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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 0-29049
RHOMBIC CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 86-0824125
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1212 Howe Street, Suite 901,
Vancouver, British Columbia V6Z 2M9
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(Address of principal executive offices (zip code))
(604) 683-4864
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the last 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at March 31, 2000
- ------------------------------ -----------------------------
Common Stock, par value $0.001 34,286,100
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<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RHOMBIC CORPORATION
CONSOLIDATED BALANCE SHEET
(A Development Stage Company)
March 31, 2000
(Unaudited)
================================================================================
ASSETS
CURRENT ASSETS:
Cash $ 437,417
Receivables 3,219
Prepaid expenses 61,001
-----------
Total Current Assets 501,637
-----------
OTHER ASSETS:
Investments 217,756
Licensing Agreements and Technologies 1,811,100
Patents 54,771
-----------
Total assets $ 2,585,264
===========
LIABILITIES
CURRENT
Accounts Payable $ 44,334
Due to related party 7,313
-----------
51,647
STOCKHOLDERS' EQUITY - NOTE 9
Preferred stock, $.001 par value,
1,000,000 shares authorized, none issued
Common stock, $.001 par value, 70,000,000
shares authorized, 34,286,100 issued and
outstanding 34,086
Additional paid-in capital 5,183,330
(Deficit) accumulated during the development stage (2,683,799)
-----------
Total stockholders' equity 2,533,617
-----------
Total liabilities and stockholders' equity $ 2,585,264
===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
RHOMBIC CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
March 31, 2000
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
Cummulative from
November 21, 1994
For the 3 months ended (Inception) to
March 31, 2000 March 31, 1999 March 31, 2000
-----------------------------------------------------
<S> <C> <C> <C>
Royalty income $ - $ - $ 5,729
Interest income 1,207 - 2,392
------------------------------------------------
1,207 - 8,121
EXPENSES
Research and development expense 135,450 38,632 326,413
Legal & accounting 162,305 24,146 480,172
Transfer Agent Expenses 3,210 3,500 25,865
Consulting, related party 22,500 22,500 329,500
Consulting 14,721 4,134 962,619
Other general & administrative 267,965 5,108 567,351
------------------------------------------------
Total Expenses 606,151 98,020 2,691,920
NET (LOSS) $ (604,944) $ (98,020) $ (2,683,799)
================================================
NET LOSS PER SHARE:
Basic $ (0.02) $ *
==============================
Diluted $ (0.02) $ *
==============================
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 34,071,265 27,372,711
==============================
Diluted 34,071,265 27,372,711
==============================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
- ----------
* Less than $.01 per share.
<PAGE>
RHOMBIC CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
March 31, 2000
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
(Deficit)
Accumulated
Common Stock Additional During
--------------------------- Paid-In Development
Shares Amount Capital Stage Total
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 33,741,100 $ 33,741 $ 4,580,750 $(2,078,855) $ 2,535,636
Acquisition of technology 100,000 100 281,150 281,250
Shares issued to acquire Emerald Investments 200,000 0 0 0
Shares issued for services 75,000 75 214,350 214,425
Exercise of stock options 170,000 170 107,080 107,250
Net loss for the quarter ended March 31, 2000 (604,944) (604,944)
-----------------------------------------------------------------------------
Balance at March 31, 2000 34,286,100 34,086 5,183,330 (2,683,799) 2,533,617
=============================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
RHOMBIC CORPORATION
(A Devlopment Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOW
March 31, 2000
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
Cummulative from
for the three months ended November 21, 1994
March 31, (Inception) to
2000 1999 March 31, 2000
---- ---- -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income for the period $ (604,944) $ (98,020) $(2,683,799)
Adjustments to reconcile net
cash used by operations:
Common stock issued for services 214,425 - 814,756
Fair value of options granted - - 436,980
(Increase) decrease in accounts receivable 11,883 (78) (3,219)
(Increase) decrease in prepaid expenses 138,999 - (61,001)
Increase (decrease) in accounts payable 1,935 28,617 44,334
Increase (decrease) in due to related parties 11,107 51,270 7,313
---------------------------------------------
Net Cash (Used) by Operating Activities (226,595) (18,211) (1,444,636)
FINANCING ACTIVITIES
Proceeds from private placements - 629,800 1,347,830
Proceeds from private placements held in trust - (603,124) -
Proceeds from exercise of stock options 107,250 - 806,750
---------------------------------------------
Cash provided from financing activities 107,250 26,676 2,154,580
---------------------------------------------
INVESTING ACTIVITIES
Cost of patents (791) (9,000) (54,771)
Investment in Rockford Technologies - - (207,756)
Investment in marketable securities - - (10,000)
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Cash used in investment activities (791) (9,000) (272,527)
---------------------------------------------
Increase in cash (120,136) (535) 437,417
Cash at beginning of period 557,553 4,660 -
---------------------------------------------
Cash at end of period $ 437,417 $ 4,125 $ 437,417
=============================================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Issuance of common stock for licensing agreements $ 281,250 $ 1,200 $ 1,811,100
and technologies =============================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
RHOMBIC CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
The unaudited financial statements included herein were prepared from
the records of the Company in accordance with Generally Accepted Accounting
Principles. These financial statements reflect all adjustments which are, in the
opinion of management, necessary to provide a fair statement of the results of
operations and financial position for the interim periods. Such financial
statements generally conform to the presentation reflected in the Company's
Forms 10-KSB and 10-KSB/A filed with the Securities and Exchange Commission for
the year ended December 31, 1999. The current interim period reported herein
should be read in conjunction with the Company's Forms 10-KSB and 10-KSB/A
subject to independent audit at the end of the year.
The results of operations for the three months ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
Acquisition of Emerald Acquisition Corporation
Pursuant to an Agreement and Plan of Reorganization (the "Acquisition
Agreement") Rhombic Corporation (the "Company") acquired all the outstanding
shares of common stock of Emerald Acquisition Corporation ("Emerald"), a
Delaware corporation, from the shareholder thereof in an exchange for an
aggregate of 200,000 restricted shares of common stock of the Company (the
"Acquisition"). As a result, Emerald became a wholly-owned subsidiary of the
Company. The Acquisition was effective on January 20, 2000. Upon effectiveness
of the Acquisition, pursuant to Rule 12g-3(a) of the General Rules and
Regulations of the Securities and Exchange Commission, Rhombic became the
successor issuer to Emerald for reporting purposes under the Securities Exchange
Act of 1934.
Acquisition of Intellectual Property and Technologies
On January 3, 2000, the Company issued 100,000 shares of its common
stock at a deemed value of $281,250 and an option to purchase 50,000 shares of
the Company's common stock at $1.00 per share exercisable until December 31,
2000 for the acquisition of the rights, title and interest to the invention
called the "Micro Wave Driven Ultra Violet Lamp" or "Excimer Lamp." The inventor
and seller of this device, Rosemary Roberts, agreed to provide technical support
for the research and development of the Excimer Lamp when such development takes
place.
Stockholders' Equity
On February 2, 2000, the Company issued 75,000 restricted shares of
common stock to Lawrence Adams Ltd. in consideration and reimbursement of
expenses for investor relations services in the United States. The deemed value
of the shares issued was $214,425 which was determined based upon the trading
value of the Company's common stock at the time of the issuance of the stock and
the agreement.
Stock Options
Rhombic's Board of Directors approved a stock option plan for the year
2000 to authorize the issuance of options for the purchase of 2,500,000 shares
of common stock. During the first quarter of 2000, the Company issued options
exercisable to purchase 1,350,000 shares of the Company's common stock under the
year 2000 plan at an average exercise price of $2.59 per share.
There are granted and unexercised options for the purchase of 250,000
shares of the Company's common stock under the 1999 stock option plan at an
average exercise price of $.80 per share.
There is a total of granted and unexercised outstanding options under
the 1999 and 2000 plans for the purchase of 1,600,000 shares of the Company's
common stock at an average exercise price of $2.31 per share.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is intended to provide an analysis of the
Company's financial condition and Plan of Operation and should be read in
conjunction with the Company's financial statements and the notes thereto. The
matters discussed in this section that are not historical or current facts deal
with potential future circumstances and developments. Such forward-looking
statements include, but are not limited to, the development plans for the
technologies of the Company, trends in the results of the Company's development,
anticipated development plans, operating expenses and the Company's anticipated
capital requirements and capital resources. The Company's actual results could
differ materially from the results discussed in the forward-looking statements.
The Company has not generated revenue from operations during the first
three months of 2000 or since its inception. The Company anticipates generating
revenues from sales of developed applications of its technologies. This includes
a prototype that is being developed by Daimler Benz Aerospace ("Daimler") which
uses the Inertial Electrostatic Confinement Point Source application of the
Inertial Electrostatic Confinement technology. The Company and Daimler
anticipate that the product will have the ability to determine the mineral
content of substances and will be used for mineral online analysis. Daimler is
currently conducting a 1,000 hour life cycle test on the Inertial Electrostatic
Confinement Point Source Neutron Generator to determine operating consistency.
The life cycle test is anticipated to conclude during May 2000. Daimler has
commenced a worldwide marketing effort and product sales are anticipated this
year. The Company expects to receive a 3.2% royalty on all sales of the Inertial
Electrostatic Confinement Point Source applications.
The Company is also pursuing the commercialization of the following
four applications of its Diamond Film Forced Diffusion technology:
1. A Silicon-Carbide purification technology for the high-tech
manufacturing industry,
2. An integrated Diamond Circuit for the computer and electronics
industry,
3. A Heavy Doped Diamond Fuel-Cell Electrode for the fuel cell
industry,
4. Quality colored diamonds for the high-end jewelry accessory market.
During April 2000, the Company finished programming the Magnesite
Retriever (the "Magnesite"). The Magnesite is a software designed to economize
on Internet search and data download costs. It creates site directories and
translates hypertext references, making the information fully useable offline.
The development of the Magnesite is interrelated with the Company's efforts to
develop and launch the Rhombic Explorer, a personal Internet search engine.
Currently, the Company is arranging to test the Magnesite through an Internet
provider during May 2000.
In an effort to generate revenue, the Company engaged Durham Technology
Corporation ("Durham") during November 1998 to provide consulting services
necessary to assist the Company in generating income by marketing applications
of the Company's technologies or by presenting developed applications of
technologies for acquisition to the Company needing the development work to
establish a prototype for marketing. Since November 1998, Durham has not found
any suitable technologies for marketing and is still searching on behalf of the
Company. The agreement between Durham and the Company can be cancelled by either
party with a 30-day written notice.
Management of the Company is in the process of estimating a development
budget and commercial feasibility study for specific applications of its
technologies. Once such development budget is determined, the Company
anticipates raising the necessary capital for the development through a
registered public offering.
During January 2000, the Company issued 100,000 shares of its common
stock at a deemed value of $281,250 and an option to purchase 50,000 shares of
the Company's common stock at $1.00 per share exercisable until December 31,
2000 for the acquisition of the rights, title and interest to the invention
called the "Micro Wave Driven Ultra Violet Lamp" or "Excimer Lamp." The Company
agreed to pay all additional research, development and technology protection
expenses. A potential application of this invention may include enhancing the
growth rate of plants in commercial greenhouse settings from the light spectrum
produced by the lamp.
During the first quarter of 1999, the Company applied approximately
$38,600 toward development of three main technologies, including the Diamond
Film Forced Diffusion technology, Nuclide Battery and the Rhombic Explorer. The
<PAGE>
Company spent an additional sum of $150,000 on research and development of
applications of these technologies during the remaining nine months of 1999. The
result of the expenditures enabled the Company to define work programs necessary
to develop commercial applications of the Diamond Film Forced Diffusion
technology, to bring the Rhombic Explorer software development to significant
completion, and to determine that a professional consulting firm was needed to
determine a development plan for the Nuclide battery technologies of the
Company.
During the first quarter of 2000, the Company spent approximately
$135,000 on research and development as follows:
(i) Diamond Film Forced Diffusion technology. Approximately $85,000 was
spent to build three second generation forced diffusion reactors. One reactor
will be used for the n-type diamond material, one reactor for p-type materials
and the third reactor for purification of crystals. The Company also began
designing design a third generation reactor capable of handling larger silicon
wafers with a higher impurity transport rate. Also, a high voltage Silicon
Carbide purification reactor was built. This reactor will enhance the impurities
removal rate from Silicon Carbide materials.
(ii) Magnesite Retriever. The Company incurred approximately $10,400 in
programming costs in order to bring the Magnesite Retriever to test in the
end-user market. The program was completed during April 2000 and will be tested
on the Internet through Imaginet Communications, which is an Internet provider
based in Vancouver, British Columbia, Canada.
(iii) Battery Technology. The Company agreed to pay International
Computer and Communication Corporation ("IC&C") $80,000, of which it paid
$40,000, to prepare a business and development plan that would include
identifying the markets for the various battery technologies of the Company with
a recommendation for the development of specific battery configurations,
preparing a development budget to build a prototype model battery for the
marketplace including costs of labor, materials and estimated time of
development, and suggesting a marketing plan to attract prospective buyers and
reflect their technical requirements for the developed battery.
The Company incurred $162,300 in legal and accounting costs in the
first quarter of 2000 in conjunction with becoming a fully reporting Company
under the Securities Exchange Act of 1934, as amended. This enabled the
Company's stock to continue to trade without interruption on the NASDAQ OTC
Bulletin Board.
The estimated annual expenditures for general and administrative
expenses of the Company during the year 2000 is anticipated to be approximately
$200,000, including the services of Owen & Associates.
During the first three months of 2000, operating cash expenditures
consisted primarily of general and administrative expenses and were
approximately $76,000 compared with operating cash expenditures of approximately
$28,000 for the first three months of 1999. In addition to the first quarter
figure of 2000, 75,000 shares of the Company's common stock were issued to
Lawrence Adams Ltd. for investor relations services at a deemed value of
$214,425. The operating cash expenditures were higher in the first quarter 2000
due to the coordination activities in the development of the technologies and
responding to shareholder inquiries.
At March 31, 2000, the Company had $437,417 in cash, as compared to
$557,553 at December 31, 1999. The Company will need to raise additional
financing over the next twelve months to continue development work and to pay
its general and administrative expenses.
During the first quarter of 2000, the Company received $107,250 from
the exercise of stock options under the 1999 stock option plan. The 1999 plan
currently has unexercised options for the purchase of 250,000 shares of its
common stock at an average exercise price of $.80 per share.
The Company's Board of Directors approved a stock option plan for the
year 2000 to authorize the issuance of options for the purchase of 2,500,000
shares of common stock. During the first quarter of 2000, the Company issued
options under the year 2000 plan for the purchase 1,350,000 share of its common
stock at an average exercise price of $2.59 per share.
There is a total of granted and unexercised outstanding options under
the 1999 and 2000 plans for the aggregate
<PAGE>
purchase of 1,600,000 shares of the Company's common stock at an average
exercise price of $2.31 per share. If all outstanding options are exercised
under both plans, of which there is no assurance, the Company would receive a
total of $3,700,000 of which $2,550,000 is exercisable by December 31, 2000 and
the remaining $1,150,000 by December 31, 2002. No assurances can be made as to
whether any of the options will be exercised.
On April 27, 2000, the Company's common shares began trading on the
Frankfurt Stock Exchange in Frankfurt, Germany under the symbol "919335."
The Company does not have any employees and uses consultants for
matters pertaining to coordinating technology development and administration.
The Company may hire employees during the next twelve months depending upon its
success in developing prototype applications for sale and financing more
development. This report contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, and Section 21E of the Exchange
Act of 1934. Although the Company believes that the expectations reflected in
the forward-looking statements and the assumptions upon which the
forward-looking statements are based are reasonable, it can give no assurance
that such expectations and assumptions will prove to be correct.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings against the Company and the Company is
unaware of any proceedings contemplated against it.
ITEM 2. CHANGES IN SECURITIES
The following information is given with respect to all unregistered
securities sold or issued by Rhombic in the period covered by this report:
(1) On January 20 , 2000, the Company issued 200,000 restricted shares
of its common stock to TPG Capital Corporation, the sole shareholder of Emerald
Acquisition Corporation, pursuant to an Agreement and Plan of Reorganization
between the Company and Emerald Acquisition Corporation in exchange for all the
outstanding shares of common stock of Emerald Acquisition Corporation. These
shares were issued by the Company pursuant to Rule 506, Regulation D of the
Securities Act of 1933.
(2) On January 31, 2000, the Company issued to Rosemary Roberts 100,000
restricted shares of its common stock at a deemed value of $281,250 in addition
to an option to purchase 50,000 shares of the Company's common stock at an
exercise price of $1.00 per share exercisable until December 31, 2000. Ms.
Roberts is the inventor of the Excimer Lamp and underlying technology. These
shares were issued by the Company pursuant to Section 4(2) of the Securities Act
of 1933.
(3) On February 2, 2000, the Company issued 75,000 restricted shares of
its common stock to Lawrence Adams Ltd. in consideration and reimbursement of
expenses for investor relations services in the United States. The deemed value
of the shares issued was $214,425 which was determined based upon the trading
value of the Company's common stock at the time of the issuance of the stock and
the agreement. These shares were issued by the Company pursuant to Section 4(2)
of the Securities Act of 1933.
(4) On February 8, 2000, the Company issued a total of 170,000 shares
for exercised stock options under the 1999 stock option plan. These shares were
issued by the Company pursuant to Section 4(2) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Item 10. Stock Option plan adopted by the Board of Directors
of the Company.
(b) Reports on Form 8-K
On January 21, 2000, the Company filed a Current Report on Form 8-K
reporting its acquisition of the outstanding shares of common stock of Emerald
Acquisition Corporation from the shareholder thereof in an exchange for an
aggregate of 200,000 restricted shares of common stock of the Company. No
audited financial statements were filed therewith.
On April 6, 2000, the Company filed an amended Current Report on Form
8-K/A that reported the same event and that included audited financial
statements for the Company.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RHOMBIC CORPORATION
By: /s/ William Larry Owen
----------------------
President
Dated: May 17, 2000
<PAGE>
RHOMBIC CORPORATION
2000 INCENTIVE AND NONSTATUTORY
STOCK OPTION PLAN
1. Purpose of Plan. The purpose of this year 2000 Incentive and Nonstatutory
Stock Option Plan are to attract and retain the best available personnel for
positions of substantial responsibility, to provide additional incentive to the
Employees, Directors and Consultants of Rhombic Corporation (the "Company") and
to promote the success of the Company's business. Options granted hereunder may
be either "incentive stock options," as defined in Section 422 of the Internal
Revenue Code of 1986, as amended, or "nonstatutory stock options," at the
discretion of the Board and as reflected in the terms of the written stock
option agreement.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company, or if a Committee
is appointed, "Board" shall refer to the Committee if the context so requires.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the common stock of the Company.
(d) "Company" shall mean Rhombic Corporation, a Nevada corporation.
(e) "Committee" shall mean the Committee appointed by the Board of Directors in
accordance with paragraph (a) of Section 4 of the Plan, if one is appointed, or
the Board if no committee is appointed.
(f) "Consultant" shall mean any person who is engaged by the Company or any
Subsidiary to render consulting services and is compensated for such consulting
services.
(g) "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of sick leave, military
leave, or any other leave of absence approved by the Board; provided that such
leave is for a period of not more than 90 days or reemployment upon the
expiration of such leave is guaranteed by contract or statute.
(h) "Employee" shall mean any person, including officers and directors, employed
by the Company or any Parent or Subsidiary of the Company.
(i) "Incentive Stock Option" shall mean an Option which is intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
which shall be clearly identified as such in the written Stock Option Agreement
provided by the Company to each Optionee granted an Incentive Stock Option under
the Plan.
<PAGE>
(j) "Non-Employee Director" shall mean a director who:
(i) Is not currently an officer (as defined in Section 16a-1(f) of the
Securities Exchange Act of 1934, as amended) of the Company or a Parent or
Subsidiary of the Company, or otherwise currently employed by the Company or a
Parent or Subsidiary of the Company;
(ii) Does not receive compensation, either directly or indirectly, from the
Company or a Parent or Subsidiary of the Company, for services rendered as a
Consultant or in any capacity other than as a director, except for an amount
that does not exceed the dollar amount for which disclosure would be required
pursuant to Item 404(a) of Regulation S-K adopted by the United States
Securities and Exchange Commission; and
(iii) Does not possess an interest in any other transaction for which disclosure
would be required pursuant to Item 404(a) of Regulation S-K adopted by the
United States Securities and Exchange Commission.
(k) "Nonstatutory Stock Option" shall mean an Option granted under this Plan
which does not qualify as an Incentive Stock Option and which shall be clearly
identified as such in the written Stock Option Agreement provided by the Company
to each Optionee granted a Nonstatutory Stock Option under this Plan. To the
extent that the aggregate fair market value of Optioned Stock to which Incentive
Stock Options granted under Options to an Employee are exercisable for the first
time during any calendar year (under the Plan and all plans of the Company or
any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as
Nonstatutory Stock Options under the Plan. The aggregate fair market value of
the Optioned Stock shall be determined as of the date of grant of each Option
and the determination of which Incentive Stock Options shall be treated as
qualified incentive stock options under Section 422 of the Code and which
Incentive Stock Options exercisable for the first time in a particular year in
excess of the $100,000 limitation shall be treated as Nonstatutory Stock Options
shall be determined based on the order in which such Options were granted in
accordance with Section 422(d) of the Code.
(l) "Option" shall mean an Incentive Stock Option, a Nonstatutory Stock Option
or both as identified in a written Stock Option Agreement representing such
stock option granted pursuant to the Plan.
(m) "Optioned Stock" shall mean the Common Stock subject to an Option.
(n) "Optionee" shall mean an Employee or other person who is granted an Option.
(o) "Parent" shall mean a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(p) "Plan" shall mean this 1997 Incentive and Nonstatutory Stock Option Plan.
<PAGE>
(q) "Share" shall mean a share of the Common Stock of the Company, as adjusted
in accordance with Section 11 of the Plan.
(r) "Stock Option Agreement" shall mean the agreement to be entered into between
the Company and each Optionee which shall set forth the terms and conditions of
each Option granted to each Optionee, including the number of Shares underlying
such Option and the exercise price of each Option granted to such Optionee under
such agreement.
(s) "Subsidiary" shall mean a "subsidiary corporation," whether now or hereafter
existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan.Subject to the provisions of Section 11 of the
Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 2,000,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock. If an Option should expire
or become unexercisable for any reason without having been exercised in full,
the unpurchased Shares which were subject thereto shall, unless the Plan shall
have been terminated, become available for future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.The Plan shall be administered by the Board or a Committee
appointed by the Board consisting of two or more Non-Employee Directors to
administer the Plan on behalf of the Board, subject to such terms and conditions
as the Board may prescribe. If the Company has a class of its equity securities
registered under the Securities Exchange Act of 1934, as amended ("1934 Act"),
the Board shall appoint such a Committee.
(i) Once appointed, the Committee shall continue to serve until otherwise
directed by the Board (which for purposes of this paragraph (a)(i) of this
Section 4 shall be the Board of Directors of the Company). From time to time the
Board may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies however caused, or remove all members of
the Committee and thereafter directly administer the Plan.
(ii) Members of the Board who are granted, or have been granted, Options may
vote on any matters affecting the administration of the Plan or the grant of any
Options pursuant to the Plan.
(b) Powers of the Board.Subject to the provisions of the Plan, the Board (or the
Committee, subject to the approval of the Board) shall have the authority, in
its discretion:
(i) To grant Incentive Stock Options, in accordance with Section 422 of the
Code, and Nonstatutory Stock Options or both as provided and identified in a
separate written Stock Option Agreement to each Optionee granted such Option or
Options under the Plan; provided however, that in no event shall an Incentive
Stock Option and a Nonstatutory Stock Option granted to any Optionee
<PAGE>
under a single Stock Option Agreement be subject to a "tandem" exercise
arrangement such that the exercise of one such Option affects the Optionee's
right to exercise the other Option granted under such Stock Option Agreement;
(ii) To determine, upon review of relevant information and in accordance with
Section 8(b) of the Plan, the fair market value of the Common Stock;
(iii) To determine the exercise price per Share of Options to be granted, which
exercise price shall be determined in accordance with Section 8(a) of the Plan;
(iv) To determine the Employees or other persons to whom, and the time or times
at which, Options shall be granted and the number of Shares to be represented by
each Option;
(v) To interpret the Plan;
(vi) To prescribe, amend and rescind rules and regulations relating to the Plan;
(vii) To determine the terms and provisions of each Option granted (which need
not be identical) and, with the consent of the holder thereof, modify or amend
each Option;
(viii) To accelerate or defer (with the consent of the Optionee) the exercise
date of any Option, consistent with the provisions of Section 7 of the Plan;
(ix) To authorize any person to execute on behalf of the Company any instrument
required to effectuate the grant of an Option previously granted by the Board;
and
(x) To make all other determinations deemed necessary or advisable for the
administration of the Plan.
(xi) To determine whether a holder of Nonstatutory Stock Options granted under
this Plan shall have engaged in conduct which is contrary to the best interests
of the Company and whose Nonstatutory Stock Option is therefore subject to
cancellation as set forth in Section 7.
(c) Effect of Board's Decision.All decisions, determinations and interpretations
of the Board shall be final and binding on all Optionees and any other
permissible holders of any Options granted under the Plan.
5. Eligibility.
(a) Persons Eligible. Options may be granted to any person selected by the
Board. Incentive Stock Options may be granted only to Employees. An Employee,
who is also a director of the Company, its Parent or a Subsidiary, shall be
treated as an Employee for purposes of this Section 5. An Employee or other
person who has been granted an Option may, if he is otherwise eligible, at the
discretion of the Committee, if a Committee has been appointed, or the Board, be
granted an
<PAGE>
additional Option or Options.
(b) No Effect on Relationship. The Plan shall not confer upon any Optionee any
right with respect to continuation of employment or other relationship with the
Company nor shall it interfere in any way with his right or the Company's right
to terminate his employment or other relationship at any time.
6. Term of Plan.The Plan became effective on the date first approved and adopted
by the Board of Directors, as set forth on the last page of this Plan. It shall
continue in effect for 10 years from the date of such approval and adoption,
unless sooner terminated under Section 13 of the Plan.
7. Term of Option.The term of each Option shall be ten years from the date of
grant thereof or such shorter term as may be provided in the Stock Option
Agreement. However, in the case of an Incentive Stock Option granted to an
Optionee who, at the time the Option is granted, owns stock representing more
than 10% of the total combined voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five years
from the date of grant thereof or such shorter time as may be provided in the
Stock Option Agreement.
The Nonstatutory Stock Options granted to, and held by, any person under this
Plan, may be deemed canceled and forfeited by the Board, if the Board, in its
sole discretion, determines that the conduct of the holder of such Nonstatutory
Stock Option has been contrary to the best interests of the Company and could
reasonably be deemed by the Board to have a material adverse effect on the
Company or the business of the Company.
8. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be no less than the fair market value of
Shares of common stock as of the date of grant of the option or such higher
price as may be determined by the Board, but the per Share exercise price under
an Incentive Stock Option shall be subject to the following:
(i) If granted to an Employee who, at the time of the grant of such Incentive
Stock Option, owns stock representing more than 10% of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the per Share
exercise price shall not be less than 110% of the fair market value per Share on
the date of grant.
(ii) If granted to any other Employee, the per Share exercise price shall not be
less than 100% of the fair market value per Share on the date of grant.
(b) Determination of Fair Market Value. The fair market value per Share on the
date of grant shall be determined as follows:
(i) If the Common Stock is listed on the New York Stock Exchange, the American
Stock
<PAGE>
Exchange or such other securities exchange designated by the Board, or admitted
to unlisted trading privileges on any such exchange, or if the Common Stock is
quoted on a National Association of Securities Dealers, Inc. system that reports
closing prices, the fair market value shall be the closing price of the Common
Stock as reported by such exchange or system on the day the fair market value is
to be determined, or if no such price is reported for such day, then the
determination of such closing price shall be as of the last immediately
preceding day on which the closing price is so reported;
(ii) If the Common Stock is not so listed or admitted to unlisted trading
privileges or so quoted, the fair market value shall be the average of the last
reported highest bid and the lowest asked prices quoted on the National
Association of Securities Dealers, Inc. Automated Quotations System or, if not
so quoted, then by the National Quotation Bureau, Inc. on the day the fair
market value is determined; or
(iii) If the Common Stock is not so listed or admitted to unlisted trading
privileges or so quoted, and bid and asked prices are not reported, the fair
market value shall be determined in such reasonable manner as may be prescribed
by the Board.
(c) Consideration and Method of Payment. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Board and may consist entirely of cash, check, other
shares of Common Stock having a fair market value on the date of exercise equal
to the aggregate exercise price of the Shares as to which said Option shall be
exercised, or any combination of such methods of payment, or such other
consideration and method of payment for the issuance of Shares to the extent
permitted under the Nevada Business Corporation Act.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder.Any Option granted hereunder
shall be exercisable at such times and under such conditions as determined by
the Board, including performance criteria with respect to the Company and/or the
Optionee, and as shall be permissible under the terms of the Plan.
In the sole discretion of the Board, at the time of the grant of an Option or
subsequent thereto but prior to the exercise of an Option, an Optionee may be
provided with the right to exchange, in a cashless transaction, all or part of
the Option for Common Stock of the Company on terms and conditions determined by
the Board.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such exercise
has been given to the Company in accordance with the terms of the Option by the
person entitled to exercise the Option and full payment for the Shares with
respect to which the Option is exercised has been received by
<PAGE>
the Company. Full payment, as authorized by the Board, may consist of a
consideration and method of payment allowable under Section 8(c) and this
Section 9(a) of the Plan. Until the issuance (as evidenced by the appropriate
entry on the books of the Company or of the duly authorized transfer agent of
the Company) of the stock certificate evidencing such Shares, no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the number of
Shares which thereafter may be available, both for purposes of the Plan and for
exercise under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Status as an Employee.In the case of an Incentive Stock
Option, if any Employee ceases to serve as an Employee, he may, but only within
such period of time not exceeding three months as is determined by the Board at
the time of grant of the Option, after the date he ceases to be an Employee of
the Company, exercise his Option to the extent that he was entitled to exercise
the Option at the date of such termination. To the extent that he was not
entitled to exercise the Option at the date of such termination, or if he does
not exercise any portion of the Option which he was entitled to exercise at the
date of termination within the time specified herein, the Option shall
terminate.
(c) Disability of Optionee.In the case of an Incentive Stock Option,
notwithstanding the provisions of Section 9(b) above, in the event an Employee
is unable to continue his employment with the Company as a result of his total
and permanent disability (as defined in Section 22(e)(3) of the Code), he may,
but only within such period of time not exceeding 12 months as is determined by
the Board at the time of grant of the Option from the date of termination,
exercise his Option to the extent he was entitled to exercise it at the date of
such termination. To the extent that he was not entitled to exercise the Option
at the date of termination, or if he does not exercise any portion of the Option
which he was entitled to exercise at the date of disability within the time
specified herein, the Option shall terminate.
(d) Death of Optionee.In the case of an Incentive Stock Option, in the event of
the death of the Optionee:
(i) During the term of the Option if the Optionee was at the time of his death
an Employee the Company and had been in Continuous Status as an Employee or
Consultant since the date of grant of the Option, the Option may be exercised,
at any time within 12 months following the date of death, by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent of the right to exercise that would have
accrued had the Optionee continued living and remained in Continuous Status as
an Employee 12 months after the date of death; or
<PAGE>
(ii) Within such period of time not exceeding three months as is determined by
the Board at the time of grant of the Option after the termination of Continuous
Status as an Employee, the Option may be exercised, at any time within 12 months
following the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of termination.
10. Transferability of Options.
In the case of an Incentive Stock Option, the Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner (a "sale or
other transfer") other than by will or by the laws of descent and distribution
and may be exercised, during the lifetime of the Optionee, only by the Optionee.
In the case of a nonstatutory stock option, an Option may be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner from the date
of grant and thereafter only (i) after written notice to the Board and (ii) in a
manner which is in compliance with all applicable provisions of the Securities
Act of 1933, as amended ("1933 Act") and the 1934 Act to the reasonable
satisfaction of the Company. Upon any permitted sale or other transfer, the
transferee shall remain subject to all terms and conditions of the Plan and the
Stock Option Agreement.
11. Adjustments Upon Changes in Capitalization or Merger.Subject to any required
action by the shareholders of the Company, the number of Shares covered by each
outstanding Option, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of any
Option, as well as the price per Share covered by each such outstanding Option,
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of Shares subject to an Option.
In the event of the proposed dissolution or liquidation of the Company, the
Option will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Board. The Board may, in the exercise
of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise his Option as to all or any part of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable. In the event
of the proposed sale of all or substantially all of the assets of the Company,
or the merger of the Company with or into another corporation in a transaction
in
<PAGE>
which the Company is not the survivor, the Option shall be assumed or an
equivalent option shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation, unless the Board determines, in the
exercise of its sole discretion and in lieu of such assumption or substitution,
that the Optionee shall have the right to exercise the Option as to all of the
Optioned Stock, including Shares as to which the Option would not otherwise be
exercisable. If the Board makes an Option fully exercisable in lieu of
assumption or substitution in the event of such a merger or sale of assets, the
Board shall notify the Optionee that the Option shall be fully exercisable for a
period of 30 days from the date of such notice, and the Option will terminate
upon the expiration of such period.
12. Time of Granting Options.The date of grant of an Option shall, for all
purposes, be the date on which the Board makes the determination granting such
Option. Notice of the determination shall be given to each Employee or other
person to whom an Option is so granted within a reasonable time after the date
of such grant. Within a reasonable time after the date of the grant of an
Option, the Company shall enter into and deliver to each Employee or other
person granted such Option a written Stock Option Agreement as provided in
Sections 2(r) and 16 hereof, setting forth the terms and conditions of such
Option and separately identifying the portion of the Option which is an
Incentive Stock Option and/or the portion of such Option which is a Nonstatutory
Stock Option.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate the Plan from
time to time in such respects as the Board may deem advisable; provided that,
the following revisions or amendments shall require approval of the shareholders
of the Company in the manner described in Section 17 of the Plan:
(i) An increase in the number of Shares subject to the Plan above 2,000,000
Shares, other than in connection with an adjustment under Section 11 of the
Plan;
(ii) Any change in the designation of the class of Employees eligible to be
granted Incentive Stock Options; or
(iii) Any material amendment under the Plan that would have to be approved by
the shareholders of the Company for the Board to continue to be able to grant
Incentive Stock Options under the Plan.
(b) Effect of Amendment or Termination. Any such amendment or termination of the
Plan shall not affect Options already granted and such Options shall remain in
full force and effect as if the Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to
the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the 1933 Act,
<PAGE>
the 1934 Act, the rules and regulations promulgated thereunder, applicable state
securities laws, and the requirements of any stock exchange upon which the
Shares may then be listed, and shall be further subject to the approval of legal
counsel for the Company with respect to such compliance.
As a condition to the existence of an Option, the Company may require the person
exercising such Option to represent and warrant at the time of any such exercise
that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares and such other representations and
warranties which in the opinion of legal counsel for the Company, are necessary
or appropriate to establish an exemption from the registration requirements
under applicable federal and state securities laws with respect to the
acquisition of such Shares.
15. Reservation of Shares. The Company, during the term of this Plan, will at
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. Inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's legal counsel to be necessary for the lawful issuance
and sale of any Share hereunder, shall relieve the Company of any liability
relating to the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
16. Option Agreement. Each Option granted to an Employee or other persons shall
be evidenced by a written Stock Option Agreement. The Stock Option Agreement
shall be in the form and shall include the terms and conditions set forth on
Exhibit A attached hereto.
17. Shareholder Approval. Continuance of the Plan shall be subject to approval
by the shareholders of the Company. Such shareholder approval and any
shareholder approval required under Section 13 of the Plan, may be obtained at a
duly held shareholders meeting by the affirmative vote of the holders of a
majority of the outstanding shares of the voting stock of the Company, who are
present or represented and entitled to vote thereon, or by unanimous written
consent of the shareholders in accordance with the provisions of the Nevada
Business Corporation Act.
18. Information to Optionees. The Company shall provide to each Optionee, during
the period for which such Optionee has one or more Options outstanding, copies
of all annual reports and other information which are provided to all
shareholders of the Company. The Company shall not be required to provide such
information if the issuance of Options under the Plan is limited to key
employees whose duties in connection with the Company assure their access to
equivalent information.
19. Gender. As used herein, the masculine, feminine and neuter genders shall be
deemed to include the others in all cases where they would so apply.
20. CHOICE OF LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS PLAN AND THE INSTRUMENTS EVIDENCING OPTIONS WILL BE
GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF
NEVADA.
<PAGE>
Adopted by Directors: Effective January 1, 2000
Rhombic Corporation
organized under the laws of Nevada
By
-----------------------------------
William L. Owen, President
ATTEST:
- --------------------------------------
Albert Golusin, Chief Financial Officer
