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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES
EXCHANGE ACT OF 1934
For Quarter Ended JANUARY 31, 2000
Commission File Number 0-22011
BIONUTRICS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 86-0760991
(State or other jurisdiction of I.R.S. Employer
incorporation of organization) Identification Number
2425 E. CAMELBACK RD., SUITE 650 PHOENIX, ARIZONA 85016
(Address of principal executive offices) (Zip code)
602-508-0112
(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, at the latest practical date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AS OF MARCH 13, 2000
<S> <C>
COMMON
PAR VALUE $.001 PER SHARE 20,848,752
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BIONUTRICS, INC.
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
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PART I. FINANCIAL INFORMATION PAGE
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ITEM I. Condensed Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial
Statements 6
ITEM 2. Management's Discussion and Analysis 7
PART II. OTHER INFORMATION
ITEM 2(c) Changes in Securities 10
ITEM 6 Exhibits and Reports on Form 8-K 10
SIGNATURE 11
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BIONUTRICS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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<CAPTION>
JANUARY 31, OCTOBER 31,
2000 1999
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 710,193 $ 680,190
Trade receivables - net of allowance for bad debts of $49,445
and $72,086, respectively 1,395,082 1,364,823
Inventory 244,859 259,489
Prepaids & other current assets 97,816 99,942
------------ ------------
Total Current Assets 2,447,950 2,404,444
------------ ------------
PROPERTY - net of accumulated depreciation of $289,218
and $264,354, respectively 65,796 90,659
------------ ------------
OTHER ASSETS:
Patent applications and other related costs - net of accum.
amortization of $153,251 and $143,005, respectively 416,214 419,801
Investment in InCon Processing, LLC 2,183,045 2,271,127
------------ ------------
Total Other Assets 2,599,259 2,690,928
------------ ------------
TOTAL $ 5,113,005 $ 5,186,031
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 438,547 $ 533,013
Accrued liabilities 1,203,052 1,175,275
Current portion of notes payable & capital leases 831,716 331,529
------------ ------------
Total Current Liabilities 2,473,315 2,039,817
------------ ------------
NOTES PAYABLE AND CAPITAL LEASES - Net of
current portion 0 2,278
------------ ------------
Total Liabilities 2,473,315 2,042,095
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 20,816 20,809
Additional paid-in capital 32,343,357 32,216,750
Warrants 3,143,186 3,254,986
Accumulated deficit (32,866,466) (32,347,406)
Common stock in treasury, at cost (1,203) (1,203)
------------ ------------
Total Stockholders' Equity 2,639,690 3,143,936
------------ ------------
TOTAL $ 5,113,005 $ 5,186,031
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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BIONUTRICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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<CAPTION>
Three Months
Ended January 31
2000 1999
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<S> <C> <C>
REVENUES:
REVENUE FROM SERVICES $ 130,482 $ 691,719
REVENUE FROM PRODUCT SALES 57,054 443,098
------------ ------------
TOTAL GROSS REVENUES 187,536 1,134,817
DISCOUNTS AND ALLOWANCES 36,272 175,810
------------ ------------
NET REVENUES 151,264 959,007
COST OF REVENUES 17,382 887,543
------------ ------------
GROSS PROFIT 133,882 71,464
------------ ------------
OPERATING EXPENSES:
SELLING, GENERAL AND ADMINISTRATIVE 525,842 1,633,899
RESEARCH AND DEVELOPMENT 40,878 61,925
------------ ------------
TOTAL OPERATING EXPENSES 566,720 1,695,824
------------ ------------
OPERATING LOSS (432,838) (1,624,360)
------------ ------------
OTHER EXPENSES (86,222) (10,628)
------------ ------------
NET LOSS ($ 519,060) ($ 1,634,988)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 20,817,712 20,439,065
============ ============
BASIC NET LOSS PER COMMON SHARE ($ 0.02) ($ 0.08)
============ ============
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See Notes to Condensed Consolidated Financial Statements
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BIONUTRICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
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Three months
Ended January 31
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ($ 519,060) ($1,634,988)
Adjustments to reconcile net loss to cash used in operations:
Depreciation and amortization 28,450 207,934
Loss on investment in joint venture 88,082
Stock based compensation expense 14,307
Expenses satisfied with issuance of common stock 14,814
Changes in operating assets and liabilities:
Trade receivables-net (30,259) 76,269
Inventory 14,630 242,772
Prepaids and other current assets 2,126 (521,887)
Accounts payable (94,466) (294,047)
Accrued liabilities 27,777 5,349
----------- -----------
Net cash used in operating activities (467,906) (1,904,291)
----------- -----------
INVESTING ACTIVITIES-CAPITAL EXPENDITURES (70,528)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of stock & warrants 500,000
Proceeds from debt 500,000
Repayments of debt & capital leases (2,091) (3,581)
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Net cash provided by financing activities 497,909 496,419
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 30,003 (1,478,400)
CASH AND CASH EQUIVALENTS, BEG OF PERIOD 680,190 1,704,400
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 710,193 $ 226,000
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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BIONUTRICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - The accompanying unaudited Condensed Consolidated Financial
Statements of Bionutrics, Inc. ("the Company") have been
prepared in accordance with generally accepted accounting
principles for interim financial information and the
instructions to Form 10-Q. Accordingly, they do not include
all the information and footnotes required by generally
accepted accounting principles for completed financial
statements. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations
and cash flows for all periods presented have been made. The
results of operations for the three-month period ended January
31, 2000 are not necessarily indicative of the operating
results that may be expected for the entire year ending
October 31, 2000. These financial statements should be read in
conjunction with the Company's financial statements and
accompanying notes thereto as of and for the year ended
October 31, 1999. 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. The Company has
incurred operating losses of $32,866,466 through January 31,
2000 which have been funded through the issuance of stock and
debt. The losses incurred to date, the uncertainty regarding
the ability to raise additional capital and the Company's
inability to generate gross profits and positive cash flows
from operations may indicate that the Company will be unable
to continue as a going concern for a reasonable period of
time.
NOTE B - Basic net loss per share is computed by dividing the net loss
by the weighted average number of common shares outstanding
during the presented periods. Options and warrants are
excluded from the basic net loss per share calculation, as
they are anti-dilutive.
NOTE C - The Company borrowed $500,000 on a short-term basis from a
director. The loan is a demand loan and bears interest at the
rate of 9.5% annually.
NOTE D - In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133
requires that an enterprise recognize all derivatives as
either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The
statement is effective for the Company's fiscal year ending
October 31, 2001. The Company has not yet completed evaluating
the impact of implementing the provisions of SFAS No. 133.
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BIONUTRICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
THE FOLLOWING DISCUSSION OF THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF
OPERATIONS INCLUDES CERTAIN FORWARD LOOKING STATEMENTS. WHEN USED IN THIS
REPORT, THE WORDS "EXPECTS," "INTENDS," "PLANS" AND "ANTICIPATE" AND SIMILAR
TERMS ARE INTENDED TO IDENTIFY FORWARD LOOKING STATEMENTS THAT RELATE TO THE
COMPANY'S FUTURE PERFORMANCE. SUCH STATEMENTS INVOLVE RISKS AND UNCERTAINTIES.
THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED
HERE. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED
TO, THOSE DISCUSSED UNDER "BUSINESS-SPECIAL CONSIDERATIONS" IN THE COMPANY'S
FORM 10-K.
RESULT OF OPERATIONS
Three months ended January 31, 2000 compared with three months ended January 31,
1999.
Consolidated gross revenues for the quarter ended January 31, 2000 were $188,000
versus $1,135,000 for the same quarter in 1999, summarized by subsidiary as
follows:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
SUBSIDIARY JANUARY 31,
---------- ---------------------
2000 1999
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<S> <C> <C>
InCon Technologies $ 0 $ 716,000
Bionutrics Health Products 157,000 374,000
Nutrition Technology Corporation 0 45,000
LipoGenics 31,000 0
-------- ----------
Total Consolidated Gross Revenues $188,000 $1,135,000
======== ==========
</TABLE>
InCon Technologies (InCon) decrease in revenues is attributable to the new 50/50
venture entered into during the third quarter of fiscal 1999 with AC HUMKO
CORP., wherein InCon transferred substantially all of its assets to a newly
formed limited liability company, InCon Processing, LLC ("InCon Processing").
InCon Processing took over substantially all of the business currently engaged
in by InCon related to toll processing, molecular separation, and the design and
sale of molecular separation facilities. As a result of its investment in InCon
Processing, InCon will be entitled to 50% of the future
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profits or losses. However, it is anticipated that InCon Processing will retain
the cash generated from operations for at least the next 12 months to expand and
develop its business. Consequently, revenues for the 3 months ended January 31,
2000 are zero as compared to the same three months in 1999 of $716,000.
Bionutrics Health Products continues to experience a significant decline in
sales due to curtailment of advertising and support for the brand evolvE(R) as a
result of financial constraints. The Company recognizes that a substantial
advertising program is necessary to maintain significant sales of the evolvE(R)
product line, and that failure to show positive sales results will have a
negative impact on the maintenance of its accounts. In addition, some accounts
have returned the product due to low volume activity. evolvE(R) distribution is
maintained by over 25,000 stores including many leading drug and food chains
throughout the United States.
The Company is repositioning itself as a product development company and as such
is engaged in discussions with several potential marketing partners involving
evolvE(R) and future branded products including dietary supplements and
functional food products. Bionutrics Health Products has recognized revenues of
$100,000 in the first quarter of fiscal 2000 for services related to its product
development activities. New products will be based on new technology extending
beyond a tocotrienol platform.
Nutrition Technology discontinued production in its West Monroe, Louisiana
facility in late 1997. Therefore, no sales are reflected for the quarter ended
January 31, 2000. Sales for the quarter ended January 31, 1999 reflect the sale
of remaining by-products on hand from production and testing. The Company's
lease on the West Monroe, Louisiana facility terminated on February 28, 1999 and
no activity was conducted after that time. After the sale of assets to AC HUMKO
during fiscal 1998, Nutrition Technology Corporation is substantially inactive.
LipoGenics revenues for the three months ended January 31, 2000 are attributable
to a Phase I Small Business Innovation Research (SBIR) grant from the National
Heart, Blood and Lung Institute. As this is the first such grant received by
LipoGenics, there are no revenues shown for the same period in 1999.
Cost of revenues for the three months ended January 31, 2000 was $17,000 versus
$888,000 for the same three months in 1999. This reduction is primarily due to
lower sales volume, as well as the new 50/50 venture entered into with AC HUMKO,
which substantially took over all of the business engaged in by InCon.
Operating expenses for the three months ended January 31, 2000 of $567,000 were
$1,129,000 less than that recognized for the same three months in 1999 of
$1,696,000. This reduction is due to significantly reduced salaries, cost
curtailment programs, as well as the 50/50 venture entered into during the third
quarter of 1999 with AC HUMKO.
Other expenses for the three months ended January 31, 2000 were $86,000 versus
$11,000 for the same period in the prior year. This $75,000 increase is
primarily due to
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the Company's loss on its investment in InCon Processing, which is accounted for
using the equity method. The Company records its share of InCon Processing's
loss for the quarter as a reduction in its investment.
Net loss decreased to $519,000 or $.02 per share for the three months ended
January 31, 2000 versus $1,635,000, or $.08 per share for the three months ended
January 31, 1999 due primarily to lower cost of revenues and operating expenses
as outlined above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities during the three-month period ended
January 31, 2000 was $468,000 as compared to $1,904,000 during the same period
in 1999. This decrease is due primarily to lower cost of revenues and operating
expenses.
Net cash used in investing activities during the three months ended January 31,
2000 was $0 as compared to $71,000 during the same period in 1999. These
investment activities were largely related to capital expenditures in
manufacturing operations.
Net cash provided by financing activities totaled $498,000 for the three-month
period ended January 31, 2000 versus $496,000 for the same period in 1999. The
cash provided during the quarter ended January 31, 2000 was from debt issued
whereas the cash provided during the same period ended January 31, 1999 was from
the sale of common stock.
Since the Company's current cash resources and expected cash flow from
operations will not be sufficient to fund its operational needs for the next 12
months, it continues to seek additional capital through private equity and bank
lines of credit. There can be no assurance that such additional financing will
be attainable, or attainable on terms acceptable to the Company. Access by the
Company to additional capital will depend substantially upon prevailing market
conditions, and the financial condition of and prospects for the Company at the
time. Management is continuing its efforts to obtain additional funds and is
also continuing its efforts to reposition the Company as a product development
company and, as such, is engaged in discussions with several potential marketing
partners involving evolvE(R) and future branded products, including dietary
supplements and functional food ingredients.
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BIONUTRICS, INC.
PART II - OTHER INFORMATION
ITEM 2(c) Changes in Securities:
A director was issued 100,000 options to acquire
shares of the Company's common stock at $1.75 per
share, for services rendered or to be rendered in
fiscal 2000. These options become exercisable one
year from the grant date and have a term of five
years.
Agreed to issue 28,571 shares of common stock valued
at $1.75 per share representing one-half of the bonus
payable to Ronald H. Lane for fiscal 1999. Issued
7,047 shares of common stock to Ronald H. Lane
representing the balance due of the accrued bonus for
fiscal 1997.
The above issuance was made pursuant to section 4 (2)
of the Securities Act of 1933.
ITEM 6 Exhibits and Report on Form 8-K
(a) Exhibits
Exhibit 10.11 Employment Agreement between InCon
Technologies, Inc., John R. Palmer,
and the Company.
Exhibit 10.29 Promissory note for $500,000
dated December 22, 1999 between
Milton Okin and the Company.
Exhibit 27
(b) Reports on Form 8-K - None
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BIONUTRICS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Bionutrics, Inc.
(Registrant)
Dated: March 15, 2000 By:/s/Ronald H. Lane
------------------- --------------------------------
Its: Chairman of the Board,
Chief Executive Officer and
President
By:/s/Karen J. Harwell
Its: Controller and Chief
Accounting Officer
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Exhibit Index
Exhibits
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<CAPTION>
<S> <C>
Exhibit 10.11 Employment Agreement between InCon
Technologies, Inc., John R. Palmer,
and the Company.
Exhibit 10.29 Promissory note for $500,000
dated December 22, 1999 between
Milton Okin and the Company.
Exhibit 27
</TABLE>
<PAGE> 1
Exhibit 10.11
Employment Agreement
Agreement made as of the 25th day of June 1999, by and between InCon
Technologies, Inc., a Delaware corporation (the "Company"), John R. Palmer (the
"Executive"), and Bionutrics, Inc., a Nevada corporation ("Bionutrics").
Recitals:
A. The Executive is currently serving as President and CEO of the
Company under the terms and conditions of an Employment Agreement dated October
31, 1997 ("1997 Employment Agreement").
B. The Company, Bionutrics, certain of its affiliates and AC Humko
Corp. ("Humko") have entered into a Master Formation Agreement effective June
25, 1999 forming a new limited liability company (the "LLC") to be operated and
maintained by the Company and for which the Company shall work exclusively, as
provided in the Transition Services Agreement dated June 25, 1999, between the
Company and InCon Processing, L.L.C., a Delaware limited liability company
("InCon Processing"). As a result of these transactions, the Executive, Company
and Bionutrics wish to establish a new Employment Agreement to supercede in its
entirety the 1997 Employment Agreement.
C. The parties hereto desire to enter into this Agreement to establish
the terms and conditions of the continued employment relationship between the
Executive and the Company following the Closing (as defined in the Master
Formation Agreement).
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In consideration of the recitals, mutual promises and respective
covenants and agreements of the parties contained herein, the parties agree as
follows:
1. Employment
The Company and the Executive agree that this Agreement shall supercede
in its entirety the 1997 Employment Agreement. The Company hereby agrees to
continue to employ the Executive as its President and Chief Executive Officer
("CEO"), and the Executive hereby agrees to continue to serve the Company in
such capacity, upon the terms and conditions set forth in this Agreement. The
period of the Executive's employment with the Company pursuant to this Agreement
shall be referred to as the "Employment Period". The Executive's employment by
the Company shall terminate as of the last day of the Employment Period.
2. Authority and Duties
(a) Authority. The Executive shall have with the Company, and InCon
Processing at the commencement of his employment therewith, the duties and
authority as are consistent with, and customarily associated with, the office of
President and CEO for business organizations similar to the Company in scope and
purpose, and such other reasonable duties and authority, consistent with the
position of CEO, as may be determined from time to time by the Board of
Directors of the Company (the "Board").
(b) Duties. During the Employment Period, the Executive agrees to
devote his full time and all his skill, knowledge and working time (vacation
time and absence for sickness or disability excepted) to the business and
betterment of the Company including the performance of such duties as may be
assigned by the board.
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(c) Conflicts. Nothing herein shall be construed to prohibit the
Executive from serving on boards or committees of other for-profit companies and
investing his assets in such form or manner as he shall wish provided that no
such service or investment shall conflict or interfere with the duties and
responsibilities of his office with or with his loyalty to the Company provided
further that such service shall first be approved in writing by the board and
provided further that the Executive may continue to hold an equity interest in
business entities known as InCon Industries, Inc., PSW 970, L.L.C. and Shiloh
Enterprises, Inc. if he continues to have no operational duties therein apart
from service on its board of directors.
3. Compensation and Benefits
(a) Base Salary. During the Employment Period, the Company shall pay
the Executive a base salary at an annual rate (the "Base Salary") of $200,000
payable with the same frequency and on the same basis that the Company normally
makes salary payments to other executive personnel ("Payment Practices"), and
subject to all applicable deductions or reductions therein made pursuant to the
Executive's elections under the Company's compensation benefit plans or
programs. The Base Salary shall not be deemed the exclusive compensation of the
Executive, and shall not prevent the Executive from participating in any other
compensation or benefit plan of the Company for which he qualifies or is
designated to qualify by the Board. The Company shall be under no obligation to
increase the Base Salary during the first five years of the Employment Period
including, without limitation, for cost of living adjustments provided that if
the Employment Period is extended by mutual agreement the parties shall
undertake a good faith review
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of the Base Salary with any agreed upon increase to be effective upon the fifth
anniversary hereof.
(b) Plan Achievement Bonus. In addition to any other compensation to
which the Executive may be entitled hereunder, the Executive shall participate
in an annual incentive plan ("AIP") if InCon Processing achieves projected plan
earnings (that is, gross income minus all expenses attributable thereto other
than corporate overhead charges if any) before interest and income taxes
("EBIT") established from time to time thereby and determined in accordance with
GAAP for the balance of the Company fiscal year ending in August 2000 (that is,
fiscal 2000) and for each fiscal year thereafter included in the Employment
Period. The incentive compensation payable to the Executive under the AIP ("AIP
Bonus") shall be 35% of Base Salary provided that for fiscal 2000 the AP Bonus
percentage shall be increased by the fraction thereof that the number of days
between the date hereof and August 28, 1999, bears to 365 and provided further
that if the Employment Period terminates without cause on a date other than the
last day of a fiscal year, the Executive's share of the AIP Bonus if any for the
corresponding portion of the fiscal year prior to termination shall be
calculated pro rata based upon the elapsed portion of the fiscal year
immediately prior to termination. The AIP Bonus, if any, shall be paid to the
Executive within 90 days after the close of the Company's fiscal year.
(c) Special EBIT Bonus. The Company shall pay the Executive 2.2% of the
greater of (x) the excess if any of nine times EBIT in excess of $1 million (the
"Basic EBIT Formula") for the Company's fiscal year ending in 2004 and (y) the
excess if any of the average of the Basic EBIT Formula for each of the Company's
fiscal years ending in 2002-
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4, such payment to be made by December 31, 2004, provided that if the Executive
is terminated pursuant to Section 4(b) or in the event of the sale of all or
substantially all the assets of the Company to an unaffiliated third party, the
Executive shall be paid the greater of (i) the Basic EBIT Formula for the most
recent Company full fiscal year, such payment to be made upon termination, and
(ii) if the Employment Period terminates on a date other than the last day of a
fiscal year, the Basic EBIT Formula for such fiscal year, and such payment shall
be made within ninety (90) days after the close of such fiscal year.
(d) Vehicle. The Company shall provide the Executive the use of a
vehicle of his choice provided that its lease cost to the Company shall be no
more than $800 per month during the Employment Period.
(e) Vacation. The Executive shall be entitled to 20 business days of
vacation per calendar year, or a greater number of days provided to executive
staff, which shall be earned on a pro-rata basis throughout each such year. The
Executive may take vacation days in advance of their accrual upon the prior
consent of the Company. Upon the termination of the Employment Period, the
Company shall pay the Executive for accrued but unused vacation days at the rate
of the Base Salary then in effect computed on a per diem basis. The Executive
shall also be entitled to all paid holidays given by the Company generally to
its employees. The Executive has ten remaining unused vacation days from 1998
and may carry from one calendar year to the next a maximum of 15 unused vacation
days provided that vacation time per calendar year shall not exceed 25 days.
(f) Expenses. During the Employment Period, the Executive shall be
entitled to receive reimbursement for all reasonable expenses incurred by the
Executive in performing
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services hereunder, including expenses of travel (other than operating expenses
of the Executive's vehicle) and living expenses while away from home on business
or at the request of and in the service of the Company provided that such
expenses are properly accounted for by the Executive to the Company.
(g) Other Benefits. The Executive and his family shall be entitled to
participate in each of the Company's employee benefit plans and arrangements,
including medical insurance and disability and such additional benefit plans and
arrangements as are provided to executives of Bionutrics at the Executive's
level prior to the assignment hereof to InCon Processing and thereafter the
health and welfare benefits provided by AC HUMKO CORP. and shall be entitled to
continued term life insurance coverage during the Employment Period of the
lesser of present coverage and $500,000 and, if Company executive staff becomes
entitled to coverage in excess of $500,000, such greater coverage. For the
foregoing purposes the Executive's service commencement date shall be January 1,
1990.
(h) Stock Options. Executive and Bionutrics have an executed Stock
Option Agreement in place (attached as Exhibit A to the 1997 Employment
Agreement and incorporated by reference herein), whereby Executive is provided
the option to acquire up to 100,000 shares of the common stock of Bionutrics
according to certain terms and conditions. The Stock Option Agreement shall
continue in full force and effect, without disturbance, and Bionutrics shall
continue to consider the Executive an employee of a Bionutrics company for the
purposes of qualifying for the Stock Option Plan during the Employment Period.
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4. Termination Events
(a) The Employment Period, if not terminated earlier under Sections
4(a)(i)-(iii), 4(b) or 4(c) hereunder, shall terminate effective the end of the
Company's fiscal year ending in 2004. The Employment Period may be terminated by
the Company (x) as of the respective dates set forth in Sections 4(a)(i)(ii), in
which case the Company shall pay the Executive within thirty 30 days of the date
of such termination, in full satisfaction of all obligations by the Company to
the Executive under this Agreement, an amount equal to all Base Salary earned
through the last day of the Employment Period plus any reimbursement of expenses
to which the Executive is entitled pursuant to Section 3(f) plus the Executive's
share of the AIP Bonus, if any, earned through the last day of the Employment
Period plus the per diem amount of the Base Salary attributable to accrued but
unused vacation days and (y) as of the date set forth in Section 4(a)(iii), in
which case the Company shall pay the Executive all such amounts except such AIP
bonus.
(i) By the Death of the Executive. The date of death of the
Executive shall be the date of termination of the Employment Period.
(ii) By the Disability of the Executive. The Company may
terminate the Employment Period on the date it is determined that the Executive
suffers from a physical or mental disability that renders him unable to continue
performing his duties under this Agreement. The Executive shall be deemed to be
so disabled if either (i) a physician selected according to the mutual
recommendation of a physician nominated by the Company and the Executive's
personal physician advises the Company that the Executive's physical or mental
condition will render the Executive unable to perform his
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duties on a substantially full-time basis for a period exceeding four
consecutive months, or (ii) due to a physical or mental condition, the Executive
has not substantially performed his duties hereunder on a substantially
full-time basis for a period of four consecutive months or, in each case, for
six months in any 12-month period.
(iii) By the Company for Cause. The Company may terminate the
Employment Period at any time for "cause", which shall mean (i) a material
default or breach by the Executive of his obligations under Section 5 or 6 of
this Agreement, or (ii) an act or acts of dishonesty demonstrating lack of
integrity or moral turpitude, (iii) willful and persistent inattention to the
services and duties required of the Executive under this Agreement including
failure to comply with all applicable laws and regulations applicable to the
Company after notice and Executive's failure to cure within 30 days or (iv)
conviction of any felonious criminal act. Upon the happening of one of the
above-mentioned events, the Company may give the Executive a notice of
termination specifying the reason(s) for the termination. The date on which such
notice is provided to the Executive shall be the date of termination of the
Employment Period.
(b) By the Company Without Cause The Company may at any time terminate
the Employment Period upon written notice to the Executive (the "Termination
Notice") without cause. In the event of termination of the Employment Period
without cause pursuant to this Section 4(b), or the Company's failure to extend
the Employment Period at any time, the Company shall pay the Executive in
addition to any accrued AIP Bonus (i) all unreimbursed expenses payable as
provided in accordance with Section 3(f), (ii) all Base Salary earned through
the last day of the Employment Period, (iii) monthly severance pay for 24 months
-8-
<PAGE> 9
(each month's payment equal to 1/12th of the Base Salary) and (iv) payment in
respect of the Basis EBIT Formula pursuant to Section 3(c) provided that the
obligation of the Company pursuant to clause iii shall terminate upon the end of
the Company's fiscal year ending in 2004 except that, notwithstanding the
assignment of this Agreement to InCon Processing, InCon Technologies Inc. and
not InCon Processing shall remain liable for such obligation resulting from the
Company's failure to extend the Employment Period and such obligation shall
survive such assignment, and InCon Technologies Inc. shall make such payments to
the extent greater than the severance or termination or like payments if any
made by InCon Processing in respect of a termination without cause after such
fiscal year. Bionutrics, Inc. guaranties to the Executive the performance of
such obligation of InCon Technologies, Inc. with respect to clause (iii) of this
Section 4(b).
(c) By the Executive. The Executive may terminate the Employment Period
upon 180 days' written notice, in which case the Executive shall receive the
compensation and benefits set forth in Sections 3(a), (b), (c), (d), (e), (f)
and (g) hereunder to which the Executive is entitled through the date of
termination provided that if such notice is given to be effective on or after
the fifth anniversary hereof the Executive shall be compensated as if his
termination were by the Company without cause pursuant to section 4(b), in which
case, notwithstanding the assignment of this Agreement to InCon Processing,
InCon Technologies Inc., and not InCon Processing, shall remain liable for the
obligation set forth in clause (iii) of Section 4(b) and such obligation shall
survive such assignment. Bionutrics, Inc. guaranties to the Executive the
performance of such obligation of InCon Technologies, Inc. with respect to
clause (iii) of Section 4(b).
-9-
<PAGE> 10
(d) Termination Within First 24 Months. Notwithstanding any other
provision of this Agreement, if the Executive voluntarily terminates the
Employment Period under Section 4(c) without providing at least 180 days'
written notice to the Company, the Executive shall not be entitled to receive
any accrued AIP Bonus or special EBIT Bonus.
5. Covenant Not to Compete
(a) Interests to be Protected. The parties acknowledge that during the
term of the Executive's employment with the Company, the Executive will perform
essential services for the Company. The Executive will be exposed to, have
access to, and be required to work with, a considerable amount of the Company's
Confidential Information (as defined in Section 6(a)). The parties recognize
that should the Executive compete with the Company in any manner whatsoever (as
defined in Section 5(b) below), it could seriously impair the good will and
diminish the value of the Company's business. The parties acknowledge that this
covenant has an extended duration; however, they agree that this covenant is
reasonable and it is necessary for the protection of the Company, its
stockholders and employees. For these and other reasons the Executive stipulates
that the following restrictive covenants are fair and reasonable and are freely,
voluntarily and knowingly entered into and that he consulted with independent
legal counsel before entering into this Agreement.
(b) Non-Competition. During the Employment Period and for the period
ending 24 months after termination of the Employment Period, in the case of
clause (i) and 36 months after such termination in the case of clause (ii), the
Executive shall not (whether directly or indirectly, as owner, principal, agent,
director, officer, manager, employee, partner or in any
-10-
<PAGE> 11
other capacity) (i) compete in any manner with the Company in North America,
Indonesia or Malaysia in any line of business in which it is engaged as of the
termination of the Employment Period or if pursuant to any plan adopted by the
Company during the Employment Period or during the 24-month period following
such termination or in any line of business the Executive is so notified by the
Company during the Employment Period that the Company intends to pursue during
such 24-month period or (ii) solicit business from any person or entity who
during the preceding 36 months was a customer of the Company provided that the
foregoing shall not apply to the Executive's current work with InCon Industries,
Inc., or if the Company is in default of its obligations pursuant to Section
3(b) to pay an AIP Bonus or in default of its obligations to make payments to
the Executive pursuant to Section 4(a), (b) or (c).
(c) Equitable Relief. In the event a violation of any of the
restrictions contained in this Section 5 is established, the Company shall be
entitled to preliminary and permanent injunctive relief as well as damages and
an equitable accounting of all earnings, profits and other benefits arising from
such violation, which right shall be cumulative and in addition to any other
rights or remedies to which the Company may be entitled. In the event of a
violation of any provision of Section 5(b) of this Agreement, the period for
which those provisions would remain in effect shall be extended for a period of
time equal to that period beginning when such violation commenced and ending
when the activities constituting such violation are finally terminated in good
faith.
(d) Restrictions Separable. If the scope of any provision of this
Section is found by a court to be too broad to permit enforcement to its full
extent, such provision shall be
-11-
<PAGE> 12
enforced to the maximum extent permitted by law. The parties agree that the
scope of any provision of this Section 5 may be modified by a judge in any
proceeding to enforce this Agreement, so that such provision can be enforced to
the maximum extent permitted by law. Each and every restriction set forth in
this Section is independent and separable from the others, and no such
restriction shall be rendered unenforceable by virtue of the fact that, for any
reason, any other or others of them may be unenforceable in whole or in part.
6. Confidentiality and Inventions
(a) Confidentiality. The Executive recognizes that the Company is
engaged in a highly competitive business, the success of which is in large part
dependent upon maintaining the integrity of the Company's confidential and
proprietary information. The Executive agrees to maintain in strict secrecy and
confidence all confidential, proprietary and other information relating to the
business of the Company (collectively, "Confidential Information"). If
disclosure of certain Confidential Information is deemed necessary in
furtherance of a reasonable business objective of the Company, the Executive
agrees to disclose such Confidential Information on a limited, need-to-know
basis and only to recipients bound to maintain the confidentiality of such
information according to industry standards for a period of no less than five
years from the date of disclosure. For purposes of this Agreement, Confidential
Information will include, without limitation, all trade secrets, proprietary
knowledge and information with respect to processes, methods of use, product
composition, formulas, techniques, procedures or know-how unique or proprietary
to the Company, or to which Company has been given access in confidence by a
third party pursuant to any agreement with such third party, including any
business methods or forms,
-12-
<PAGE> 13
the names of any of the Company's customers or vendors, the prices the Company
obtains or has obtained or at which the Company sells or has sold products or
services, or at which the Company has bought materials, components, services or
other supplies, or any other information of, about or concerning the business of
Company, and its business strategies, product strategies, market strategies,
relations with employees (including salaries, job classifications and skill
levels), the Company's manner of operation, Company's inventions, Company's
plans or any other data of any kind, nature or description. Information shall
not be deemed to be Confidential Information of the Company to the extent that:
(i) it is in the public domain or becomes publicly known through no wrongful act
on the part of the Executive; (ii) is known or becomes known to the Executive
through disclosure by a source other than the Company having the right to
disclose such information without restriction on disclosure; or (iii) its
disclosure is required by law. The obligation to maintain confidentiality of
Confidential Information shall survive termination of the Employment Period, for
any reason, for a period of five years from the date of such termination.
(b) Return of Materials. Upon the termination of the Employment Period,
for any reason, the Executive will deliver promptly to the Company, all manuals,
memoranda, specifications, log books, research and business records, prototypes,
samples, financial data, client information, and all other written or printed
materials that are the property of the Company, or with which the Company has
been entrusted in confidence by a third party pursuant to any agreement with
that third party (and any copies of same), and all other materials that may
contain confidential information relating to the business of the Company that
the Executive may have in his possession or control, whether or not
-13-
<PAGE> 14
prepared by or for the Executive. Upon termination of the Employment Period, for
any reason, the Executive will promptly deliver to the Company all keys,
supplies, documents and equipment belonging to the Company that the Executive
may have in his possession or control.
(c) Notification and Disclosure of Inventions. The Executive will
promptly and fully disclose to the Company in writing, whether or not requested
by the Company, any and all ideas, discoveries, inventions, works of authorship,
trademarks, formulas, compositions of matter, processes, methods of use, product
compositions and other developments, improvements, proprietary information
and/or know-how (collectively, the "Inventions"), whether or not the Executive
believes them to be patentable or is otherwise protectable, that relate to any
business in which the Company has been, is currently or is hereafter engaged,
that the Executive conceives or actually reduces to a plan, practice or device,
either individually or jointly with others, during the Employment Period, or
within the period twelve (12) months after the termination thereof. The
Executive will keep or cause to be kept current, accurate and complete records
of all Inventions, which records will belong to the Company.
(d) Ownership of Inventions. The Inventions and all worldwide patents,
patent applications, copyrights, trademarks, trade secrets and other
intellectual property rights (including the right to sue for all past, present
and future infringements or misappropriations, including for damages) in and to
the Inventions will be the sole and exclusive property of the Company and are
hereby irrevocably transferred and assigned by the Executive to the Company.
-14-
<PAGE> 15
(e) Assistance. The Executive agrees to assist the Company in every
reasonable way to obtain for the Company and maintain or enforce patents,
trademarks, copyrights, trade secrets, and any other legal protections for the
Inventions in any and all countries throughout the world. The Executive will
sign any documents that the Company may reasonably request for use in obtaining,
maintaining or enforcing such patents, copyrights, trademarks, trade secrets and
other legal protections. The Executive's obligations under this paragraph will
continue beyond the termination of the Employment Period, provided that the
Company will compensate the Executive at a reasonable rate after such
termination for time or expenses actually spent by the Executive at the
Company's request on such assistance.
7. Arbitration
Any disputes or controversies arising under this Agreement shall be
resolved through an arbitration proceeding that shall be held in Chicago,
Illinois, in accordance with the rules of the American Arbitration Association
by an arbitrator selected by mutual agreement of the parties from a panel
submitted by such Association. The decision rendered by such arbitrator shall be
final and binding, and judgment on such decision may be entered by either party
in the highest court, state or federal, having jurisdiction. The parties
stipulate that the arbitration provisions hereof shall be a complete defense to
any suit, action or proceeding instituted in any federal, state or local court
before any administrative tribunal with respect to the subject matter
arbitrated. The cost and expense of arbitration shall be paid by the party to
whom the decision is adverse as determined by the arbitrator.
-15-
<PAGE> 16
8. No Conflicts
The Executive represents, warrants and covenants that he is not a party
to or bound by any consulting, non-competition, non-solicitation or
confidentiality agreement or the like that would in any manner conflict or
interfere with the Executive's ability to fulfill his duties under this
Agreement.
9. Successors and Assigns; Assignment to InCon Processing
(a) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees provided that the Executive may not assign his obligations
under this Agreement without the prior written consent of the Company.
(b) This Agreement may be assigned to InCon Processing pursuant to the
aforementioned Transition Services Agreement or this Agreement may be terminated
and a new agreement in substantially the form hereof, with the same salary,
benefits, duties and obligations, executed between InCon Processing and the
Executive pursuant to the terms of such Transition Services Agreement. Upon such
assignment the rights of the Company shall become the rights of InCon Processing
and except as stated in section 4(b) the obligations of the Company shall become
the obligations of InCon Processing in which event the Executive stipulates
that, upon such assignment, the obligations of the Executive pursuant to
Sections 5 and 6 shall be construed as if the Company and InCon Processing were
parties thereto and all references therein to the Company were to both the
Company and InCon Processing.
-16-
<PAGE> 17
10. Notices
For the purposes of this Agreement, notices, demands and all other
communications provided for in the Agreement shall be in writing and shall be
deemed sufficient if sent by certified mail, return receipt requested, to the
Executive's residence in the case of the Executive or to the Bionutrics
principal office in the case of the Company or Bionutrics, with copies to CEO,
AC Humko Corp. 7171 Goodlett Farm Parkway, Memphis, Tennessee 38018-4909, and
Brian Sokolik, Vinson & Elkins, 2300 First City Tower, 1001 Fannin, Houston, TX
77002-6760.
11. Miscellaneous
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and approved by the board. No waiver by either party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party that are not set forth
expressly in this Agreement.
12. Governing Law
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Illinois.
13. Validity
-17-
<PAGE> 18
The invalidity or unenforceability of any provision or provisions of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
14. Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all together shall constitute one
and the same instrument.
15. Condition Precedent
This Agreement shall not be effective until the closing under the
Master Formation Agreement among AC Humko, the Company and certain other parties
for the formation of InCon Processing and the effectiveness of the transactions
contemplated therein.
-18-
<PAGE> 19
In Witness Whereof, the parties have executed this Agreement as of the
date first written above.
INCON TECHNOLOGIES INC.
By: /s/ Stephen E. Bradshaw
-----------------------------------
Name: Stephen E. Bradshaw
Title: President
EXECUTIVE
/s/ John R. Palmer
----------------------------------------
John R. Palmer
BIONUTRICS, INC.
By: /s/ Ronald H. Lane
-----------------------------------
Name: Ronald H. Lane
Title: President
-19-
<PAGE> 1
Exhibit 10.29
PROMISSORY NOTE
U.S. $500,000.00 December 22, 1999
FOR VALUE RECEIVED, BIONUTRICS, INC., a Nevada corporation
("Borrower"), hereby promises to pay to the order of MILTON OKIN ("Lender"), at
the office of Lender located at _______________________________________________,
the principal amount of $500,000.00, together with interest on the principal
balance outstanding hereunder, from (and including) the date of disbursement
until (but not including) the date of payment, at a per annum rate equal to the
Stated Interest Rate specified below or, to the extent applicable, the Default
Interest Rate specified below, in accordance with the following terms and
conditions:
1. CONTRACTED FOR RATE OF INTEREST. The contracted for rate of interest
of the indebtedness evidenced hereby, without limitation, shall consist of the
following:
(a) The Stated Interest Rate (as hereinafter defined), as from
time to time in effect, calculated daily on the basis of actual days elapsed
over a 365-day year, applied to the principal balance from time to time
outstanding hereunder; and
(b) The Default Interest Rate (as hereinafter defined), as
from time to time in effect, calculated daily on the basis of actual days
elapsed over a 365-day year, applied to the principal balance from time to time
outstanding hereunder.
Borrower agrees to pay an effective contracted for rate of interest which is the
sum of the Stated Interest Rate referred to in Subsection 1(a) above, plus any
additional rate of interest resulting from the application of the Default
Interest Rate referred to in Subsection 1(b) above.
2. STATED INTEREST RATE. Except as provided in Section 3 below, the
principal balance outstanding hereunder from time to time shall bear interest at
the Stated Interest Rate. The Stated Interest Rate shall be equal to 9.5% per
annum.
3. DEFAULT INTEREST RATE. The Default Interest Rate shall be a per
annum rate equal to 15%. The principal balance outstanding hereunder from time
to time shall bear interest at the Default Interest Rate from the date of the
occurrence of an Event of Default (as hereinafter defined) hereunder until the
earlier of: (a) the date on which the principal balance outstanding hereunder,
together with all accrued interest and other amounts payable hereunder, are paid
in full; or (b) the date on which such Event of Default is timely cured in a
manner satisfactory to Lender.
4. PAYMENTS. The principal balance outstanding hereunder, together with
all accrued and unpaid interest and other amounts payable hereunder, if not
sooner paid as provided herein, shall be due and payable one hundred twenty
(120) days from the date hereof.
<PAGE> 2
5. PREPAYMENTS. Payments of principal hereof may be made at any time,
or from time to time, in whole or in part, without penalty. Borrower shall
provide Lender with written notice five (5) days prior to any such prepayment.
Within such five (5) day period, Lender shall have the right to exercise its
Conversion Rights (defined below) with respect to such prepayment amount or the
entire outstanding amounts due herein in accordance with Section 6 below.
6. CONVERSION RIGHTS. Subject to Section 5 above, Lender shall have the
right at any time to convert (the "Conversion Rights") any and all outstanding
amounts hereunder into common stock of Borrower at the conversion rate of $2.00
per share. Lender shall exercise its Conversion Rights by delivering to Borrower
written notice (the "Conversion Notice") of its intention to exercise such
rights. Such conversion shall be effective five (5) days after receipt of the
Conversion Notice by Borrower. Any amounts due under this Note converted to
common stock of Borrower pursuant to the Conversion Rights shall be deemed paid
and satisfied.
7. EVENTS OF DEFAULT; ACCELERATION. The occurrence of any one or more
of the following events shall constitute an "Event of Default" hereunder, and
upon such Event of Default, the entire principal balance outstanding hereunder,
together with all accrued interest and other amounts payable hereunder, at the
election of Lender, shall become immediately due and payable: (a) nonpayment of
principal, interest or other amounts when the same shall become due and payable
hereunder, and (b) the failure of Borrower to comply with any provision of this
Note.
8. WAIVERS. Except as set forth in this Note, to the extent permitted
by applicable law, Borrower, and each person who is or may become liable
hereunder, severally waive and agree not to assert: (a) any exemption rights;
(b) demand, diligence, grace, presentment for payment, protest, notice of
nonpayment, nonperformance, extension, dishonor, maturity, protest and default;
and (c) recourse to guaranty or suretyship defenses (including, without
limitation, the right to require the Lender to bring an action on this Note).
9. COSTS OF COLLECTION. If this Note shall be placed in the hands of an
attorney for collection, by suit or otherwise, then Borrower's obligations
hereunder shall include the payment of all collection costs and expenses
incurred by Lender in connection therewith, including, without limitation,
reasonable attorneys' fees and costs.
10. GOVERNING LAW. This Note shall be construed in accordance with and
governed by the laws of the State of Arizona, without regard to the choice of
law rules of the State of Arizona.
11. BINDING NATURE. The provisions of this Note shall be binding upon
Borrower and its successors and assigns, and shall inure to the benefit of
Lender and its successors and assigns.
12. NOTICE. Any notice or other communication with respect to this Note
shall: (a) be in writing; (b) be effective on the day of hand-delivery thereof
to the party to whom directed, one day following the day of deposit thereof with
delivery charges prepaid, with a national overnight delivery service, or two
days following the day of deposit thereof with postage prepaid, with the United
States Postal Service, by regular first class, certified or registered mail; (c)
if directed to Lender, be addressed to Lender at the office of Lender set forth
above, or to such other address
2
<PAGE> 3
as Lender shall have specified to Borrower by like notice; and (d) if directed
to Borrower, be addressed to Borrower at the address for Borrower set forth
below Borrower's name, or to such other address as Borrower shall have specified
by like notice.
13. SECTION HEADINGS. The section headings set forth in this Note are
for convenience only and shall not have substantive meaning hereunder or be
deemed part of this Note.
14. CONSTRUCTION. This Note shall be construed as a whole, in
accordance with its fair meaning, and without regard to or taking into account
any presumption or other rule of law requiring construction against the party
preparing this Note.
IN WITNESS WHEREOF, Borrower has executed this Note as of the date
first set forth above.
"BORROWER"
BIONUTRICS, INC., a Nevada corporation
By: /s/ Ronald H. Lane
-------------------------------------
Name: Ronald H. Lane
-----------------------------------
Title: President
----------------------------------
ADDRESS OF BORROWER:
2425 E. Camelback Road
Suite #650
Phoenix, Arizona 85016
3
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