rights of first refusal) for the purchase or acquisition from the Company of any
shares of its capital stock except as set forth herein. There are currently
outstanding options to purchase 180,000 shares of Common Stock at $1.50 per
share granted to a director and currently outstanding warrants to purchase
300,000 shares of Common Stock at $2.50 and 300,000 shares of Common Stock at
$4.00 per share issued to another director, 400,000 of which are subject to
vesting at the rate of 50,000 shares per quarter beginning in August 1996. Notes
payable to a director in the aggregate amount of $600,000 are convertible in
accordance with their terms into shares of Common Stock at the election of
holder at $1.50 per share. An additional loan of an indeterminate amount made by
the same director to the Company solely for the purpose of engaging FDA counsel
may also be converted into shares of Common Stock at $1.50 per share at the
election of holder. Subscriptions are outstanding for the issuance of 546,875
shares of Common Stock to the principals of a joint venture partner for which
funds have been received but shares have not yet been issued. The consideration
paid for 175,000 shares was $2.00 per share and for the balance was $3.00 per
share.
2.3 Valid Issuance of Shares. All of the outstanding shares
of the Company's stock have been duly and validly authorized and issued, are
fully paid and nonassessable, and no further approval or authority of the
stockholders or the directors of the Company will be required by the Company for
the issuance of the Shares. The Shares when issued and paid for in accordance
with the terms of this Agreement will be duly and validly issued, fully paid and
nonassessable and will be free of restrictions on transfer other than
restrictions on transfer under applicable state and federal securities laws.
2
<PAGE> 3
2.4 Financial Statements. Except as otherwise stated in the
notes thereto, the financial statements delivered herewith dated October 31,
1995 (audited) and July 31, 1996 (unaudited) have been prepared in conformity
with United States generally accepted accounting principles applied, except as
stated therein, on a consistent basis except that unaudited financial statements
may not contain all footnotes required by generally accepted accounting
principles. The financial statements fairly present the financial position and
result of operations and changes in financial position of the Company as of the
dates and for the periods indicated (subject, in the case of the unaudited
financial statements, to changes resulting from normal year-end audit
adjustment).
Except as reflected in such financial statements and the notes
thereto, the Company has no liabilities, absolute or contingent, material to the
operations, business, prospects, assets, properties or condition (financial or
other) of the Company, other than (i) ordinary course liabilities incurred since
the last date of such financial statements in connection with the conduct of the
business of the Company, (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under United States
generally accepted accounting principles to be reflected in the financial
statements, which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company, and
(iii) obligations and commitments pursuant to that certain joint venture entered
into in August 1996 by and between Incon Technologies L.L.C. and the Company's
wholly owned subsidiary.
2.5 No Conflict with Other Instruments. Neither the sale of
the Shares nor the consummation of the transactions herein contemplated, will:
(i) conflict with or constitute a breach of, permit the termination of,
constitute a default under, or violation of (A) the Articles of Incorporation,
as amended, or bylaws of the Company, (B) any material agreement, indenture,
mortgage, deed of trust or other material instrument or agreement or undertaking
by which the Company is bound or to which any of its properties is subject, or,
(C) to the knowledge of the Company, a violation of any law, administrative
regulation, or court decree to which the properties or assets of the Company is
subject; or (ii) result in the creation or imposition of any material lien,
charge or encumbrance upon the property or assets of the Company.
2.6 Authorization. The Company has the corporate power and
authority to enter into this Agreement and to perform all of its obligations
hereunder. The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all necessary corporate actions, and this
Agreement constitutes a legal, valid, binding and enforceable obligation of the
Company. No consent, approval, authorization or order of any court or
governmental agency or board or any other third party, or registration,
qualification, designation or filing with any Federal, state or local authority
is required to consummate the transactions contemplated by this Agreement.
3. Representations and Warranties of Investor. By executing this
Agreement, Investor hereby represents and warrants to and covenants with the
Company as follows:
3.1 Authorization. Investor has the power and authority to
enter into this Agreement and to perform all of its obligations hereunder and
this Agreement constitutes a valid, binding and enforceable obligation of
Investor.
3.2 Legal Investment and Compliance with Laws. The purchase
of the Shares by Investor is legally permitted by all laws and regulations to
which Investor is subject and all consents, approvals, authorizations of or
designations, declarations, or filings in connection with the valid
3
<PAGE> 4
execution and delivery of this Agreement by Investor or the purchase of the
Shares by Investor has been obtained, or will be obtained. Investor hereby
represents that it has satisfied itself as to the full observance of the laws of
its jurisdiction in connection with any invitation to subscribe for the Shares
or any use of this Agreement, including (i) any foreign exchange restrictions
applicable to such purchase, and (ii) the income tax and other tax consequences,
if any, which may be relevant to the purchase, holding, redemption, sale, or
transfer of the Shares. Such Investor's subscription and payment for, and its
continued beneficial ownership of the Shares, will not violate any applicable
securities or other laws of its jurisdiction.
3.3 Access to Information. Investor acknowledges that it has
received the Company's Business Plan and materials accompanying such document
(the "Offering Documents"), and is familiar with and understands the operations
of the Company.
(a) Investor understands and acknowledges that the
Offering Documents provided in connection with this investment have been
prepared by the Company. Accordingly, Investor understands and acknowledges that
no independent investment banking firm or legal counsel have passed upon or
assumed any responsibility for the accuracy, completeness or fairness of the
information contained in the Offering Documents.
(b) Investor understands and acknowledges that any
financial projections provided in connection with this investment and have not
been prepared by independent accountants and are based on numerous assumptions
regarding sales, revenues and expenses and other factors which may not be
realized in the future.
(c) Investor acknowledges that it has been encouraged
to rely upon the advice of its legal counsel and accountants or other financial
advisers with respect to the financial, tax and other considerations relating to
the purchase of the Shares and has been offered, during the course of
discussions concerning the purchase of the Shares, the opportunity to ask such
questions and inspect such documents concerning the Company and its business and
affairs as Investor has requested so as to understand more fully the nature of
the investment and to verify the accuracy of the information supplied.
(d) Investor represents and warrants that, in
determining to purchase the Shares, it has relied solely upon the documents
provided and the advice of its advisors with respect to the tax, foreign and
U.S., and other consequences involved in purchasing the Shares.
3.4 Acquisition for Investment and Unregistered Nature of the
Shares. Investor represents and warrants that the Shares being acquired are
being acquired for its own account and not on behalf of or for the benefit of
any U.S. Person (as defined below) and the sale and resale of the Shares has not
been prearranged with any U.S. Person or buyer in the United States. Investor
represents and warrants that, as of the date of this Agreement, Investor has no
present plan or intention to sell the Shares in the U.S. at any predetermined
time. Investor represents, warrants and covenants that neither Investor nor its
affiliates nor any person acting on its or their behalf has entered into, has
the intention of entering, or will enter into any option, equity swap or other
similar derivative instrument in the U.S. with respect to the Common Stock of
the Company at any time after August 26, 1996 until the end of a period of one
year from the date of this Agreement. Nothing herein shall prevent Investor from
selling the Shares acquired hereunder in accordance with U.S. securities laws.
4
<PAGE> 5
(a) Investor represents and warrants that it (i) is
experienced in evaluating and investing in securities of companies in the
developmental stage and acknowledges that it can fend for itself, (ii) can bear
the economic risk of the purchase of the Shares including the total loss of its
investment, and (iii) has such knowledge and experience in business and
financial matters as to be capable of evaluating the merits and risks of an
investment in the Shares.
(b) Investor understands that the Shares have not been
registered under the 1933 Act, or the securities laws of any state and are
subject to substantial restrictions on resale or transfer.
(c) Investor agrees that it will not sell or otherwise
transfer or dispose of the Shares or any portion thereof unless such Shares are
registered under the 1933 Act and any applicable state securities laws, or
except pursuant to the provisions of Regulation S, or unless Investor obtains an
opinion of counsel which is reasonably satisfactory to the Company that such
Shares may be sold in reliance on an exemption from such registration
requirements.
(d) Investor understands that (i) the Company has no
obligation to register any Shares for resale or transfer under the 1933 Act or
any state securities laws and has made no representation that it will file the
necessary reports or publish the necessary information as required by Rule 144
under the 1933 Act that would make available an exemption from the registration
requirements of any such laws for the resale or transfer of the Shares; (ii) the
Company may place a legend on any certificates representing the Shares
indicating that the Shares may not be transferred except in accordance with
Regulation S or another exemption from the 1933 Act; (iii) the Company will not
register a transfer not made in accordance with Regulation S or another
exemption from the 1933 Act; and (iv) Investor therefore may be precluded from
selling or otherwise transferring or disposing of any of the Shares or any
portion thereof for an indefinite period of time or at any particular time.
(e) Investor represents, warrants and certifies that
it is not a United States Person (as defined below) and that it is not
purchasing the Shares for the account or benefit of a United States Person. A
"United States Person" means any natural person resident in the United States;
any partnership or corporation organized or incorporated under the laws of the
United States, its territories or possessions or any state or the District of
Columbia; any estate of which any executor or administrator is a U.S. person;
any trust of which any trustee is a U.S. person; any agency or branch of a
foreign entity located in the United States; any non-discretionary account or
similar account (other than an estate or trust) held by a dealer or other
fiduciary for the account of a U.S. person; any discretionary account or similar
account (other than an estate or trust) held by a dealer or other fiduciary
organized, incorporated, or (if an individual) resident in the United States;
and a partnership or corporation if (i) organized or incorporated under the laws
of any foreign jurisdiction, and (ii) formed by a U.S. Person principally for
the purpose of investing in securities not registered under the 1933 Act, unless
it is organized or incorporated, and owned, by accredited investors (as defined
in Rule 501(a) under the 1933 Act) who are not natural persons, estates or
trusts.
(f) Investor represents, warrants and certifies that
the Shares were not offered to Investor in the United States, and at the time of
execution of this Agreement and at the time of any offer to Investor to purchase
the Shares hereunder, Investor was physically outside the United States.
5
<PAGE> 6
3.5 Further Representations and Understandings.
(a) Investor understands that no federal or state
agency including the Securities and Exchange Commission, the Arizona
Corporation Commission or the securities commission or authorities of any other
state has approved or disapproved the Shares, passed upon or endorsed the merits
of the offering or the accuracy or adequacy of the documents, or made any
finding or determination as to the fairness of the Shares for public investment
and any representation to the contrary is a criminal offense.
(b) Investor understands that the Shares are being
offered and sold in reliance on specific exemptions or exclusions from the
registration requirements of federal and state laws and that the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings set forth herein in order to
determine the suitability of Investor to acquire the Shares.
(c) Investor represents and warrants that the
information set forth herein concerning Investor is true and correct.
3.6 Resales Offshore by Investor. Investor acknowledges,
covenants and agrees that the Shares may and will be resold offshore only in
compliance with Regulation S. In connection with any resale of the Shares
pursuant to Regulation S, Investor will deliver to the Company and will cause
the purchaser to deliver to the Company the attached Exhibit A Certificate of
Compliance. The certificates delivered to the purchaser will bear the legend set
forth in Section 6 hereof.
4. Conditions to Obligations of the Company. The obligations of the
Company under this Agreement are subject to satisfaction of the following
conditions at or prior to the Closing, any of which may be waived by the
Company:
4.1 Representations and Warranties Correct. All of the
representations and warranties of Investor contained in this Agreement shall be
true and correct in all material respects as of the Closing with the same effect
as if made on the date of Closing.
4.2 Performance of Covenants and Agreements. All of the
covenants and agreements of Investor contained in this Agreement and required to
be performed on or before the date of Closing shall have been performed in all
material respects to the reasonable satisfaction of the Company.
4.3 Legal Action.
(a) There shall not have been instituted any material
legal proceeding seeking to prohibit the consummation of the transactions
contemplated by this Agreement.
(b) None of the parties hereto shall be prohibited in
any order, writ, injunction or decree of any governmental body of competent
jurisdiction from consummating the transactions contemplated by this Agreement,
and no material action or proceeding shall then be pending which questions the
validity of this Agreement, any of the transactions contemplated hereby or any
action which has been taken by any of the parties in connection herewith or in
connection with any of the transactions contemplated hereby.
6
<PAGE> 7
5. Conditions to Obligations of Investor. The obligations of Investor
under this Agreement are subject to satisfaction of the following conditions at
or prior to the Closing, any of which may be waived by Investor.
5.1 Representations and Warranties Correct. All of the
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects as of the Closing with the same
effect as if made on the date of Closing.
5.2 Legal Action.
(a) There shall not have been instituted or threatened
any legal proceedings seeking to prohibit the consummation of the transactions
contemplated by this or any like Agreement, or to obtain damages from Investor
or any other Investor with respect thereto.
(b) None of the parties hereto or to other like
agreements in connection with this offering shall be prohibited by any order,
writ, injunction or decree of any governmental body of competent jurisdiction
from consummating the transactions contemplated by this or any like Agreement,
and no action or proceeding shall then be pending which questions the validity
of this or any like Agreement, any of the transactions contemplated hereby or
any action which has been taken by any of the parties in connection herewith or
in connection with any of the transactions contemplated hereby.
6. Legends. The certificates evidencing any of the Shares shall be
endorsed with the legend set forth below, and Investor covenants that Investor
shall not transfer the shares represented by any such certificate without
complying with the restrictions on transfer described in the legend endorsed on
such certificate:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES ACT
OF 1933, AS AMENDED, (THE "1933 ACT") OR THE SECURITIES COMMISSION OF
ANY STATE UNDER ANY STATE SECURITIES LAW. THEY WERE OFFERED PURSUANT TO
A SAFE HARBOR FROM REGISTRATION UNDER REGULATION S ("REGULATION S")
PROMULGATED UNDER THE 1933 ACT. THE SHARES MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS (AS SUCH
TERM IS DEFINED IN REGULATION S) UNLESS THE SHARES ARE REGISTERED UNDER
THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF
COUNSEL IS OBTAINED WHICH IS REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH OFFERS, SALES AND TRANSFERS MAY BE MADE PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
7. Miscellaneous.
7.1 Notices. All notices or other communications given or
made hereunder shall be in writing and shall be deemed delivered personally to
the party being given notice or by facsimile, overnight courier service or by
registered or certified mail, return receipt requested, postage prepaid
7
<PAGE> 8
if to Investor at its address set forth herein or if to the Company at the
address set forth herein or at such other address as may have been furnished by
the Company to Investor.
7.2 Construction. Notwithstanding the place where this
Agreement may be executed by any of the parties hereto, the parties expressly
agree that all terms and provisions hereof shall be construed in accordance with
and governed by the laws of the State of Arizona without giving effect to
principles of conflicts of law.
7.3 Entire Agreement; Amendments and Waiver. This Agreement
and Exhibit A hereto set forth the entire understanding of the parties with
respect to the transactions contemplated hereby, and neither party shall be
bound by nor deemed to have made any representations and/or warranties except
those contained herein or incorporated herein by reference. The provisions of
this Agreement, including Exhibit A hereto, may be amended and the Company may
take any action herein prohibited, or omit to perform any act herein required to
be performed by it, only if the Company has obtained the written consent of
Investor.
7.4 Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective heirs, estate, successors and assigns of the
parties. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
7.5 Headings. The terms used in this Agreement shall be
deemed to include the masculine and the feminine in the singular and the plural
as the context requires. The headings in this Agreement are for reference
purposes only and shall not be deemed to have any substantive effect.
7.6 Survival of Representations and Warranties. All
representations and warranties contained herein will survive the execution and
delivery of this Agreement and delivery of and payment for the Shares regardless
of any investigation made by or on behalf of the parties.
7.7 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.8 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereby have executed this
Agreement as of the date indicated above.
INVESTOR
SPANSWICK LIMITED R. Syvret - Alternate Director
- ------------------------ -----------------------------------------
Exact Name in which Shares PRINT Name of Individual with authority to
are to be registered Purchase the Shares on behalf of Investor
and state capacity in which signing
/s/R. Syvret
-----------------------------------------
SIGNATURE of Individual with Authority to
Purchase
OFFSHORE DELIVERY INSTRUCTIONS
NUTRAGENICS, INC. Type or print address where certificates
are to be delivered
7th Floor Wisma Bakrie
By: /s/Ronald H. Lane Jalan H.R. Rasuna Said Kav. B-1
------------------------ -----------------------------------------
Its: President Street
------------------------
JAKARTA 12920, INDONESIA
-----------------------------------------
City, State or Province, Country
(62-21) 525 7862
-----------------------------------------
Telephone Number
(62-21) 525 7865
-----------------------------------------
Facsimile Number
9
<PAGE> 10
EXHIBIT A
CERTIFICATE OF COMPLIANCE
In order to effect the transfer of the Shares of Common Stock
acquired pursuant to a Stock Purchase Agreement (the "Stock Purchase Agreement")
entered into between the undersigned seller ("Seller") and NutraGenics, Inc.
(the "Company") without registration under the Securities Act of 1933, as
amended (the "Act"), the undersigned Seller and the undersigned purchaser
("Purchaser") represent, warrant and acknowledge to the Company,
As to Seller that:
A. The undersigned (i) acknowledges that the
sale of Shares to which this Certificate
relates is being made in reliance on Rule
903 and/or 904 of Regulation S under the Act
and (ii) certifies that (A) the offer of
such Shares was not made to a person in the
United States and either (1) at the time the
buy order was originated, the buyer was
outside the United States, or the Seller and
any person acting on its behalf reasonably
believe that the buyer was outside the
United States, or (2) if pursuant to Rule
904, the transaction was executed on or
through the facilities of a designated
offshore securities market, and neither the
Seller nor any persons acting on its behalf
knows or believes that the transaction has
been pre-arranged with a buyer in the United
States, (B) neither the Seller nor any
affiliate of the Seller nor any person
acting on its or their behalf has engaged or
will engage in any directed selling efforts
in the United States in connection with the
offer and sale of such Shares, and (C) the
offer or sale, if made prior to the
expiration of one year from the date of the
Stock Purchase Agreement was not made to a
U.S. Person or for the account or benefit of
a U.S. Person. Terms used herein have the
meanings given to them by Regulation S.
B. The representations and warranties made by
Seller in the Stock Purchase Agreement
remain true and correct as of the date
hereof.
-----------------------------
Print Name of Seller
Dated: By:
---------- --------------------------
Name:
--------------------------
Title:
--------------------------
<PAGE> 11
As to Purchaser, that:
A. Purchaser acknowledges and agrees that the
Shares have not been registered under the
Act and may be resold only (a) pursuant to
an effective Registration Statement under
the Act and any applicable state securities
laws ("State Acts"), (b) pursuant to an
exemption from registration under the Act
and any applicable State Acts, or (c) in
accordance with Rule 903 and/or 904 of
Regulation S under the Act.
B. If any offer or sale of the Shares hereunder
occurred prior to the expiration of the one
year period referred to in paragraph C
below, Purchaser further represents and
warrants that (i) Purchaser is not a U.S.
Person (as defined in Regulation S) and is
not acquiring the Shares for the account or
benefit of any U.S. Person, (ii) at all
times that the offer to buy or sell the
Shares as contemplated hereby were made and
the buy order was originated the Purchaser
was outside of the United States, and (iii)
Purchaser has no present plan or intention
to sell the Shares in the United States or
to a U.S. Person and will not make any
offers or sales of the Shares to a U.S.
Person or in the United States.
C. Neither Purchaser nor its affiliates nor any
person acting on its or their behalf entered
into, prior to or during the one year period
from the date of the Stock Purchase
Agreement any option, equity swap or other
similar derivative instrument or position
with respect to the Shares.
D. Purchaser acknowledges that the certificate
evidencing the Shares will bear a legend to
the effect that transfer is prohibited
except in compliance with Regulation S,
pursuant to a registration under the Act or
State Acts or pursuant to an exemption
therefrom as set forth in paragraph A above
and acknowledges that the Company will
refuse to register the transfer of Shares
not made in accordance with the provisions
of Regulation S.
SPANSWICK LIMITED
------------------------------------
Print Name of Purchaser
Dated: 16/9/96 By:/s/R. Syvret
------- --------------------------------
Name:R. Syvret
Title:Alternate Director
<PAGE> 12
THE SHARES BEING SUBSCRIBED FOR HEREIN HAVE NOT BEEN REGISTERED WITH THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES ACT OF 1933,
AS AMENDED, (THE "1933 ACT") OR THE SECURITIES COMMISSION OF ANY STATE UNDER ANY
STATE SECURITIES LAW. THEY ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM
REGISTRATION UNDER REGULATION S ("REGULATION S") PROMULGATED UNDER THE 1933 ACT.
THE SHARES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE UNITED
STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S) UNLESS THE
SHARES ARE REGISTERED UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL IS OBTAINED WHICH IS REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH OFFERS, SALES AND TRANSFERS MAY BE MADE PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of
the 31st day of October, 1996, by and between NutraGenics, Inc., a Nevada
corporation (the "Company"), and Spanswick Limited, a BVI corporation (the
"Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Stock. On the basis of the
representations, warranties and agreements contained herein and subject to the
terms and conditions herein set forth, the Company agrees to issue and sell
400,000 shares of its Common Stock, $.001 par value, at $5.00 per share (the
"Shares"), and the Investor hereby subscribes for and agrees to purchase the
Shares upon acceptance of this Agreement by the Company.
1.2 Payment. Investor is delivering with this Agreement the
full amount of the purchase price of the Shares in the amount of $2,000,000 in
U.S. funds by wire transfer as directed by the Company to the Company's
designated escrow account. Such funds deposited into the escrow account on
behalf of the Investor shall be held until the conditions for the Closing of the
offering have been met.
1.3 Closing. The closing of the transaction contemplated by
this Agreement (the "Closing") shall be deemed to have occurred when this
Agreement has been executed by both the Investor and the Company and payment
shall have been made as set forth in 1.2 above in consideration for the
Company's delivery into the escrow account of certificates representing the
Shares subscribed for. If at the Closing any of the conditions specified in
Section 5 hereof shall not have been fulfilled to the reasonable satisfaction of
Investor, then Investor shall, at its election, be relieved of all of its
obligations under this Agreement, without thereby waiving any other rights it
may have by reason of such failure or fulfillment. If at the Closing any of the
conditions specified in Section 4 hereof shall not have been fulfilled to the
reasonable satisfaction of the Company, the
<PAGE> 13
Company shall, at its election, be relieved of all of its obligations under this
Agreement, without thereby waiving any other rights it may have by reason of
such failure or unfulfillment.
2. Representation and Warranties of the Company. The Company hereby
represents and warrants to the Investor as follows:
2.1 Organization, Good Standing and Qualification. The
Company is a corporation validly existing and in good standing under the laws of
the State of Nevada and has all requisite power and authority to own or lease
and operate its properties and assets and to carry on its business as now
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on its business, operations, prospects, condition
(financial or other), or properties.
2.2 Capitalization. The authorized capital of the Company
consists of:
(i) Common Stock. 45,000,000 shares of common stock
("Common Stock"), par value $.001, of which 11,028,361 shares are issued and
outstanding as of August 15, 1996.
(ii) Preferred Stock. 5,000,000 shares of preferred
stock ("Preferred Stock"), par value $.001, none of which is outstanding. The
Preferred Stock may be issued from time to time in one or more series and the
Board of Directors is authorized to fix the rights and terms relating to
dividends, conversion, voting, redemption, liquidation preferences and any other
rights, preferences, privileges and restrictions applicable to each such series.
(iii) Warrants, Options and Subscriptions. There are
no outstanding options, warrants or rights (including preemptive rights and
rights of first refusal) for the purchase or acquisition from the Company of any
shares of its capital stock except as set forth herein. There are currently
outstanding options to purchase 180,000 shares of Common Stock at $1.50 per
share granted to a director and currently outstanding warrants to purchase
300,000 shares of Common Stock at $2.50 and 300,000 shares of Common Stock at
$4.00 per share issued to another director, 400,000 of which are subject to
vesting at the rate of 50,000 shares per quarter beginning in August 1996. Notes
payable to a director in the aggregate amount of $600,000 are convertible in
accordance with their terms into shares of Common Stock at the election of
holder at $1.50 per share. An additional loan of an indeterminate amount made by
the same director to the Company solely for the purpose of engaging FDA counsel
may also be converted into shares of Common Stock at $1.50 per share at the
election of holder. Subscriptions are outstanding for the issuance of 546,875
shares of Common Stock to the principals of a joint venture partner for which
funds have been received but shares have not yet been issued. The consideration
paid for 175,000 shares was $2.00 per share and for the balance was $3.00 per
share.
2.3 Valid Issuance of Shares. All of the outstanding shares
of the Company's stock have been duly and validly authorized and issued, are
fully paid and nonassessable, and no further approval or authority of the
stockholders or the directors of the Company will be required by the Company for
the issuance of the Shares. The Shares when issued and paid for in accordance
with the terms of this Agreement will be duly and validly issued, fully paid and
nonassessable and will be free of restrictions on transfer other than
restrictions on transfer under applicable state and federal securities laws.
2
<PAGE> 14
2.4 Financial Statements. Except as otherwise stated in the
notes thereto, the financial statements delivered herewith dated October 31,
1995 (audited) and July 31, 1996 (unaudited) have been prepared in conformity
with United States generally accepted accounting principles applied, except as
stated therein, on a consistent basis except that unaudited financial statements
may not contain all footnotes required by generally accepted accounting
principles. The financial statements fairly present the financial position and
result of operations and changes in financial position of the Company as of the
dates and for the periods indicated (subject, in the case of the unaudited
financial statements, to changes resulting from normal year-end audit
adjustment).
Except as reflected in such financial statements and the notes
thereto, the Company has no liabilities, absolute or contingent, material to the
operations, business, prospects, assets, properties or condition (financial or
other) of the Company, other than (i) ordinary course liabilities incurred since
the last date of such financial statements in connection with the conduct of the
business of the Company, (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under United States
generally accepted accounting principles to be reflected in the financial
statements, which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company, and
(iii) obligations and commitments pursuant to that certain joint venture entered
into in August 1996 by and between Incon Technologies L.L.C. and the Company's
wholly owned subsidiary.
2.5 No Conflict with Other Instruments. Neither the sale of
the Shares nor the consummation of the transactions herein contemplated, will:
(i) conflict with or constitute a breach of, permit the termination of,
constitute a default under, or violation of (A) the Articles of Incorporation,
as amended, or bylaws of the Company, (B) any material agreement, indenture,
mortgage, deed of trust or other material instrument or agreement or undertaking
by which the Company is bound or to which any of its properties is subject, or,
(C) to the knowledge of the Company, a violation of any law, administrative
regulation, or court decree to which the properties or assets of the Company is
subject; or (ii) result in the creation or imposition of any material lien,
charge or encumbrance upon the property or assets of the Company.
2.6 Authorization. The Company has the corporate power and
authority to enter into this Agreement and to perform all of its obligations
hereunder. The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all necessary corporate actions, and this
Agreement constitutes a legal, valid, binding and enforceable obligation of the
Company. No consent, approval, authorization or order of any court or
governmental agency or board or any other third party, or registration,
qualification, designation or filing with any Federal, state or local authority
is required to consummate the transactions contemplated by this Agreement.
3. Representations and Warranties of Investor. By executing this
Agreement, Investor hereby represents and warrants to and covenants with the
Company as follows:
3.1 Authorization. Investor has the power and authority to
enter into this Agreement and to perform all of its obligations hereunder and
this Agreement constitutes a valid, binding and enforceable obligation of
Investor.
3.2 Legal Investment and Compliance with Laws. The purchase
of the Shares by Investor is legally permitted by all laws and regulations to
which Investor is subject and all consents, approvals, authorizations of or
designations, declarations, or filings in connection with the valid
3
<PAGE> 15
execution and delivery of this Agreement by Investor or the purchase of the
Shares by Investor has been obtained, or will be obtained. Investor hereby
represents that it has satisfied itself as to the full observance of the laws of
its jurisdiction in connection with any invitation to subscribe for the Shares
or any use of this Agreement, including (i) any foreign exchange restrictions
applicable to such purchase, and (ii) the income tax and other tax consequences,
if any, which may be relevant to the purchase, holding, redemption, sale, or
transfer of the Shares. Such Investor's subscription and payment for, and its
continued beneficial ownership of the Shares, will not violate any applicable
securities or other laws of its jurisdiction.
3.3 Access to Information. Investor acknowledges that it has
received the Company's Business Plan and materials accompanying such document
(the "Offering Documents"), and is familiar with and understands the operations
of the Company.
(a) Investor understands and acknowledges that the
Offering Documents provided in connection with this investment have been
prepared by the Company. Accordingly, Investor understands and acknowledges that
no independent investment banking firm or legal counsel have passed upon or
assumed any responsibility for the accuracy, completeness or fairness of the
information contained in the Offering Documents.
(b) Investor understands and acknowledges that any
financial projections provided in connection with this investment and have not
been prepared by independent accountants and are based on numerous assumptions
regarding sales, revenues and expenses and other factors which may not be
realized in the future.
(c) Investor acknowledges that it has been encouraged
to rely upon the advice of its legal counsel and accountants or other financial
advisers with respect to the financial, tax and other considerations relating to
the purchase of the Shares and has been offered, during the course of
discussions concerning the purchase of the Shares, the opportunity to ask such
questions and inspect such documents concerning the Company and its business and
affairs as Investor has requested so as to understand more fully the nature of
the investment and to verify the accuracy of the information supplied.
(d) Investor represents and warrants that, in
determining to purchase the Shares, it has relied solely upon the documents
provided and the advice of its advisors with respect to the tax, foreign and
U.S., and other consequences involved in purchasing the Shares.
3.4 Acquisition for Investment and Unregistered Nature of the
Shares. Investor represents and warrants that the Shares being acquired are
being acquired for its own account and not on behalf of or for the benefit of
any U.S. Person (as defined below) and the sale and resale of the Shares has not
been prearranged with any U.S. Person or buyer in the United States. Investor
represents and warrants that, as of the date of this Agreement, Investor has no
present plan or intention to sell the Shares in the U.S. at any predetermined
time. Investor represents, warrants and covenants that neither Investor nor its
affiliates nor any person acting on its or their behalf has entered into, has
the intention of entering, or will enter into any option, equity swap or other
similar derivative instrument in the U.S. with respect to the Common Stock of
the Company at any time after August 26, 1996 until the end of a period of one
year from the date of this Agreement. Nothing herein shall prevent Investor from
selling the Shares acquired hereunder in accordance with U.S. securities laws.
4
<PAGE> 16
(a) Investor represents and warrants that it (i) is
experienced in evaluating and investing in securities of companies in the
developmental stage and acknowledges that it can fend for itself, (ii) can bear
the economic risk of the purchase of the Shares including the total loss of its
investment, and (iii) has such knowledge and experience in business and
financial matters as to be capable of evaluating the merits and risks of an
investment in the Shares.
(b) Investor understands that the Shares have not been
registered under the 1933 Act, or the securities laws of any state and are
subject to substantial restrictions on resale or transfer.
(c) Investor agrees that it will not sell or otherwise
transfer or dispose of the Shares or any portion thereof unless such Shares are
registered under the 1933 Act and any applicable state securities laws, or
except pursuant to the provisions of Regulation S, or unless Investor obtains an
opinion of counsel which is reasonably satisfactory to the Company that such
Shares may be sold in reliance on an exemption from such registration
requirements.
(d) Investor understands that (i) the Company has no
obligation to register any Shares for resale or transfer under the 1933 Act or
any state securities laws and has made no representation that it will file the
necessary reports or publish the necessary information as required by Rule 144
under the 1933 Act that would make available an exemption from the registration
requirements of any such laws for the resale or transfer of the Shares; (ii) the
Company may place a legend on any certificates representing the Shares
indicating that the Shares may not be transferred except in accordance with
Regulation S or another exemption from the 1933 Act; (iii) the Company will not
register a transfer not made in accordance with Regulation S or another
exemption from the 1933 Act; and (iv) Investor therefore may be precluded from
selling or otherwise transferring or disposing of any of the Shares or any
portion thereof for an indefinite period of time or at any particular time.
(e) Investor represents, warrants and certifies that
it is not a United States Person (as defined below) and that it is not
purchasing the Shares for the account or benefit of a United States Person. A
"United States Person" means any natural person resident in the United States;
any partnership or corporation organized or incorporated under the laws of the
United States, its territories or possessions or any state or the District of
Columbia; any estate of which any executor or administrator is a U.S. person;
any trust of which any trustee is a U.S. person; any agency or branch of a
foreign entity located in the United States; any non-discretionary account or
similar account (other than an estate or trust) held by a dealer or other
fiduciary for the account of a U.S. person; any discretionary account or similar
account (other than an estate or trust) held by a dealer or other fiduciary
organized, incorporated, or (if an individual) resident in the United States;
and a partnership or corporation if (i) organized or incorporated under the laws
of any foreign jurisdiction, and (ii) formed by a U.S. Person principally for
the purpose of investing in securities not registered under the 1933 Act, unless
it is organized or incorporated, and owned, by accredited investors (as defined
in Rule 501(a) under the 1933 Act) who are not natural persons, estates or
trusts.
(f) Investor represents, warrants and certifies that
the Shares were not offered to Investor in the United States, and at the time of
execution of this Agreement and at the time of any offer to Investor to purchase
the Shares hereunder, Investor was physically outside the United States.
5
<PAGE> 17
3.5 Further Representations and Understandings.
(a) Investor understands that no federal or state
agency including the Securi- ties and Exchange Commission, the Arizona
Corporation Commission or the securities commission or authorities of any other
state has approved or disapproved the Shares, passed upon or endorsed the merits
of the offering or the accuracy or adequacy of the documents, or made any
finding or determination as to the fairness of the Shares for public investment
and any representation to the contrary is a criminal offense.
(b) Investor understands that the Shares are being
offered and sold in reli- ance on specific exemptions or exclusions from the
registration requirements of federal and state laws and that the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings set forth herein in order to
determine the suitability of Investor to acquire the Shares.
(c) Investor represents and warrants that the
information set forth herein concerning Investor is true and correct.
3.6 Resales Offshore by Investor. Investor acknowledges,
covenants and agrees that the Shares may and will be resold offshore only in
compliance with Regulation S. In connection with any resale of the Shares
pursuant to Regulation S, Investor will deliver to the Company and will cause
the purchaser to deliver to the Company the attached Exhibit A Certificate of
Compliance. The certificates delivered to the purchaser will bear the legend set
forth in Section 6 hereof.
4. Conditions to Obligations of the Company. The obligations of the
Company under this Agreement are subject to satisfaction of the following
conditions at or prior to the Closing, any of which may be waived by the
Company:
4.1 Representations and Warranties Correct. All of the
representations and warranties of Investor contained in this Agreement shall be
true and correct in all material respects as of the Closing with the same effect
as if made on the date of Closing.
4.2 Performance of Covenants and Agreements. All of the
covenants and agreements of Investor contained in this Agreement and required to
be performed on or before the date of Closing shall have been performed in all
material respects to the reasonable satisfaction of the Company.
4.3 Legal Action.
(a) There shall not have been instituted any material
legal proceeding seeking to prohibit the consummation of the transactions
contemplated by this Agreement.
(b) None of the parties hereto shall be prohibited in
any order, writ, injunction or decree of any governmental body of competent
jurisdiction from consummating the transactions contemplated by this Agreement,
and no material action or proceeding shall then be pending which questions the
validity of this Agreement, any of the transactions contemplated hereby or any
action which has been taken by any of the parties in connection herewith or in
connection with any of the transactions contemplated hereby.
6
<PAGE> 18
5. Conditions to Obligations of Investor. The obligations of Investor
under this Agreement are subject to satisfaction of the following conditions at
or prior to the Closing, any of which may be waived by Investor.
5.1 Representations and Warranties Correct. All of the
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects as of the Closing with the same
effect as if made on the date of Closing.
5.2 Legal Action.
(a) There shall not have been instituted or threatened
any legal proceedings seeking to prohibit the consummation of the transactions
contemplated by this or any like Agreement, or to obtain damages from Investor
or any other Investor with respect thereto.
(b) None of the parties hereto or to other like
agreements in connection with this offering shall be prohibited by any order,
writ, injunction or decree of any governmental body of competent jurisdiction
from consummating the transactions contemplated by this or any like Agreement,
and no action or proceeding shall then be pending which questions the validity
of this or any like Agreement, any of the transactions contemplated hereby or
any action which has been taken by any of the parties in connection herewith or
in connection with any of the transactions contemplated hereby.
6. Legends. The certificates evidencing any of the Shares shall be
endorsed with the legend set forth below, and Investor covenants that Investor
shall not transfer the shares represented by any such certificate without
complying with the restrictions on transfer described in the legend endorsed on
such certificate:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES ACT
OF 1933, AS AMENDED, (THE "1933 ACT") OR THE SECURITIES COMMISSION OF
ANY STATE UNDER ANY STATE SECURITIES LAW. THEY WERE OFFERED PURSUANT TO
A SAFE HARBOR FROM REGISTRATION UNDER REGULATION S ("REGULATION S")
PROMULGATED UNDER THE 1933 ACT. THE SHARES MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS (AS SUCH
TERM IS DEFINED IN REGULATION S) UNLESS THE SHARES ARE REGISTERED UNDER
THE 1933 ACT AND APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF
COUNSEL IS OBTAINED WHICH IS REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH OFFERS, SALES AND TRANSFERS MAY BE MADE PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
7. Miscellaneous.
7.1 Notices. All notices or other communications given or
made hereunder shall be in writing and shall be deemed delivered personally to
the party being given notice or by facsimile, overnight courier service or by
registered or certified mail, return receipt requested, postage prepaid
7
<PAGE> 19
if to Investor at its address set forth herein or if to the Company at the
address set forth herein or at such other address as may have been furnished by
the Company to Investor.
7.2 Construction. Notwithstanding the place where this
Agreement may be executed by any of the parties hereto, the parties expressly
agree that all terms and provisions hereof shall be construed in accordance with
and governed by the laws of the State of Arizona without giving effect to
principles of conflicts of law.
7.3 Entire Agreement; Amendments and Waiver. This Agreement
and Exhibit A hereto set forth the entire understanding of the parties with
respect to the transactions contemplated hereby, and neither party shall be
bound by nor deemed to have made any representations and/or warranties except
those contained herein or incorporated herein by reference. The provisions of
this Agreement, including Exhibit A hereto, may be amended and the Company may
take any action herein prohibited, or omit to perform any act herein required to
be performed by it, only if the Company has obtained the written consent of
Investor.
7.4 Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective heirs, estate, successors and assigns of the
parties. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
7.5 Headings. The terms used in this Agreement shall be
deemed to include the masculine and the feminine in the singular and the plural
as the context requires. The headings in this Agreement are for reference
purposes only and shall not be deemed to have any substantive effect.
7.6 Survival of Representations and Warranties. All
representations and warranties contained herein will survive the execution and
delivery of this Agreement and delivery of and payment for the Shares regardless
of any investigation made by or on behalf of the parties.
7.7 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.8 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
8
<PAGE> 20
IN WITNESS WHEREOF, the parties hereby have executed this
Agreement as of the date indicated above.
INVESTOR
SPANSWICK LIMITED R. Syvret - Alternate Director
- -------------------------- --------------------------------------------
Exact Name in which Shares PRINT Name of Individual with authority to
are to be registered Purchase the Shares on behalf of Investor
and state capacity in which signing
/s/R. Syvret
--------------------------------------------
SIGNATURE of Individual with Authority to
Purchase
OFFSHORE DELIVERY INSTRUCTIONS
--------------------------------------------
NUTRAGENICS, INC. Type or print address where certificates
are to be delivered
7th Floor Wisma Bakrie
By: /s/Ronald Lane Jalan H.R. Rasuna Said Kav. B-1
- -------------------------- --------------------------------------------
Its: President Street
Jakarta 12920, Indonesia
--------------------------------------------
City, State or Province, Country
(62-21) 525 7862
--------------------------------------------
Telephone Number
(62-21) 525-7865
--------------------------------------------
Facsimile Number
9
<PAGE> 21
EXHIBIT A
CERTIFICATE OF COMPLIANCE
In order to effect the transfer of the Shares of Common Stock
acquired pursuant to a Stock Purchase Agreement (the "Stock Purchase Agreement")
entered into between the undersigned seller ("Seller") and NutraGenics, Inc.
(the "Company") without registration under the Securities Act of 1933, as
amended (the "Act"), the undersigned Seller and the undersigned purchaser
("Purchaser") represent, warrant and acknowledge to the Company,
As to Seller that:
A. The undersigned (i) acknowledges that the
sale of Shares to which this Certificate
relates is being made in reliance on Rule
903 and/or 904 of Regulation S under the Act
and (ii) certifies that (A) the offer of
such Shares was not made to a person in the
United States and either (1) at the time the
buy order was originated, the buyer was
outside the United States, or the Seller and
any person acting on its behalf reasonably
believe that the buyer was outside the
United States, or (2) if pursuant to Rule
904, the transaction was executed on or
through the facilities of a designated
offshore securities market, and neither the
Seller nor any persons acting on its behalf
knows or believes that the transaction has
been pre-arranged with a buyer in the United
States, (B) neither the Seller nor any
affiliate of the Seller nor any person
acting on its or their behalf has engaged or
will engage in any directed selling efforts
in the United States in connection with the
offer and sale of such Shares, and (C) the
offer or sale, if made prior to the
expiration of one year from the date of the
Stock Purchase Agreement was not made to a
U.S. Person or for the account or benefit of
a U.S. Person. Terms used herein have the
meanings given to them by Regulation S.
B. The representations and warranties made by
Seller in the Stock Purchase Agreement
remain true and correct as of the date
hereof.
-----------------------------------------
Print Name of Seller
Dated: By:
----------- ----------------------------------
Name:
----------------------------------
Title:
----------------------------------
<PAGE> 22
As to Purchaser, that:
A. Purchaser acknowledges and agrees that the
Shares have not been registered under the
Act and may be resold only (a) pursuant to
an effective Registration Statement under
the Act and any applicable state securities
laws ("State Acts"), (b) pursuant to an
exemption from registration under the Act
and any applicable State Acts, or (c) in
accordance with Rule 903 and/or 904 of
Regulation S under the Act.
B. If any offer or sale of the Shares hereunder
occurred prior to the expiration of the one
year period referred to in paragraph C
below, Purchaser further represents and
warrants that (i) Purchaser is not a U.S.
Person (as defined in Regulation S) and is
not acquiring the Shares for the account or
benefit of any U.S. Person, (ii) at all
times that the offer to buy or sell the
Shares as contemplated hereby were made and
the buy order was originated the Purchaser
was outside of the United States, and (iii)
Purchaser has no present plan or intention
to sell the Shares in the United States or
to a U.S. Person and will not make any
offers or sales of the Shares to a U.S.
Person or in the United States.
C. Neither Purchaser nor its affiliates nor any
person acting on its or their behalf entered
into, prior to or during the one year period
from the date of the Stock Purchase
Agreement any option, equity swap or other
similar derivative instrument or position
with respect to the Shares.
D. Purchaser acknowledges that the certificate
evidencing the Shares will bear a legend to
the effect that transfer is prohibited
except in compliance with Regulation S,
pursuant to a registration under the Act or
State Acts or pursuant to an exemption
therefrom as set forth in paragraph A above
and acknowledges that the Company will
refuse to register the transfer of Shares
not made in accordance with the provisions
of Regulation S.
SPANSWICK LIMITED
----------------------------------
Print Name of Purchaser
Dated: 31/10/96 By: /s/R. Syvret
-------- ----------------------------
Name:R. Syvret
----------------------------
Title: Alternate Director
----------------------------
<PAGE> 1
EXHIBIT 10.8
NUTRAGENICS, INC.
1996 STOCK OPTION PLAN
ARTICLE I
GENERAL
1.1 PURPOSE OF PLAN; TERM
(a) ADOPTION. On October 31, 1996, the Board of Directors (the
"Board") of NutraGenics, Inc., a Nevada corporation (the "Company"), adopted a
stock option plan to be known as the 1996 Stock Option Plan (the "Plan").
(b) DEFINED TERMS. All initially capitalized terms used hereby
shall have the meaning set forth in Article V hereto.
(c) GENERAL PURPOSE. The purpose of the Grant Program is to
further the interests of the Company and its shareholders by encouraging key
persons associated with the Company (or Parent or Subsidiary Corporations) to
acquire shares of the Company's Stock, thereby acquiring a proprietary interest
in its business and an increased personal interest in its continued success and
progress. Such purpose shall be accomplished by providing for the granting of
options to acquire the Company's Stock ("Options"), the direct granting of the
Company's Stock ("Stock Awards"), the granting of stock appreciation rights
("SARs"), or the granting of other cash awards ("Cash Awards") (Stock Awards,
SARs and Cash Awards shall be collectively referred to herein as "Awards").
(d) CHARACTER OF OPTIONS. Options granted under this Plan to
employees of the Company (or Parent or Subsidiary Corporations) that are
intended to qualify as an "incentive stock option" as defined in Code section
422 ("Incentive Stock Option") will be specified in the applicable stock option
agreement. All other Options granted under this Plan will be nonqualified
options.
(e) RULE 16b-3 PLAN. The Company expects to be subject to the
reporting requirements of the Securities Exchange Act of 1934, and therefore the
Plan is intended to comply with all applicable conditions of Rule 16b-3 (and all
subsequent revisions thereof) promulgated under the 1934 Act. In addition, the
Board may amend the Plan from time to time as it deems necessary in order to
meet the requirements of any amendments to Rule 16b-3 without the consent of the
shareholders of the Company.
(f) DURATION OF PLAN. The term of the Plan is 10 years commencing
on the date of adoption of the original Plan by the Board as specified in
Section 1.1(a) hereof. No Option or Award shall be granted under the Plan unless
granted within 10 years of the adoption of the Plan by the Board, but Options or
Awards outstanding on that date shall not be terminated or otherwise affected by
virtue of the Plan's expiration.
<PAGE> 2
1.2 STOCK AND MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN.
(a) DESCRIPTION OF STOCK AND MAXIMUM SHARES ALLOCATED. The shares
of stock subject to the provisions of the Plan and issuable upon the grant of
Stock Awards or upon the exercise of SARs or Options granted under the Plan are
shares of the Company's common stock, $0.001 par value per share (the "Stock"),
which may be either unissued or treasury shares. The Company may not issue more
than 1,900,000 shares of Stock pursuant to the Plan, unless the Plan is amended
as provided in Section 1.3 or the maximum number of shares subject to the Plan
is adjusted as provided in Section 3.1.
(b) CALCULATION OF AVAILABLE SHARES. The number of shares of Stock
available under the Plan shall be reduced: (i) by any shares of Stock issued
(including any shares of Stock withheld for tax withholding requirements) upon
exercise of an Option and (ii) by any shares of Stock issued (including any
shares of Stock withheld for tax withholding requirements) upon the grant of a
Stock Award or the exercise of a SAR.
(c) RESTORATION OF UNPURCHASED SHARES. If an Option or SAR expires
or terminates for any reason prior to its exercise in full and before the term
of the Plan expires, the shares of Stock subject to, but not issued under, such
Option or SAR shall, without further action or by or on behalf of the Company,
again be available under the Plan.
1.3 APPROVAL; AMENDMENTS.
(a) APPROVAL BY SHAREHOLDERS. The Plan shall be submitted to the
shareholders of the Company for their approval at a regular or special meeting
to be held within 12 months after the adoption of the Plan by the Board.
Shareholder approval shall be evidenced by the affirmative vote of the holders
of a majority of the shares of the Company's Common Stock present in person or
by proxy and voting at the meeting. The date such shareholder approval has been
obtained shall be referred to herein as the "Effective Date."
(b) COMMENCEMENT OF PROGRAMS. The Grant Program is effective
immediately, but if the Plan is not approved by the shareholders within 12
months after its adoption by the Board, the Plan and all Options and Awards made
under the Grant Program will automatically terminate and be forfeited to the
same extent and with the same effect as though the Plan had never been adopted.
(c) AMENDMENTS TO PLAN. The Board may, without action on the part
of the Company's shareholders, make such amendments to, changes in and additions
to the Plan as it may, from time to time, deem necessary or appropriate and in
the best interests of the Company; provided, the Board may not, without the
consent of the applicable Optionholder, take any action which disqualifies any
Option previously granted under the Plan for treatment as an Incentive Stock
Option or which adversely affects or impairs the rights of the Optionholder of
any Option outstanding under the Plan, and further provided that, except as
provided in Article III hereof, the Board may not, without the approval of
2
<PAGE> 3
the Company's shareholders, (i) increase the aggregate number of shares of Stock
subject to the Plan, (ii) reduce the exercise price at which Options may be
granted or the exercise price at which any outstanding Option may be exercised,
(iii) extend the term of the Plan, (iv) change the class of persons eligible to
receive Options or Awards under the Plan, or (v) materially increase the
benefits accruing to participants under the Plan. Notwithstanding the foregoing,
Options or Awards may be granted under this Plan to purchase shares of Stock in
excess of the number of shares then available for issuance under the Plan if (A)
an amendment to increase the maximum number of shares issuable under the Plan is
adopted by the Board prior to the initial grant of any such Option or Award and
within one year thereafter such amendment is approved by the Company's
shareholders and (B) each such Option or Award granted does not become
exercisable or vested, in whole or in part, at any time prior to the obtaining
of such shareholder approval.
ARTICLE II
GRANT PROGRAM
2.1 PARTICIPANTS; ADMINISTRATION.
(a) ELIGIBILITY AND PARTICIPATION. Options and Awards may be
granted only to persons ("Eligible Persons") who at the time of grant are (i)
key personnel (including officers and directors) of the Company or Parent or
Subsidiary Corporations, or (ii) consultants or independent contractors who
provide valuable services to the Company or Parent or Subsidiary Corporations;
provided that (1) Incentive Stock Options may only be granted to key personnel
of the Company (and its Parent or Subsidiary Corporation) who are also employees
of the Company (or its Parent or Subsidiary Corporation) and (2) the maximum
number of shares of stock with respect to which Options or SARs may be granted
to any employee during the term of the Plan shall not exceed 50 percent of the
shares of stock covered by the Plan. A Plan Administrator shall have full
authority to determine which Eligible Persons in its administered group are to
receive Option grants under the Plan, the number of shares to be covered by each
such grant, whether or not the granted Option is to be an Incentive Stock
Option, the time or times at which each such Option is to become exercisable,
and the maximum term for which the Option is to be outstanding. A Plan
Administrator shall also have full authority to determine which Eligible Persons
in such group are to receive Awards under the Grant Program and the conditions
relating to such Award.
(b) GENERAL ADMINISTRATION. The Eligible Persons under the Grant
Program shall be divided into two groups and there shall be a separate
administrator for each group. One group will be comprised of Eligible Persons
that are Affiliates. For purposes of this Plan, the term "Affiliates" shall mean
all "officers" (as that term is defined in Rule 16a-1(f) promulgated under the
1934 Act) and directors of the Company and all persons who own ten percent or
more of the Company's issued and outstanding equity securities. Initially, the
power to administer the Grant Program with respect to Eligible Persons that are
Affiliates shall be vested with the Board. At any time, however, the Board may
vest the power to administer the Grant Program with respect to Persons that are
3
<PAGE> 4
Affiliates exclusively with a committee (the "Senior Committee") comprised of
two or more Non-Employee Directors which are appointed by the Board. The Senior
Committee, at its sole discretion, may require approval of the Board for
specific grants of Options or Awards under the Grant Program. The administration
of all Eligible Persons that are not Affiliates ("Non-Affiliates") shall be
vested exclusively with the Board. The Board, however, may at any time appoint a
committee (the "Employee Committee") of two or more persons who are members of
the Board and delegate to such Employee Committee the power to administer the
Grant Program with respect to the Non-Affiliates. In addition, the Board may
establish an additional committee or committees of persons who are members of
the Board and delegate to such other committee or committees the power to
administer all or a portion of the Grant program with respect to all or a
portion of the Eligible Persons. Members of the Senior Committee, Employee
Committee or any other committee allowed hereunder shall serve for such period
of time as the Board may determine and shall be subject to removal by the Board
at any time. The Board may at any time terminate all or a portion of the
functions of the Senior Committee, the Employee Committee, or any other
committee allowed hereunder and reassume all or a portion of powers and
authority previously delegated to such committee. The Board in its discretion
may also require the members of the Senior Committee, the Employee Committee or
any other committee allowed hereunder to be "outside directors" as that term is
defined in any applicable regulations promulgated under Code section 162(m).
(c) PLAN ADMINISTRATORS. The Board, the Employee Committee, Senior
Committee, and/or any other committee allowed hereunder, whichever is
applicable, shall be each referred to herein as a "Plan Administrator." Each
Plan Administrator shall have the authority and discretion, with respect to its
administered group, to select which Eligible Persons shall participate in the
Grant Program, to grant Options or Awards under the Grant Program, to establish
such rules and regulations as they may deem appropriate with respect to the
proper administration of the Grant Program and to make such determinations
under, and issue such interpretations of, the Grant Program and any outstanding
Option or Award as they may deem necessary or advisable. Unless otherwise
required by law or specified by the Board with respect to any committee,
decisions among the members of a Plan Administrator shall be by majority vote.
Decisions of a Plan Administrator shall be final and binding on all parties who
have an interest in the Grant Program or any outstanding Option or Award.
(d) GUIDELINES FOR PARTICIPATION. In designating and selecting
Eligible Persons for participation in the Grant Program, a Plan Administrator
shall consult with and give consideration to the recommendations and criticisms
submitted by appropriate managerial and executive officers of the Company. A
Plan Administrator also shall take into account the duties and responsibilities
of the Eligible Persons, their past, present and potential contributions to the
success of the Company and such other factors as a Plan Administrator shall deem
relevant in connection with accomplishing the purpose of the Plan.
2.2 TERMS AND CONDITIONS OF OPTIONS
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(a) ALLOTMENT OF SHARES. A Plan Administrator shall determine the
number of shares of Stock to be optioned from time to time and the number of
shares to be optioned to any Eligible Person (the "Optioned Shares"). The grant
of an Option to a person shall neither entitle such person to, nor disqualify
such person from, participation in any other grant of Options or Stock Awards
under this Plan or any other stock option plan of the Company.
(b) EXERCISE PRICE. Upon the grant of any Option, a Plan
Administrator shall specify the option price per share. If the Option is
intended to qualify as an Incentive Stock Option under the Code, the option
price per share may not be less than 100 percent of the fair market value per
share of the stock on the date the Option is granted (110 percent if the Option
is granted to a shareholder who at the time the Option is granted owns or is
deemed to own stock possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company or of any Parent or Subsidiary
Corporation). The determination of the fair market value of the Stock shall be
made in accordance with the valuation provisions of Section 3.5 hereof.
(c) INDIVIDUAL STOCK OPTION AGREEMENTS. Options granted under the
Plan shall be evidenced by option agreements in such form and content as a Plan
Administrator from time to time approves, which agreements shall substantially
comply with and be subject to the terms of the Plan, including the terms and
conditions of this Section 2.2. As determined by a Plan Administrator, each
option agreement shall state (i) the total number of shares to which it
pertains, (ii) the exercise price for the shares covered by the Option, (iii)
the time at which the Options vest and become exercisable and (iv) the Option's
scheduled expiration date. The option agreements may contain such other
provisions or conditions as a Plan Administrator deems necessary or appropriate
to effectuate the sense and purpose of the Plan, including covenants by the
Optionholder not to compete and remedies for the Company in the event of the
breach of any such covenant.
(d) OPTION PERIOD. No Option granted under the Plan that is
intended to be an Incentive Stock Option shall be exercisable for a period in
excess of 10 years from the date of its grant (five years if the Option is
granted to a shareholder who at the time the Option is granted owns or is deemed
to own stock possessing more than 10 percent of the total combined voting power
of all classes of stock of the Company or of any Parent or any Subsidiary
Corporation), subject to earlier termination in the event of termination of
employment, retirement or death of the Optionholder. An Option may be exercised
in full or in part at any time or from time to time during the term of the
Option or provide for its exercise in stated installments at stated times during
the Option's term.
(e) VESTING; LIMITATIONS. The time at which Options may be
exercised with respect to an Optionholder shall be in the discretion of that
Optionholder's Plan Administrator. Notwithstanding the foregoing, to the extent
an Option is intended to qualify as an Incentive Stock Option, the aggregate
fair market value (determined as of the respective date or dates of grant) of
the Stock for which one or more Options granted to any person under this Plan
(or any other option plan of the Company or its Parent or
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Subsidiary Corporations) may for the first time become exercisable as Incentive
Stock Options during any one calendar year shall not exceed the sum of $100,000
(referred to herein as the "$100,000 Limitation"). To the extent that any person
holds two or more Options which become exercisable for the first time in the
same calendar year, the foregoing limitation on the exercisability as an
Incentive Stock Option shall be applied on the basis of the order in which such
Options are granted.
(f) NO FRACTIONAL SHARES. Options shall be exercisable only for
whole shares; no fractional shares will be issuable upon exercise of any Option
granted under the Plan.
(g) METHOD OF EXERCISE. To exercise an Option, an Optionholder
(or in the case of an exercise after an Optionholder's death, such
Optionholder's executor, administrator, heir or legatee, as the case may be)
must take the following action:
(i) execute and deliver to the Company a written notice of
exercise signed in writing by the person exercising the Option specifying the
number of shares of Stock with respect to which the Option is being exercised;
(ii) pay the aggregate Option Price in one of the alternate
forms as set forth in Section 2.2(h) below; and
(iii) furnish appropriate documentation that the person or
persons exercising the Option (if other than the Optionholder) has the right to
exercise such Option.
As soon as practical after the Exercise Date, the Company will mail or deliver
to or on behalf of the Optionholder (or any other person or persons exercising
this Option under the Plan) a certificate or certificates representing the Stock
acquired upon exercise of the Option.
(h) PAYMENT PRICE. The aggregate Option Price shall be payable in
one of the alternative forms specified below:
(i) Full payment in cash or check made payable to the
Company's order; or
(ii) Full payment in other shares of previously owned stock
of the Company, surrender of which does not trigger tax consequences to the
Company, and valued at fair market value on the Exercise Date (as determined in
accordance with Section 3.5 hereof); or
(iii) Full payment through a sale and remittance procedure
pursuant to which the Optionholder (A) shall provide irrevocable written
instructions to a designated brokerage firm to effect the immediate sale of the
Optioned Shares to be purchased and remit to the Company, out of the sale
proceeds available on the settlement date, sufficient
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funds to cover the aggregate exercise price payable for the Optioned Shares to
be purchased and (B) shall concurrently provide written directives to the
Company to deliver the certificates for the Optioned Shares to be purchased
directly to such brokerage firm in order to complete the sale transaction.
(i) RELOAD OPTIONS. Concurrently with the award of Options, the
Plan Administrator may authorize the grant of reload Options. Reload Options
shall equal (i) the number of shares of previously owned stock used to exercise
the underlying Options and (ii) the number of shares withheld or the number of
shares of previously owned stock used to satisfy tax withholding requirements
incident to the exercise of the underlying Options. The grant of such reload
Options shall become effective upon the exercise of the underlying Options by
the surrender of shares of stock held for such period of time so as not to
trigger tax consequences to the Company. The exercise price of the reload
Options shall be the fair market value on the date of grant of the reload
Options and such Options shall have a term equal to the remaining term of the
underlying Options. No reload Options shall be granted when the exercise of the
underlying Options occurs following termination of the Optionholder's
employment. To the extent not inconsistent herewith, the other provisions of the
Plan set forth herein shall be applicable to reload Options.
(j) RIGHTS OF A SHAREHOLDER. An Optionholder shall not have any
of the rights of a shareholder with respect to Optioned Shares until such
individual shall have exercised the Option and paid the Option Price for the
Optioned Shares. No adjustment will be made for dividends or other rights for
which the record date is prior to the date such stock certificate is issued.
(k) REPURCHASE RIGHT. The Plan Administrator may, in its sole
discretion, set forth other terms and conditions upon which the Company (or its
assigns) shall have the right to repurchase shares of Stock acquired by an
Optionholder pursuant to an Option. Any repurchase right of the Company shall be
exercisable by the Company (or its assignees) upon such terms and conditions as
the Plan Administrator may specify in the Stock Repurchase Agreement evidencing
such right. The Plan Administrator may also in its discretion establish as a
term and condition of one or more Options granted under the Plan that the
Company shall have a right of first refusal with respect to any proposed sale or
other disposition by the Optionholder of any shares of Stock issued upon the
exercise of such Options. Any such right of first refusal shall be exercisable
by the Company (or its assigns) in accordance with the terms and conditions set
forth in the Stock Repurchase Agreement. The terms of the Stock Repurchase
Agreement shall provide for a reasonable Notice period not to exceed two
business days for the exercise of such repurchase or right of first refusal by
the Company.
(l) TERMINATION OF INCENTIVE STOCK OPTIONS.
(i) TERMINATION OF SERVICE. If any Optionholder ceases to be
in Service to the Company for a reason other than permanent disability or death
and the Option held by such Optionholder is an Incentive Stock Option, then such
Optionholder
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must, within 90 days after the date of termination of such Service, but in no
event after the Option's stated expiration date, exercise some or all of the
Options that the Optionholder was entitled to exercise on the date the
Optionholder's Service terminated; provided, that if the Optionholder is
discharged for Cause or commits acts detrimental to the Company's interests
after the Service of the Optionholder has been terminated, then the Option will
thereafter be void for all purposes. "Cause" shall mean a termination of Service
based upon a finding by the applicable Plan Administrator that the Optionholder:
(i) has committed a felony involving dishonesty, fraud, theft or embezzlement;
(ii) after written notice from the Company has repeatedly failed or refused, in
a material respect, to follow reasonable policies or directives established by
the Company; (iii) after written notice from the Company, has willfully and
persistently failed to attend to material duties or obligations; (iv) has
performed an act or failed to act, which, if he were prosecuted and convicted,
would constitute a theft of money or property of the Company; or (v) has
misrepresented or concealed a material fact for purposes of securing employment
with the Company. If any Optionholder ceases to be in Service to the Company by
reason of permanent disability within the meaning of section 22(e)(3) of the
Code (as determined by the applicable Plan Administrator), the Optionholder will
have 12 months after the date of termination of Service, but in no event after
the stated expiration date of the Optionholder's Options, to exercise Options
that the Optionholder was entitled to exercise on the date the Optionholder's
Service terminated as a result of the disability.
(ii) DEATH OF OPTIONHOLDER. If an Optionholder dies while in
the Company's Service, any Options that are Incentive Stock Options that the
Optionholder was entitled to exercise on the date of death will be exercisable
within three months after such date or until the stated expiration date of the
Optionholder's Option, whichever occurs first, by the person or persons
("successors") to whom the Optionholder's rights pass under a will or by the
laws of descent and distribution. As soon as practicable after receipt by the
Company of such notice and of payment in full of the Option Price, a certificate
or certificates representing the Optioned Shares shall be registered in the name
or names specified by the successors in the written notice of exercise and shall
be delivered to the successors.
(m) TERMINATION OF NONQUALIFIED OPTIONS. Options that are not
Incentive Stock Options and that are outstanding at the time an Optionholder
ceases to be in Service to the Company shall remain exercisable (i) for a period
of one year after termination resulting from death or permanent disability
within the meaning of Section 22(e)(3) of the Code (as determined by the Plan
Administrator); (ii) for no period should the Optionholder be discharged for
Cause; (iii) for 90 days after termination for any other reason; or (iv) for a
longer period if determined by the Plan Administrator; provided however, that no
Option shall be exercisable after the Option's stated expiration date.
(n) OTHER PLAN PROVISIONS STILL APPLICABLE. If an Option is
exercised upon the termination of Service or death of an Optionholder under this
Section 2.2, the other provisions of the Plan will continue to apply to such
exercise, including the requirement that
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the Optionholder or its successor may be required to enter into a Stock
Repurchase Agreement.
(o) DEFINITION OF "SERVICE". For purposes of this Plan, unless it
is evidenced otherwise in the option agreement with the Optionholder, the
Optionholder is deemed to be in "Service" to the Company so long as such
individual renders continuous services on a periodic basis to the Company (or to
any Parent or Subsidiary Corporation) in the capacity of an employee, director,
or an independent consultant or advisor. In the discretion of the applicable
Plan Administrator, an Optionholder will be considered to be rendering
continuous services to the Company even if the type of services change, e.g.,
from employee to independent consultant. The Optionholder will be considered to
be an employee for so long as such individual remains in the employ of the
Company or one or more of its Parent or Subsidiary Corporations.
2.3 TERMS AND CONDITIONS OF STOCK AWARDS
(a) ELIGIBILITY. All Eligible Persons shall be eligible to receive
Stock Awards. The Plan Administrator of each administered group shall determine
the number of shares of Stock to be awarded from time to time to any Eligible
Person in such group. Except as provided otherwise in this Plan, the grant of a
Stock Award to a person (a "Grantee") shall neither entitle such person to, nor
disqualify such person from participation in, any other grant of options or
awards by the Company, whether under this Plan or under any other stock option
or award plan of the Company.
(b) AWARD FOR SERVICES RENDERED. Stock Awards shall be granted in
recognition of an Eligible Person's services to the Company. The grantee of any
such Stock Award shall not be required to pay any consideration to the Company
upon receipt of such Stock Award, except as may be required to satisfy any
applicable Arizona corporate law, employment tax and/or income tax withholding
requirements.
(c) CONDITIONS TO AWARD. All Stock Awards shall be subject to such
terms, conditions, restrictions, or limitations as the applicable Plan
Administrator deems appropriate, including, by way of illustration but not by
way of limitation, restrictions on transferability, requirements of continued
employment, individual performance or the financial performance of the Company,
or payment by the recipient of any applicable employment or withholding taxes.
Such Plan Administrator may ease or accelerate the termination of the
restrictions applicable to any Stock Award under the circumstances as it deems
appropriate.
(d) AWARD AGREEMENTS. A Plan Administrator may require as a
condition to a Stock Award that the recipient of such Stock Award enter into an
award agreement in such form and content as that Plan Administrator from time to
time approves.
2.4 TERMS AND CONDITIONS OF SARS
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(a) ELIGIBILITY. All Eligible Persons shall be eligible to receive
SARs. The Plan Administrator of each administered group shall determine the SARs
to be awarded from time to time to any Eligible Person in such group. The grant
of a SAR to a person shall neither entitle such person to, nor disqualify such
person from participation in, any other grant of options or awards by the
Company, whether under this Plan or under any other stock option or award plan
of the Company.
(b) AWARD OF SARS. Concurrently with or subsequent to the grant of
any Option to purchase one or more shares of Stock, the Plan Administrator may
award to the Optionholder with respect to each share of Stock, underlying the
Option, a related SAR permitting the Optionholder to be paid any appreciation on
that Stock in lieu of exercising the Option. In addition, a Plan Administrator
may award to any Eligible Person a SAR permitting the Eligible Person to be paid
the appreciation on a designated number of shares of the Stock, whether or not
such Shares are actually issued.
(c) CONDITIONS TO SAR. All SARs shall be subject to such terms,
conditions, restrictions or limitations as the applicable Plan Administrator
deems appropriate, including, by way of illustration but not by way of
limitation, restrictions on transferability, requirements of continued
employment, individual performance, financial performance of the Company, or
payment by the recipient of any applicable employment or withholding taxes. Such
Plan Administrator may modify or accelerate the termination of the restrictions
applicable to any SAR under the circumstances as it deems appropriate.
(d) SAR AGREEMENTS. A Plan Administrator may require as a
condition to the grant of a SAR that the recipient of such SAR enter into a SAR
agreement in such form and content as that Plan Administrator from time to time
approves.
(e) EXERCISE. An Eligible Person who has been granted a SAR may
exercise such SAR subject to the conditions specified in the SAR agreement by
the Plan Administrator.
(f) AMOUNT OF PAYMENT. The amount of payment to which the grantee
of a SAR shall be entitled upon the exercise of each SAR shall be equal to the
amount, if any, by which the fair market value of the specified shares of Stock
on the exercise date exceeds the fair market value of the specified shares of
Stock on the date the Option related to the SAR was granted or became effective,
or, if the SAR is not related to any Option, on the date the SAR was granted or
became effective.
(g) FORM OF PAYMENT. The SAR may be paid in either cash or Stock,
as determined in the discretion of the applicable Plan Administrator and set
forth in the SAR agreement. If the payment is in Stock, the number of shares to
be paid to the participant shall be determined by dividing the amount of the
payment determined pursuant to Section 2.4(f) by the fair market value of a
share of Stock on the exercise date of such SAR. As soon as practical after
exercise, the Company shall deliver to the SAR grantee a certificate or
certificates for such shares of Stock.
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(h) TERMINATION OF EMPLOYMENT; DEATH. Sections 2.2(k) and (l),
applicable to Options, shall apply equally to SARs.
2.5 OTHER CASH AWARDS
(a) IN GENERAL. The Plan Administrator of each administered group
shall have the discretion to make other awards of cash to Eligible Persons in
such group ("Cash Awards"). Such Cash Awards may relate to existing Options or
to the appreciation in the value of the Stock or other Company securities.
(b) CONDITIONS TO AWARD. All Cash Awards shall be subject to such
terms, conditions, restrictions or limitations as the applicable Plan
Administrator deems appropriate, and such Plan Administrator may require as a
condition to such Cash Award that the recipient of such Cash Award enter into an
award agreement in such form and content as the Plan Administrator from time to
time approves.
ARTICLE III
MISCELLANEOUS
3.1 CAPITAL ADJUSTMENTS. The aggregate number of shares of Stock
subject to the Plan, the number of shares of Stock covered by outstanding
Options and Awards, and the price per share stated in all outstanding Options
and Awards shall be proportionately adjusted for any increase or decrease in the
number of outstanding shares of Stock of the Company resulting from a
subdivision or consolidation of shares or any other capital adjustment or the
payment of a stock dividend or any other increase or decrease in the number of
such shares effected without the Company's receipt of consideration therefor in
money, services or property.
3.2 MERGERS, ETC. If the Company is the surviving corporation in any
merger or consolidation (not including a Corporate Transaction), any Option or
Award granted under the Plan shall pertain to and apply to the securities to
which a holder of the number of shares of Stock subject to the Option or Award
would have been entitled prior to the merger or consolidation. Except as
provided in Section 3.3 hereof, a dissolution or liquidation of the Company
shall cause every Option or Award outstanding hereunder to terminate.
3.3 CORPORATE TRANSACTION. In the event of shareholder approval of a
Corporate Transaction, the Plan Administrator shall have the discretion and
authority, exercisable at any time, to provide for the automatic acceleration of
one or more of the outstanding Options or Awards granted by it under the Plan.
Upon the consummation of the Corporate Transaction, all Options shall, to the
extent not previously exercised, terminate and cease to be outstanding.
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3.4 CHANGE IN CONTROL.
(a) GRANT PROGRAM. In the event of a Change in Control, a Plan
Administrator shall have the discretion and authority, exercisable at any time,
whether before or after the Change in Control, to provide for the automatic
acceleration of one or more outstanding Options or Awards granted by it under
the Plan. Any Options or Awards accelerated upon a Change in Control will remain
fully exercisable until the expiration or sooner termination of the Option term.
(b) INCENTIVE STOCK OPTION LIMITS. The exercisability of any
Options which are intended to qualify as Incentive Stock Options and which are
accelerated by the Plan Administrator in connection with a pending Corporation
Transaction or Change in Control shall, except as otherwise provided in the
discretion of the Plan Administrator and the Optionholder, remain subject to the
$100,000 Limitation and vest as quickly as possible without violating the
$100,000 Limitation.
3.5 CALCULATION OF FAIR MARKET VALUE OF STOCK. The fair market value
of a share of Stock on any relevant date shall be determined in accordance with
the following provisions:
(a) If the Stock is not at the time listed or admitted to trading
on any stock exchange but is traded in the over-the-counter market, the fair
market value shall be the mean between the highest bid and lowest asked prices
(or, if such information is available, the closing selling price) per share of
Stock on the date in question in the over-the-counter market, as such prices are
reported by the National Association of Securities Dealers through its Nasdaq
system or any successor system. If there are no reported bid and asked prices
(or closing selling price) for the Stock on the date in question, then the mean
between the highest bid price and lowest asked price (or the closing selling
price) on the last preceding date for which such quotations exist shall be
determinative of fair market value.
(b) If the Stock is at the time listed or admitted to trading on
any stock exchange, then the fair market value shall be the closing selling
price per share of Stock on the date in question on the stock exchange
determined by the Board to be the primary market for the Stock, as such price is
officially quoted in the composite tape of transactions on such exchange. If
there is no reported sale of Stock on such exchange on the date in question,
then the fair market value shall be the closing selling price on the exchange on
the last preceding date for which such quotation exists.
(c) If the Stock at the time is neither listed nor admitted to
trading on any stock exchange nor traded in the over-the-counter market, then
the fair market value shall be determined by the Board after taking into account
such factors as the Board shall deem appropriate, including one or more
independent professional appraisals.
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3.6 USE OF PROCEEDS. The proceeds received by the Company from the
sale of Stock pursuant to the exercise of Options or Awards hereunder, if any,
shall be used for general corporate purposes.
3.7 CANCELLATION OF OPTIONS. Each Plan Administrator shall have the
authority to effect, at any time and from time to time, with the consent of the
affected Optionholders, the cancellation of any or all outstanding Options
granted under the Plan by that Plan Administrator and to grant in substitution
therefore new Options under the Plan covering the same or different numbers of
shares of Stock as long as such new Options have an exercise price per share of
Stock no less than the minimum exercise price as set forth in Section 2.2(b)
hereof on the new grant date.
3.8 REGULATORY APPROVALS. The implementation of the Plan, the granting
of any Option or Award hereunder, and the issuance of Stock upon the exercise of
any such Option or Award shall be subject to the procurement by the Company of
all approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the Options or Awards granted under it and the Stock issued
pursuant to it.
3.9 INDEMNIFICATION. In addition to such other rights of
indemnification as they may have, the members of a Plan Administrator shall be
indemnified and held harmless by the Company, to the extent permitted under
applicable law, for, from and against all costs and expenses reasonably incurred
by them in connection with any action, legal proceeding to which any member
thereof may be a party by reason of any action taken, failure to act under or in
connection with the Plan or any rights granted thereunder and against all
amounts paid by them in settlement thereof or paid by them in satisfaction of a
judgment of any such action, suit or proceeding, except a judgment based upon a
finding of bad faith.
3.10 PLAN NOT EXCLUSIVE. This Plan is not intended to be the exclusive
means by which the Company may issue options or warrants to acquire its Stock,
stock awards or any other type of award. To the extent permitted by applicable
law, any such other option, warrants or awards may be issued by the Company
other than pursuant to this Plan without shareholder approval.
3.11 COMPANY RIGHTS. The grants of Options shall in no way affect the
right of the Company to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
3.12 ASSIGNMENT. The right to acquire Stock or other assets under the
Plan may not be assigned, encumbered or otherwise transferred by any
Optionholder except as specifically provided herein. No Option or Award granted
under the Plan or any of the rights and privileges conferred thereby shall be
assignable or transferable by an Optionholder or grantee other than by will or
the laws of descent and distribution, and such Option or Award shall be
exercisable during the Optionholder's or grantee's lifetime only by the
Optionholder or grantee. Notwithstanding the foregoing, any Options or Awards
granted
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pursuant to the Grant Program may be assigned, encumbered or otherwise
transferred by the Optionholder or grantee if specifically allowed by the Plan
Administrator upon the grant of such Option or Award and subject to compliance
with policies and guidelines established by the Board. The provisions of the
Plan shall inure to the benefit of, and be binding upon, the Company and its
successors or assigns, and the Optionholders, the legal representatives of their
respective estates, their respective heirs or legatees and their permitted
assignees.
3.13 SECURITIES RESTRICTIONS
(a) LEGEND ON CERTIFICATES. All certificates representing shares
of Stock issued under the Plan shall be endorsed with a legend reading as
follows:
The shares of Common Stock evidenced by this certificate have
been issued to the registered owner in reliance upon written
representations that these shares have been purchased solely
for investment. These shares may not be sold, transferred or
assigned unless in the opinion of the Company and its legal
counsel such sale, transfer or assignment will not be in
violation of the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
(b) PRIVATE OFFERING FOR INVESTMENT ONLY. The Options and Awards
are and shall be made available only to a limited number of present and future
key executives, directors and employees who have knowledge of the Company's
financial condition, management and its affairs. The Plan is not intended to
provide additional capital for the Company, but to encourage ownership of Stock
among the Company's key personnel. By the act of accepting an Option or Award,
each grantee agrees (i) that, any shares of Stock acquired will be solely for
investment not with any intention to resell or redistribute those shares (except
as delivery of such Stock is permitted as payment upon option exercise or for
tax withholding requirements) and (ii) such intention will be confirmed by an
appropriate certificate at the time the Stock is acquired if requested by the
Company. The neglect or failure to execute such a certificate, however, shall
not limit or negate the foregoing agreement.
(c) REGISTRATION STATEMENT. If a Registration Statement covering
the shares of Stock issuable under the Plan as filed under the Securities
Exchange Act of 1933, as amended, and as declared effective by the Securities
Exchange Commission, the provisions of Sections 3.13(a) and (b) shall terminate
during the period of time that such Registration Statement, as periodically
amended, remains effective.
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3.14 TAX WITHHOLDING.
(a) GENERAL. The Company's obligation to deliver Stock under the
Plan shall be subject to the satisfaction of all applicable federal, state and
local income tax withholding requirements.
(b) SHARES TO PAY FOR WITHHOLDING. The Board may, in its
discretion and in accordance with the provisions of this Section 3.14(b) and
such supplemental rules as it may from time to time adopt (including the
applicable safe-harbor provisions of SEC Rule 16b-3), provide any or all
Optionholders or Grantees with the right to use shares of Stock in satisfaction
of all or part of the federal, state and local income tax liabilities incurred
by such Optionholders or Grantees in connection with the receipt of Stock
("Taxes"). Such right may be provided to any such Optionholder or Grantee in
either or both of the following formats:
(i) STOCK WITHHOLDING. An Optionholder or Grantee may be
provided with the election, which may be subject to approval by the Plan
Administrator, to have the Company withhold, from the Stock otherwise issuable,
a portion of those shares of Stock with an aggregate fair market value equal to
the percentage of the applicable Taxes (not to exceed 100 percent) designated by
the Optionholder or Grantee.
(ii) STOCK DELIVERY. The Board may, in its discretion,
provide the Optionholder or Grantee with the election to deliver to the Company,
at the time the Option is exercised or Stock is awarded, one or more shares of
Stock previously acquired by such individual (other than pursuant to the
transaction triggering the Taxes) with an aggregate fair market value equal to
the percentage of the taxes incurred in connection with such Option exercise or
Stock Award (not to exceed 100 percent) designated by the Optionholder or
Grantee.
3.15 GOVERNING LAW. The Plan shall be governed by and all questions
hereunder shall be determined in accordance with the laws of the State of
Arizona.
ARTICLE IV
DEFINITIONS
The following capitalized terms used in this Plan shall have the
meaning described below:
"AFFILIATES" shall mean all "officers" (as that term is defined in Rule
16a-1(f) promulgated under the 1934 Act) and directors of the Company and all
persons who own ten percent or more of the Company's issued and outstanding
Stock.
"ANNUAL GRANT DATE" shall mean the date of the Company's annual
shareholder meeting.
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"AWARD" shall mean a Stock Award, SAR or Cash Award under the Grant
Program.
"BOARD" shall mean the Board of Directors of the Company.
"CASH AWARD" shall mean an award to be paid in cash and granted under
Section 2.5 hereunder.
"CHANGE IN CONTROL" shall mean and include the following transactions
or situations:
(i) A sale, transfer, or other disposition by the Company
through a single transaction or a series of transactions of securities of the
Company representing 30 percent or more of the combined voting power of the
Company's then outstanding securities to any "Unrelated Person" or "Unrelated
Persons" acting in concert with one another. For purposes of this Section, the
term "Person" shall mean and include any individual, partnership, joint venture,
association, trust corporation, or other entity (including a "group" as referred
to in Section 13(d)(3) of the 1934 Act). For purposes of this Section, the term
"Unrelated Person" shall mean and include any Person other than the Company, a
wholly-owned subsidiary of the Company, or an employee benefit plan of the
Company.
(ii) A sale, transfer, or other disposition through a single
transaction or a series of transactions of all or substantially all of the
assets of the Company to an Unrelated Person or Unrelated Persons acting in
concert with one another.
(iii) A change in the ownership of the Company through a single
transaction or a series of transactions such that any Unrelated Person or
Unrelated Persons acting in concert with one another become the "Beneficial
Owner," directly or indirectly, of securities of the Company representing at
least 30 percent of the combined voting power of the Company's then outstanding
securities. For purposes of this Section, the term "Beneficial Owner" shall have
the same meaning as given to that term in Rule 13d-3 promulgated under the Act,
provided that any pledgee of voting securities is not deemed to be the
Beneficial Owner thereof prior to its acquisition of voting rights with respect
to such securities.
(iv) Any consolidation or merger of the Company with or into an
Unrelated Person, unless immediately after the consolidation or merger the
holders of the common stock of the Company immediately prior to the
consolidation or merger are the Beneficial Owners of securities of the surviving
corporation representing at least 50 percent of the combined voting power of the
surviving corporation's then outstanding securities.
(v) During any period of two years, individuals who, at the
beginning of such period, constituted the Board of Directors of the Company
cease, for any reason, to constitute at least a majority thereof, unless the
election or nomination for election of each new director was approved by the
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period.
16
<PAGE> 17
(vi) A change in control of the Company of a nature that would
be required to be reported in response to item 6(e) of Schedule 14A of
Regulation 14A promulgated under the 1934 Act, or any successor regulation of
similar import, regardless of whether the Company is subject to such reporting
requirement.
Notwithstanding any provision hereof to the contrary, the filing of a
proceeding for the reorganization of the Company under Chapter 11 of the General
Bankruptcy Code or any successor or other statute of similar import shall not be
deemed to be a Change of Control for purposes of this Plan.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMPANY" shall mean NutraGenics, Inc., a Nevada corporation.
"CORPORATE TRANSACTION" shall mean (a) a merger or consolidation in
which the Company is not the surviving entity, except for a transaction the
principal purposes of which is to change the state in which the Company is
incorporated; (b) the sale, transfer of or other disposition of all or
substantially all of the assets of the Company and complete liquidation or
dissolution of the Company, or (c) any reverse merger in which the Company is
the surviving entity but in which the securities possessing more than 50 percent
of the total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such securities
immediately prior to such merger.
"EFFECTIVE DATE" shall mean the date that the Plan has been approved by
the shareholders as required by Section 1.3(a) hereof.
"ELIGIBLE PERSONS" shall mean, with respect to the Grant Program, those
persons who, at the time that the Option or Award is granted, are (i) key
personnel (including officers and directors) of the Company or Parent or
Subsidiary Corporations, or (ii) consultants or independent contractors who
provide valuable services to the Company or Parent or Subsidiary Corporations.
"EMPLOYEE COMMITTEE" shall mean that committee appointed by the Board
to administer the Plan with respect to the Non-Affiliates and comprised of one
or more persons who are members of the Board.
"EXERCISE DATE" shall be the date on which written notice of the
exercise of an Option is delivered to the Company in accordance with the
requirements of the Plan.
"GRANTEE" shall mean an Eligible Person or Eligible Director that has
received an Award.
"GRANT PROGRAM" shall mean the program described in Article II of this
Agreement pursuant to which certain Eligible Persons are granted Options or
Awards in the discretion of the Plan Administrator.
17
<PAGE> 18
"INCENTIVE STOCK OPTION" shall mean an Option that is intended to
qualify as an "incentive stock option" under Code section 422.
"NON-AFFILIATES" shall mean all persons who are not Affiliates.
"NON-EMPLOYEE DIRECTORS" shall mean those Directors who satisfy the
definition of "Non-Employee Director" under Rule 16b-3(b)(3)(i) promulgated
under the 1934 Act.
"$100,000 LIMITATION" shall mean the limitation in which the aggregate
fair market value (determined as of the respective date or dates of grant) of
the Stock for which one or more Options granted to any person under this Plan
(or any other option plan of the Company or any Parent or Subsidiary
Corporation) may for the first time be exercisable as Incentive Stock Options
during any one calendar year shall not exceed the sum of $100,000.
"OPTIONHOLDER" shall mean an Eligible Person to whom Options have been
granted.
"OPTIONED SHARES" shall be those shares of Stock to be optioned from
time to time to any Eligible Person.
"OPTION PRICE" shall mean the option price per share as specified by
the Plan Administrator or by the terms of the Plan.
"OPTIONS" shall mean options granted under the Plan to acquire Stock.
"PARENT CORPORATION" shall mean any corporation in the unbroken chain
of corporations ending with the employer corporation, where, at each link of the
chain, the corporation and the link above owns at least 50 percent of the
combined total voting power of all classes of the stock in the corporation in
the link below.
"PLAN" shall mean this stock option plan for NutraGenics, Inc.
"PLAN ADMINISTRATOR" shall mean (a) either the Board, the Senior
Committee, or any other committee, whichever is applicable, with respect to the
administration of the Grant Program as it relates to Affiliates and (b) either
the Board, the Employee Committee, or any other committee, whichever is
applicable, with respect to the administration of the Grant Program as it
relates to Non-Affiliates.
"SAR" shall mean stock appreciation rights granted pursuant to Section
2.4 hereof.
"SENIOR COMMITTEE" shall mean that committee appointed by the Board to
administer the Grant Program with respect to the Affiliates and comprised of two
or more Non- Employee Directors.
"SERVICE" shall have the meaning set forth in Section 2.2(n) hereof.
18
<PAGE> 19
"STOCK" shall mean shares of the Company's common stock, $.01 par value
per share, which may be unissued or treasury shares, as the Board may from time
to time determine.
"STOCK AWARDS" shall mean Stock directly granted under the Grant
Program.
"SUBSIDIARY CORPORATION" shall mean any corporation in the unbroken
chain of corporations starting with the employer corporation, where, at each
link of the chain, the corporation and the link above owns at least 50 percent
of the combined voting power of all classes of stock in the corporation below.
EXECUTED as of the 31st day of October, 1996.
NUTRAGENICS, INC.
By:/s/Ronald H. Lane
Name:Ronald H. Lane
Its:President
ATTESTED BY:
/s/D. Michael Wells
Secretary
19
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Company
Bionutrics Health Products, Inc., a Delaware corporation
LipoGenics, Inc., a Delaware corporation
Nutrition Technology Corporation, a Nevada corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS EXHIBIT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED
OCTOBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS. THIS EXHIBIT SHALL NOT BE DEEMED FILED FOR PURPOSES OF SECTION 11
OF THE SECURITIES ACT OF 1933 AND SECTION 18 OF THE SECURITIES EXCHANGE ACT OF
1934, OR OTHERWISE SUBJECT TO THE LIABILITY OF SUCH SECTIONS, NOR SHALL IT BE
DEEMED A PART OF ANY OTHER FILING WHICH INCORPORATES THIS REPORT BY REFERENCE,
UNLESS SUCH OTHER FILING EXPRESSLY INCORPORATES THIS EXHIBIT BY REFERENCE.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<CASH> 5,676,360
<SECURITIES> 0
<RECEIVABLES> 16,665
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,676,360
<PP&E> 91,900
<DEPRECIATION> 21,701
<TOTAL-ASSETS> 6,217,348
<CURRENT-LIABILITIES> 936,478
<BONDS> 0
0
0
<COMMON> 15,068
<OTHER-SE> 5,265,802
<TOTAL-LIABILITY-AND-EQUITY> 6,217,348
<SALES> 0
<TOTAL-REVENUES> 20,000
<CGS> 0
<TOTAL-COSTS> 2,996,880
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,667
<INCOME-PRETAX> (3,007,547)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,007,547)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,007,547)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
